Jose Pallissery vs Additional Sales Tax Officer and Another

P.A. Mohammed, J.—The Petitioner is a registered dealer under the provisions of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as ''Act''). By Ext. P-1 notice the first Respondent, the Additional Sales Tax Officer had proposed to levy penalty of Rs. 4,000 u/s 45-A of the Act and the Petitioner was called upon to file objections, if any. The allegation was that certain interstate purchases made during the year 1982-83 under declaration forms were omitted in the accounts. Ext. P-2 is the objection wherein the Petitioner has totally denied the alleged transactions. Ext P-3 is the order passed by the first Respondent levying penalty as proposed. Being .aggrieved by the said order, a revision was filed as provided u/s 45-A(3). While confirming the order levying penalty the Deputy Commissioner reduced the penalty to Rs. 3,000 as per Ext. P-4. order Exts. P-3 and P-4 orders, are challenged in this Writ Petition.

The contentions of the Petitioner are two-fold. (1) The alleged interstate purchases having been totally denied the Petitioner is not liable to pay the penalty. (2) The Petitioner had not been granted an opportunity to cross-examine the dealers from whom the interstate purchases were allegedly made.

Explanation (I) to Section 45-A of the Act reads thus:

The burden of proving that any person is not liable. to the penalty under this section shall be on such person.

This Explanation came up for interpretation before the Division Bench of this Court in P.D. Sudhi v. Intelligence Officer (1992) 85 S.T.C. 337. While examining the constitutional validity of the provisions contained in Section 45-A of the Act, the Division Bench observed that the above ''Explanation'' is not happily worded. However the provision is upheld by it on the ground that there is no restriction on the power of the legislature either to provide presumptions of law or change of burden of proof. Then what is required is that such presumption or change of burden of proof shall hot be arbitrary or unreasonable. The presumption in the present case arising out of the availability of declaration forms at the check post cannot be said to be unreasonable. The following observation of the Division Bench is significant in this regard.

All that is necessary is that there should be some rational connection between the fact proved, and the ultimate fact presumed and the inference of one fact from proof of Anr. , fact, shall not be so unreasonable as to be purely arbitrary. There should be a rational connection between that is proved and what is permitted to be inferred there from. Similarly, there should be nexus or rational connection between the purpose of the legislation and change effected in the borden of proof.

(italics supplied)

In view of Explanation (I), interpreted by the Division Bench as above, it is difficult for the Petitioner to argue that onus probandi is on the first Respondent that he is liable for penalty u/s 45-A.

The basis for initiating action u/s 45-A is the declaration forms available at the check post and they are the documents retained there for allowing further transport of the vehicle with the goods. At least one officer has verified these documents at the check post. It is under Sub-rule (2) of Rule 35 of the Kerala General Sales Tax Rules. It is mandatory to produce the declaration when the vehicles enter or leave the State limit under Sub-section (2) of Section 29 and Sub-rule (2) of Rule 35. Under Sub-section (2) no person shall be allowed to transport within the State, across or beyond the notified area unless he is in possession of a declaration as prescribed under Sub-rule (2) of Rule 35 when the vehicle enters or leaves the State limit. The purpose of these provisions contained in Sub-section (2) of Section 29 and Sub-rule (2) of Rule 35 of the rules is to regulate the interstate trade and commerce and not to restrict tile same. Under Article 301, the reasonable, restrictions in the public interest are allowed to impose on the enjoyment of freedom in effecting trade and commerce throughout the territory of the country. That being the position, there is no doubt-that declaration forms retained at the check post are the documents in order to subserve public interest. Therefore the sanctity of such declarations cannot be minimised or its evidentiary value be eschewed on the strength of mere assertion by the Assessee that he has not made or produced declarations at the check post.

By reason of the Explanation, the burden, no doubt, is on the Assessee to prove that the alleged transactions of purchase are clandestine and that the declaration forms are not genuine. It can be said that the first Respondent assessing authority has discharged the initial burden by the reason of the availability of declaration forms which is sufficient enough to create presumption as to the clandestine transactions of purchase. Such presumption can be rebutted by the Assessee if he is able to succeed in "proving a preponderance of probability". The Supreme Court while dealing with discharge of burden u/s 105 of the Evidence Act Observed in State of U.P. Vs. Ram Swarup and Another, as below:

That is to say an accused may fail to establish affirmatively the existence of circumstances which would bring the case within a general exception and yet the facts and circumstances proved by him while discharging the burden u/s 105 of the Evidence Act may be enough to cast a reasonable doubt on the case of the prosecution, in which event he would be entitled to an acquittal. The burden which rests on the accused to prove the exception is not of the same rigour as the burden of the prosecution to prove the charge beyond a reasonable doubt. It is enough for the accused to show, as in a civil case, that the preponderance of probabilities is in favour of his plea.

In Shri Rabindra Kumar Dey Vs. State of Orissa, , the Supreme Court further observed:

It is true that u/s 105 of the Evidence Act the onus of proving exceptions mentioned in the Indian Penal Code lies on the accused, but this section does not at all indicate the nature and standard of proof required. The Evidence Act does pot contemplate that the accused should prove his case with the same strictness and rigour as the prosecution is required to prove a criminal charge. In fact, from the cardinal principles referred to above, it follows that, it is sufficient if the accused is able to prove his case by the standard of preponderance of probabilities as envisaged by Section 5 of the Evidence Act as a result of which he succeeds not because he proves his case to the hilt but because probability of the version given by him throws doubt on the prosecution case and, therefore, the prosecution cannot be said to have established the charge beyond reasonable doubt. In other words, the mode of proof, by standard of benefit of doubt, is not applicable to the accused, where he is called upon to prove his case or to prove the exceptions of the Indian Penal Code on which he seeks to rely.

Nevertheless the Petitioner did not come forward to prove his case by pointing out preponderance of probabilities. Further no circumstances which would create doubt as to the allegations made by the assessing authority had been proved. Mere filing'' of an objection raising certain assertions without any proof will not be sufficient in law.

The allegations against the Petitioner as contained in Ext. P-1 notice read thus:

The Assessee deals in rice and jaggery and the accounts for the year 1982-83 were called for and cross-verified with details of interstate purchases Evidenced from check post declarations available on record and the following omissions were noted.

Bill number Name of seller Items and Value

and date quantity

* Rs.

1337, dated G. Mani Gounder Rice 18,620

30-10-1982 Paddy and Rice Mer 133 bags

chant, Sreekarthikeya

Rice Mill, Attur *

1338, dated do. Rice 18,620

30-10-1982 133 bags

4, dated M.K. Traders, Jaggery 5,000

29-10-1982 Dharimapuri 100 bags.

38, dated do. Jaggery 7,200

23-12-1982 120 bags

112, dated do. Jaggery 8,400

2-1-1983 140 bags

By note accounting the purchases, the dealer has sought to evade tax legitimately due to Government It is therefore proposed to impose a penalty of Rs. 4,000 as provided u/s 45-A of the K.G.S.T.Act.

The main objection raised by the Petitioner in Ext. P-2 against the proposal to levy penalty is this:

A mere declaration in check post does not connect us with the concerned purchase bill. If the party delivers in any Shape the goods, as per bills, there will be a receipt for receiving such goods and will be with the party who sold, the consignment. If they are not in a position to produce that we are in no way connected with the transaction. In this case I felt that this is the mischief played by the party who filed declaration for illicit transaction.

The Petitioner did not make any attempt t6 prove the above plea in a legally accepted manner. From the nature of the aforesaid allegations and objections thereto what was required to be done by the Petitioner for producing the proof in that behalf was to cross-examine the dealers from whom the purchases were allegedly made by him. It would, therefore, be necessary to examine whether the Petitioner was entitled to have this opportunity during the enquiry, under Sub-section (2) of Section 45-A conducted by the assessing authority, and whether he had availed of such opportunity, if available.

Sub-section (2) of Section 45-A reads thus:

No order under Sub-section (1) shall be passed unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter.

By virtue of the provisions contained in the Sub-section, there is a total prohibition of imposing penalty on a person under Sub-section (1) even if the authority concerned is satisfied that such person has committed any one of the defaults mentioned in Clauses (a) to (g) thereof, unless such person is given an opportunity of being heard in the matter. In sum and substance this provision embodies the rule of ''audi alteram partem'' recognised in Cooper v. The Board of Works for the Wandsworth District (1863) 14 C.B. (N.S.) 180. This rule may be explained as a "right to a hearing" but this also includes a right to be informed of the case one is to meet at the hearing. The Supreme Court has observed in Sangram Singh Vs. Election Tribunal, Kotah, Bhurey Lal Baya, that laws of procedure are grounded on a principle of natural justice which requires that men should not be condemned unheard.

The provision contained in Section 45-A is a complete code in itself inasmuch as both substantive and procedural matters regarding the levy of penalty are inscribed therein. It being a penal provision, the proceedings are quasi-criminal in nature and hence strict adherence to the procedure is called for before imposing penalty. That necessarily invites the ascertainment of width and amplitude of opportunity of being heard'' contained in Sub-section (2). The issue of show cause notice and the call to file objections thereto will not satisfy the aforesaid requirement. If it ends with that the provision will remain, as an. empty formality. The filing of the objections, the production of documents, filing of affidavits, examination of witnesses including the cross-examination of third parties, etc., will definitely come within the requirement. In the case of assessment under best of judgment, similar opportunity has been provided under Sub-section (3) of Section 17. What is provided therein is that the dealer shall be given a reasonable ''opportunity of being heard'' before taking action for assessment under best of judgment. The ambit , and scope of "opportunity of being heard", contained in both these provisions can be said to be similar.

While dealing with the nature of the enquiries under the Income Tax Act, the Supreme Court in C. Vasantial and Co. v. Commissioner of Income tax, Bombay City (1962) 15 ITR 206 observed:

There is nothing on the record to show that the Income Tax Officer, had not disclosed to the Assessees the material he had collected by examining Achaldas and Poonamchand. In any event, the Appellate Assistant Commissioner in the interest of justice and fair play gave the Assessees an opportunity to cross-examine these two persons. The Income Tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the Assessee must be informed of the material and must be given an adequate opportunity of explaining it.

C.A. Vaidialingam, J. of this Court (as he then was) in M. Appukutty Vs. State of Kerala and Another, which arose under the Travancore-Cochin Sales Tax Act, 1125 observed:

The fact that some third party maintaining, even according to the department, some secret accounts has made certain entries in his accounts which may connect a person like the Petitioner, by itself will not give jurisdiction to the assessing authority to utilise that information, unless that person has been given ample opportunity in the presence of the person who has kept the secret accounts to effectively cross-examine him and. elicit the necessary facts as to how exactly the relevant entires came to be made connecting the Petitioner with such books of account.

This decision was followed by M.U. Isaac, J. in V.S. Narayanan Nair Vs. Sales Tax Officer, and it was held that an assessment cannot be based on the entries found in the books of account of a third party without giving to the Assessee an opportunity of cross-examining that party with reference to those books if so required and that this is a requirement of natural justice. The decisions in M. Appukutty Vs. State of Kerala and Another, and V.S. Narayanan Nair Vs. Sales Tax Officer, came up for consideration before the Division Bench in K.T. Shaduli Vs. State of Kerala, . There the Division Bench held:

Generally it is for the Assessee to decide the kind of evidence he has to adduce to disprove the materials collected against him by the Sales Tax Officer. The assessing authority need not produce the witnesses for cross-examination even without a request for the same from the Assessee. The law is settled that when a Sales Tax Officer holds an enquiry and makes an assessment, though he is not a court, he should proceed in a judicial manner and come to a judicial conclusion upon the facts in accordance with the terms of Section 17(3) of the Act and according to the principles of natural justice.

In the appeal by the State, while affirming the decision in K.T. Shaduli Vs. State of Kerala, , Bhagwati, J. in State of Kerala v. K.T. Shaduli Yusuff (1977) 39 S.T.C. 478 speaking for the bench observed thus:

The usual mode recognised by law for proving a fact is by production of evidence, which includes oral evidence of witnesses. The opportunity to prove the correctness or completeness of the return would, therefore, necessarily carry with it the right to examine witnesses and that would include equally the right to cross-examine witnesses examined by the Sales Tax Officer.

The Supreme Court also approved the decision in M. Appukutty Vs. State of Kerala and Another, Fazal Ali, J. in his concurring judgment in State of Kerala Vs. K.T. Shaduli Yusuff etc., observed thus:

The High Court in the present appeals has relied tin its earlier decision in Appukutty v. State of Kerala, where a Single Judge of the Kerala, High Court pointed out that the fact that a third party maintaining some secret accounts had made certain entries in his accounts which may connect the Assessee will not give jurisdiction to the assessing authority to use that information unless the Assessee has been given an opportunity to cross-examine him effectively. As no such opportunity was given, the Court held that the proceedings stood vitiated. In our opinion, the decision of the Kerala High Court was substantially correct and in consonance with the language of Section 17(3) and the proviso thereto.

The question regarding the cross-examination of third parties again came up for consideration before the Full Bench of this Court in the case of M.K. Thomas Vs. State of Kerala, . After examining the facts of the case, the Full Bench came to the conclusion that the Assessee was not entitled to demand right of cross-examination of a particular person as part of reasonable opportunity u/s 17(3) or under rules of natural justice. The facts involved in the above case reveal that the best of judgment assessment was u/s 17(3) was passed on the basis of certain statements recorded from one Pappachan. When the officer issued two revised pre-assessment notices the Assessee did not make any request to summon Pappachan for cross-examination though he had filed objections to the notices. It was in that background that the Full Bench observed that the Assessee was not entitled to an opportunity for cross-examination of Pappachan. That does not mean, the Full Bench had totally disapproved the right of cross-examination. Only that right is made depended on the terms of the statute, the nature of the proceedings or of the function exercised the conduct of the party and the circumstances of the case.

The decision of the Supreme Court in State of Kerala Vs. K.T. Shaduli Yusuff etc., as explained by the Full Bench Off this Court in M.K. Thomas Vs. State of Kerala, does not make the Assessee disentitled to demand cross-examination of the witnesses or third parties whose account books, statements etc., are relied on for the purpose of assessment u/s 17(3) or levy of penalty u/s 45-A. The consideration of such a request cannot be denied if it is not made in the reply to the pre-assessment notice or to the proposal to levy penalty. The Assessee can demand such opportunity before the relevant enquiry is being completed by the authority concerned.

As far as the present case is concerned, no request was made by the Assessee in the reply to the notice proposing to levy penalty u/s 45A for an opportunity to cross-examine the dealers whose names were specifically mentioned in Ext. P-1 notice. No such demand was made till the finalisation of the penalty proceedings as per Ext. P-3. The first Respondent has stated in Ext. P-3 that the Assessee has not made any request for cross-examination of the seller of the goods. In that situation, the contention of the Petitioner is only to be rejected.

No argument is advanced in relation to the quantum of penalty fixed by the Respondents. The Deputy Commissioner has reduced the penalty to Rs. 3,000 in order to meet the ends of justice. The quantum of penalty levied is reasonable and rational and hence it is upheld. Further the Assessee has not exhausted the remedy as against Ext. P-4 order by way of revision before the Board of Revenue. The impugned orders are well within the jurisdiction'' of the authorities concerned. Under these circumstances Exts. P-3 and P-4 are not liable to be set aside. The writ petition is dismissed. No order as to costs.