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Judgment
S.V. Bhatti, J
Heard Advocate R.Ramdas and Special Government Pleader C.E. Unnikrishnan for the parties.
M/S. Chembra Peak Estates Ltd., Muttil, Wayanad, represented by its Executive Director is the revision petitioner in these two Other Tax Revision
cases. O.T. Rev. No.66 of 2016 concerns assessment year 2011-12 and O.T.Rev. No.67 of 2016 concerns assessment year 2012-13. The subject
matter and the conclusions arrived at by the authorities are substantially same and similar in these two revisions. Hence, the revisions are taken up
together and disposed of by this common judgment.
The petitioner is a Registered Dealer under KVAT Act, 2003 [for short 'the Act'] and mainly doing business of coffee, pepper, cardamom, etc. The
petitioner in the instant revision petitions challenges the inclusion/addition of coffee husk in the total turnover of petitioner in the respective assessment
years; levy of 35% of out-turn as husk quantity; Rs.2/- per kilogram of coffee husk on the determined and further inclusion of 10% for the omissions
or suppressions by the dealer in maintenance of record or production of records, registers etc, before the authorities. The petitioner is finally called
upon to pay Rs.1,98,830/- towards balance of tax payable for the assessment year 2011-12 and Rs.2,27,903/- for the assessment year 2012-13.
The dates and events in O.T. Rev. No.66 of 2016 are considered for disposing of both O.T. Rev. cases and stated thus: The Commercial Tax
Officer, Kalpetta issued pre- assessment notice under Section 25(1) of the Act dated 24.09.2013 to the petitioner. The show cause notice called upon
the dealer to show cause why the consignment of dried cherry and hulled coffee transferred to the head office of the dealer situated at Bangalore and
sold in Coffee Board Auction Centre, Bangalore, be subjected to separate assessment under CST Act. It is convenient to note at this juncture that the
separate orders made by the assessing officer against the transfer of goods and the sale of dried cherry and hulled coffee at Bangalore are not the
subject matter of the present revision cases.
4.1 The pre-assessment notice states that “similarly it is ascertained that though the dealer dealt the sale of the commodity AS hulled cherry, the
sales turnover of husk has not been taken in consideration. Hence this turnover is Arrived to 35% of the overall quantity And the value is taken AS
Rs.2/- per kg. Since the dealer had not filed the quantitative statement, the sales value is estimated at (4% of total turnover, Rs.1,74,51,875/- +
Rs.33,35,400/-) i.e., Rs.8,31,500/-â€.
The notice records that the dealer is not maintaining Production Register, Crop Register and not filed the quantitative statement as stipulated by Form
13 and 13A. Therefore, the assessing officer proposed to levy additional tax for other defects and probable omissions and suppressions assumed in this
behalf.
4.2 The dealer submitted reply dated 08.10.2013, received by the assessing officer on 09.10.2013. The reply relevant for our purpose is to the effect
that the husk obtained in hulling coffee seed is not sold by the dealer, but the coffee husk is used as compost manure at their, i.e., dealer's, own estate
and hence its value should not be included in turnover or assessed as sale. It is also replied that there has not been any data or evidence for the
assessing officer to conclude that the dealer has sold husk and hence addition on the count of sale of husk is not warranted or justified. It is further
contended in the reply that in the absence of material, i.e., on omissions or suppressions, it is incorrect to assume that omission or suppression has
taken place and there is any justification for the assessing officer for adding 20% amounting to Rs.8,33,380/- to the total turnover and impose tax on
the added heads as well. The assessing officer by receiving the reply on 09.10.2013 passed Annexure ""A"" order on same day determining the balance
tax payable by the dealer as Rs.1,98,830/-. The dealer questioned the inclusion of husk in the total turnover and inclusion of 20% on the total turnover
for alleged omissions and suppressions before the Assistant Commissioner (Appeals), Kozhikode and through Annexure B dated 20.10.2014 the
revision was summarily dismissed. The dealer filed Tax Appeal before the Kerala Value Added Tax/agrl. Income Tax and Sales Tax Appellate
Tribunal, Additional Bench, Kozhikode and the Tribunal through the order in Annexure ""C"" has confirmed the inclusion of sale of husk in the turnover,
the quantitative inclusion, and the rate at which the husk has to be valued and levy and demand of tax on the said addition but modified the 20%
included towards omission and suppression to 10%. Hence, the O.T.Revision cases by the dealer.
Advocate R. Ramdas challenges the order in Annexure ""A"" primarily on two grounds, namely, that the order in Annexure ""A"" is in complete
violation of principles of natural justice; is contrary to the procedural safeguard provided to the dealer by Section 25(1) of the Act and that the order
since is made without conducting enquiry into the disputed fact scenario viz., whether the husk generated by the hulling of coffee by the dealer is used
as captive consumption as compost manure or as assumed by the assessing officer sold and warrants inclusion in the total turnover. To emphasize that
order in Annexure ""A"" is a mechanical or pre-determined order, he draws our attention to the date of reply as 08.10.2013 and received by the
assessing officer on 09.10.2013, and order of assessment is made on 09.10.2013. Therefore, according to him, no enquiry of any sort was conducted
and inclusion of sale of coffee husk in the turnover of the dealer is illegal, arbitrary, violative of principles of natural justice, and liable to be set aside.
He relies on the judgments reported in Suzion Infrastructure Service Ltd. v. Commercial Tax Officer 2010 (3) KHC 299, Johnson & Johnson Ltd. v.
Assistant Commissioner (Assessment) 2011 (2) KHC 506, and also unreported judgment in Shamon K.S. v. State of Kerala Judgment dated
9.10.2015 in W.P.(C) No.30189/2015 and Circular No. 27/2015 dated 11.11.2015 for the proposition that the assessing officer is obligated, after
receiving the reply, to conduct enquiry, afford opportunity to dealer and pass the order as deemed fit. He further argues that the orders impugned in
the revision petitions in normal circumstances though can be interdicted as violative of statutory requirement; contrary to the dictum laid down by
decisions referred supra warranting fresh consideration by the assessing officer, but having regard to the peculiar facts and circumstances of the case,
the tenor of pre-assessment notice and that the assessment order are ipse dixit, none of the ingredients required for attracting the tax obligation under
the Act has been made out, the orders in Annexure ""A"" and as modified by Annexure ""C"" are liable to be set aside. Therefore, on merits as well, the
order in Annexure ""A"" is liable to be interdicted and set aside by this Court. According to him, the show cause notice refers to ascertained that
though the dealer dealt with the sale of the commodity as hulled coffee, the sales turnover of husk has not been taken into consideration. It is
the case of petitioner that the sale of coffee husk has not occasioned during the subject assessment years. The sale of coffee husk did not take place,
there is no obligation for the dealer to include the coffee husk in the turnover of the dealer. There is no omission in including such turnover, and no
ground for adding to the turnover. According to him, the reply of dealer was that the coffee husk generated by the dealer was used as compost
manure in the plantation owned by the dealer. In other words, it is captive consumption of a residue coming out of drying the cherry and getting hulled
coffee. The assessing officer is well within his jurisdiction, if the assessing officer has reason or record to believe or some evidence to support that the
sale of coffee husk is demonstrated by any of the methods provided viz. seizure, audit, vigilance report etc.
 Lastly it is argued that consumption of coffee husk by the dealer has been accepted by the Department for the preceding years, as well as
subsequent years to the subject assessment years. Singularly, for the first time sale of coffee husk is assumed as sale without material and included in
the total turnover of the assessee and thereafter tax is demanded. The inclusion of 20% for these omissions and suppressions is consequent to the
assumption drawn by the assessing officer in respect of the alleged sale of coffee husk and therefore the assessee is not legally under obligation to
pay any amount by way of tax for the alleged sale of husk and that the inclusion of 20% in the turnover is illegal, arbitrary, and liable to be set aside.
Special Government Pleader C.E.Unnikrishnan argues that the findings recorded by the assessing officer are self explanatory, sufficient reasoning
is present and there cannot be an objection for inclusion of sale of coffee husk in the turnover of the dealer. It is next contended that the appellate
authority and the Tribunal have independently considered the grounds raised by the dealer and have found that the inclusion of sale of coffee husk in
the turnover of the dealer is warranted for the subject assessment years. Therefore, the demand of tax is based upon finding of facts recorded by all
the three authorities and no ground is made out warranting interference of this Court under Section 63 of Act. In reply to the argument of violation of
principles of natural justice it is submitted that the view taken by this Court is to the effect that the assessing officer, after issuing pre-assessment
notice, receipt of reply, conducts enquiry and passes assessment order. In the case on hand, the order in Annexure ""A"" no doubt does not refer to any
enquiry having been conducted by the assessing officer. According to him, the assessing officer is under obligation to conduct enquiry, if specifically
requested by the dealer in this behalf. Therefore, according to him, as there is no material to show that a request for enquiry was made and not
accorded by the assessing officer, hence, the order in Annexure-A is legal.
Having considered the record and contentions of the learned Advocates appearing for the parties, we notice that pre- assessment notice was issued
on 24.09.2013, reply dated 08.10.2013 was received on 09.10.2013 by the assessing officer and on 09.10.2013 order in Annexure-A was made by the
assessing officer. Reference to these three dates is made to demonstrate that the Commercial Tax Officer just by receiving the reply on 09.10.2013
has made the order in Annexure-A. Apparently, order in Annexure-A is not preceded by enquiry of any sort. Without referring to all the judgments on
which reference is made by the petitioner, for convenience, we refer to the judgment in Suzion Infrastructure Service Ltd., paragraphs 10 to 12, which
read thus:
“10. The requirement of issuing notice on the dealer as stipulated under Section 25(1) of the KVAT Act is the 'pre- requisite' to enable the
assessing authority to proceed to determine the tax to the best of its judgment. On receipt of the notice, the assessee is at liberty to explain the position
and if the explanation is satisfactory, the assessing authority may not proceed further and the matter may be closed. If the explanation is not
satisfactory, then the question comes, as to the necessity to pass an assessment under sub section (1) of Section 25. It is at this juncture, the statute
mandates that the dealer shall be given a reasonable opportunity of being heard before making an assessment under the above sub section. This being
the position, the primary question to be considered is whether the explanation offered in response to the notice is satisfactory or not. Otherwise, the
very purpose of the 'proviso' as to the right to be heard is rather otiose/meaningless.
If the assessee chooses to appear before the concerned respondent on the last day or on the penultimate day specified for filing objections, the
party is still having the right to be heard. Similarly, the date and time chosen by the assessee may not be suitable or convenient to the dealing authority;
who may not be available or otherwise engaged in connection with other priority works. Equally important is to note that the assessee can't be made to
wait right from the morning till evening; which may lead to quite adverse and arbitrary consequences. Clarity shall loom large, over
obscurity/vagueness.
In view of the above observations, this Court finds that the stipulation in Ext.P1 notice, that the party was at liberty to have hearing on any date,
within the time stipulated for submitting the statement of objections, is not enough to meet the requirement under the 'first proviso' to Section 25(1). It
is made clear that, after receipt of the objection/reply to the show-cause notice, the respondent is duty bound to give an effective opportunity of
hearing, as to the pleadings brought on record, so as to sustain the contentions; mentioning the date, time and place of hearing in crystal-clear terms.â€
 The principle laid down by this Court in Suzion Infrastructure Service Ltd has been considered by this Court in other reported decisions on which
the petitioner is relying upon. In our considered view, the order in Annexure-A is vitiated for not holding enquiry, illegal and is liable to be set aside.
The next argument of Advocate Ramdas is that the pre-assessment notice dated 24.09.2013 states that “similarly it is ascertained that though
the dealer dealt with the sale of the commodity as hulled cherry, the sales turnover of husk has not been taken into consideration. Hence this turnover
is arrived at 35% of the overall quantity and the value is taken as Rs.2/- per kg. The dealer since had not filed the quantitative statement and sales
value is estimated at 4% of total turnover. i.e., Rs.8,31,500/-. From the pre-assessment notice it can, therefore, be taken note of the fact that the
assessing officer after accepting the reply of dealer that the dealer is taking dried cherry and hulled coffee to Tata Coffee at Kushal Nagar, arrives at
the conclusion that coffee husk generated is not accounted for, thereafter curing and processing the coffee seeds the coffee seeds are sold in the
Coffee Board Auction Centre, Bangalore. From the two stages of activity referred to above, the assessing officer refers to an ascertained fact that
coffee husk is generated from the two stages of activity undertaken by the dealer within the jurisdiction and the sale of coffee husk is not included in
the turnover. The reply of dealer is that the coffee husk generated from the hulled coffee is used by the dealer as compost manure at the estate of the
dealer. Therefore, the value cannot be included in the turnover and that the value of coffee husk should not be treated as sale by the Department. It is
specifically stated in the reply of dealer dated 08.10.2013 that the Department in the absence of data or evidence to conclude that the sale of coffee
husk has taken place, cannot propose to add the said consumption in the turnover of the dealer. In the background of the definite allegation in pre-
assessment notice and the reply of dealer, what is to be examined is whether the notice contains any other information than the assumed assertion of
the assessment officer that the coffee husk is not only generated in the hulling activity of the dealer, but also coffee husk has been transferred or sold
to a third party thereby warranting the necessity to include such sales in the turnover of the dealer. The pre-assessment notice assumes that as sale of
hulled and cured coffee has taken place, the dealer generated coffee husk and the coffee husk was sold by the dealer. The dealer is not disputing its
obligation to pay tax, if coffee husk has been sold by the dealer. On the other hand, the reply of the dealer is that the coffee husk generated from
hulling activity is used as compost manure by the dealer at the dealer's estate. There is no prohibition in law on a dealer for using a residuary item
coming out of primary activity for captive consumption or self utilization like compost manure in this case. The captive consumption or self utilization
cannot be brought within the fold of a legal liability of the dealer under the Act. We are constrained to observe as above, for, the assessment order
does not decide whether self consumption stated by the dealer is tenable or not. At the same time, it is not recorded that the Department has material
to substantiate that the self consumption of coffee husk is a mere explanation without substance. We hasten to add that the assessing officer, if has
some material to show that the dealer, in fact, has sold coffee husk and the Department has evidence thereof; that the dealer by choice has not
included the said sales in the turnover, then a case is made out for including the coffee husk in the turnover of the dealer. The assumption that coffee
husk is generated as coffee seed are sold, coffee husk could also be sold and that the dealer is liable to pay tax thereon, is illegal and unsustainable.
The orders in Annexures 'A' to 'C' do not consider the issue on the lines discussed above and certainly are based on assumption of sale of coffee husk
by the dealer. The liability under the Act arises only in the manner and mode the dealer comes under obligation to pay tax, but not otherwise. The
generation of residue such as coffee husk and sale or transfer of goods in any manner contemplated by the Act, certainly attract the incidence of tax,
but not as noted above, i.e., generation and self consumption. Being an indirect tax, the dealer, for self consumption of coffee husk, is not obligated to
include in turnover or pay VAT. The Department certainly failed in establishing that in the case on hand, the coffee husk is not consumed for self, but
was sold by the dealer. The Tribunal, while examining this aspect, calls upon the dealer to prove that the dealer has not sold the coffee husk. The fact
that concurrent findings are recorded is not reason to list the legal contention with fundamental principles involved in indirect taxation, and the findings
when examined in this perspective fail to convince this Court.
From the material on record, we are of the view that the proposed inclusion of coffee husk in the turnover of dealer for the subject assessment
years is unsustainable and illegal and the dealer has produced the account registers for which the assessing officer proposes to passing separate order
under CST Act. There cannot be two standards one for the purpose of determining coffee husk and another for the purpose of making assessment
under CST by referring to the same books. Therefore, the omission or suppression noted is an ancillary circumstance following the main allegation in
non-disclosure of coffee husk. For the above reasons, we are of the view that the order in Annexure ""A"" as modified by the order of Tribunal are
liable to be set aside and accordingly set aside.
O.T. Rev. Nos. 66 and 67 of 2016 are allowed. No order as to Costs.