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Judgment
These two writ petitions are filed by the respective petitioners, seeking to challenge the imposition of penalties under the provisions of the Kerala General Sales Tax Act, 1963 (for short ‘the KGST Act’), as well as the Kerala Value Added Tax Act, 2003 (for short ‘the KVAT Act’).
For ease of reference, the facts as borne out of W.P(C) No.7947 of 2023 are noticed, as under:-
One K.A.Alavi had obtained registration under the provisions of the KGST Act and later under the KVAT Act from the Office of the Commercial Tax Officer, Manjeri. He had also carried out various transactions, on the basis of which returns were also filed. However, some proceedings were initiated, on the basis of some information gathered to the effect that Alavi was only a name lender with respect to the business transactions for the respective petitioners in these cases. On the basis of the afore allegation, originally penalty under the KGST Act and KVAT Act were imposed on the respective petitioners. The petitioners herein had challenged the said levy of penalty by filing writ petitions before this Court. The writ petition filed by the petitioner in this writ petition (W.P(C) No.4124 of 2009) is disposed of by a learned Single Judge of this Court by Ext.P9 judgment dated 14.03.2016. This Court took note of the contention raised by the petitioner in that writ petition that the penalty has been imposed in gross violation of the principles laid down by the Division Bench of this Court in U.K.Monu v. State of Kerala [2012 (3) KHC 111]. This Court also noticed the contention raised by the petitioner that he was not granted an opportunity to cross-examine the witnesses whose statements were obtained by the department. On that basis, the imposition of penalties was set aside, directing the officer to consider the matter afresh, specifically in the light of the principles laid down in U.K.Monu (supra).
It is on the basis of directions issued as above that the 1st respondent herein has imposed penalty for the years 2003-04 and 2004-05 under the provisions of Section 45A of the KGST Act, as evidenced by Exts.P1 and P2 orders. Penalty is also levied for the period 2005-06 under the provisions of Section 67 of the KVAT Act, as evidenced by Ext.P3 order. It is seeking to challenge the afore three penalty orders that the petitioner has filed the captioned writ petition.
W.P(C) No.15156 of 2023 is also instituted by the petitioner therein, seeking to challenge the imposition of penalty for the very same periods as regards the very same transactions.
I have heard, Sri.P.Raghunathan, the learned counsel for the petitioners, as well as Smt.Harima Hariharan, the learned Government Pleader for the respondents.
Sri.Raghunathan, the learned counsel for the petitioners, would submit that the imposition of penalties cannot be sustained for more than one reason. According to him, the imposition of penalties without carrying out an assessment cannot be sustained, as held by a learned Single Judge of this Court in DLF Southern Town Pvt. Ltd. (M/s.) and Another v. State Tax Officer (Investigation Branch) and Others [2019 (5) KHC 219]. He also sought to rely on the provisions of Section 19C of the KGST Act and Section 26 of the KVAT Act, as well as the principles laid down by a Division Bench of this Court in Finimole v. Assistant Commissioner [2008 (3) KLT 794], wherein the Division Bench held that unless and until the mandate under the provisions of the afore sections are incorporated with specific reference to facts, in the impugned orders, the assessment cannot be sustained. He would also seek to rely on the judgment of another Division Bench in U.K.Monu (supra) to state that there cannot be any estimation with respect to the imposition of penalty, and if at all, the department could only proceed to complete the assessments under the provisions of the statute. He would also state that the proceedings are barred by limitation with reference to the provisions of Rule 58(20) of the Kerala Value Added Tax Rules, 2005 (for short “the Rules”), with reference to the principles laid down by a learned Single Judge of this Court in MCP Enterprises (M/s.) and Others v. State of Kerala and Others [2020 (1) KHC 127].
Smt.Harima, on the other hand, would seek to rely on the inspection carried out in the premises of the registered dealer (Alavi) to state that at the time of inspection, the person who was found there was none other than the driver of one of the petitioners (N. Ibrahim). Therefore, according to her, the requirement for imposing penalties with reference to the protective assessments has been satisfied in the present cases.
I have considered the rival contentions as well as the connected records.
Straight away, this Court would notice the contention raised by Sri.Raghunathan, that the proceedings are barred by limitation. True, the provisions of Rule 58(20) of the Rules only require an assessee to maintain the records for the period prescribed thereunder. But in my opinion, insofar as the proceedings are being initiated with reference to a protective assessment, strictly speaking, the period of limitation for completion of the assessment under the regular provisions of the statute would not apply. Therefore, I am of the opinion that the limitation cannot be taken as a ground for assailing the imposition of penalties in these cases.
Even on the face of the afore finding, I am of the opinion that the imposition of penalties in these cases requires to be set aside for more than one reason.
Firstly, this Court notices that the provisions of Section 19C of the KGST Act and Section 26 of the KVAT Act provide for initiation of assessment proceedings only in a situation where the department has a case that the person who is being proceeded against has actually carried out transactions in the name of the registered person. In other words, the impugned orders should contain findings to the afore effect. The Division Bench of this Court in Finimole (supra) has considered this very same aspect, with reference to the provisions of Section 26 of the KVAT Act, holding as under:
“11....... In view of the language used in Section 26 of the Act, the legal position is beyond dispute, that the assessing authority must have some rational basis to form the belief that the petitioner was carrying on the business in the name of or in association with any other person either directly or indirectly, whether as an agent, employee etc. This should be reflected in the order passed under Section 26 of the Act. The non-compliance of the same would be fatal to the proceedings. In a case of this nature, in our opinion, in the absence of specific finding to the effect that the petitioner was either directly or indirectly was carrying on with the business with any other person, the orders passed by the assessing authority cannot be sustained by the Court. In our opinion, the order passed by the assessing authority is contrary to the statutory provisions and also contrary to the well established principles of law. ......” (Underlining supplied)
In the light of the afore principles, there cannot be any doubt that, so as to sustain a proceeding against a person pursuant to a protective assessment, the department has to show that the mandate under the provisions has been specifically satisfied in the case in question. However, on a reading of the impugned orders, this Court notices that apart from the allegation to the effect that Sri.Alavi was the benami of the respective petitioners; there is no allegation in the orders to the effect that the petitioners herein have actually carried out business in the name of Alavi.
In view of the afore, I am of the opinion that the invocation of the provisions of Section 19C of the KGST Act and Section 26 of the KVAT Act for imposing penalties under Section 45A of the KGST Act and Section 67 of the KVAT Act, respectively, cannot be sustained.
Secondly, this Court notices that in the first round of litigation, the petitioner had specifically pointed out that there cannot be any estimation of the turnover so as to quantify the penalty, with reference to the principles laid down by the Division Bench in U.K.Monu (supra). Taking note of the afore contention, in the first round of litigation, this Court has specifically directed the respondents herein to consider the afore aspects while passing the fresh orders. True, in the impugned orders, reference has been made to the judgment of the learned Single Judge remitting the matter for fresh consideration. However, in the impugned orders, the penalty has been imposed by making reference to the alleged purchases effected by Alavi and making 25% addition towards gross profit. This is beyond the scope of Section 67 of the Act, as has been specifically found by the Division Bench in U.K.Monu (supra).
It is in the afore circumstances that the contention raised by Sri. Raghunathan, that without carrying out an assessment under the provisions of the Act, the penalty cannot be imposed, requires to be analysed. I am of the opinion that insofar as the department is proposing to complete the assessment against the petitioner, as is evident from the estimation of the turnover for the purpose of imposition of penalty, if at all the department could proceed, that can only be with reference to the provisions of Section 17(3) read with Section 45A of the KGST Act and Section 25(1) read with Section 67 of the KVAT Act.
At this juncture, it is necessary to notice that the department seeks to proceed against the petitioners herein who are not the registered dealer, seeking to assess the business carried on by the registered dealer. Therefore, an appropriate enquiry as to whether the registered person was a name lender alone needs to be carried out. This requires to be effected by the assessing authority of the registered dealer [Alavi in this case], from whose office registration was obtained/issued. It is not within the domain of the authority under the provisions of Sections 45A/67 of the KGST/KVAT Act to consider the larger issue, as he is only entitled to decide as to whether there was any evasion of tax. Here, even though there may have been an evasion, that requires to be considered after a proper enquiry by the assessing authority under the Statute. In DLF Southern Town Pvt. Ltd. (supra), a learned Single Judge of this Court has also considered this aspect regarding the powers of the assessing authority versus the intelligence wing, holding as under:-
“10.As regards penalty orders that are impugned in W. P. (C) No. 7122/2019, W. P. (C) No. 9073/2019 and W. P. (C) No. 19762/2019, as already noticed, the said orders have been passed against the petitioners on almost identical grounds as informed the assessment orders that have been set aside in this judgment. Apart from the reasons given in this judgment for setting aside the assessment orders, I also find force in the submission of the learned senior counsel relying on the decisions of this Court in U.K. Monu Timbers case and Flipkart (supra) that it was improper on the part of the Intelligence Officer to pass orders of penalty in matters such as these, where, it was only pursuant to an assessment proceedings that the issue of possible evasion of tax by an assessee could be determined. As noticed in the aforesaid judgments, it is not in the domain of an Intelligence Officer adjudicating a penalty proceedings to embark upon a roving enquiry and thereafter estimate the tax payable by the assessee for the purposes of quantifying a penalty on the said assessee. If such a course of action is permitted, then it would lead to an undesirable situation where, the authority entrusted with imposition of penalty usurps the powers accorded under the fiscal statute to the Assessing Authority, and a possibility of divergent views being taken in relation to an assessee by two Officers of the same Department. In my view, in cases where there is an uncertainty with regard to the real nature of the transaction, as also where there are factors that may have a bearing on the estimation of turnover, which are to be considered by the Assessing Authority, the Intelligence Officers ought ideally to refer the matter to the Assessing Authorities concerned to arrive at a finding with regard to liability to tax, as well as estimation of turnover, before invoking the penal provisions of the KVAT Act. The Intelligence Officers ought not to be overzealous in their efforts to impose penalty on assessees even before the Assessing Authority has had an opportunity to determine the tax that is payable by the assessees. I therefore quash the impugned orders in W. P. (C) No. 7122/2019, W. P. (C) No. 9073/2019 and W. P. (C) No. 19762/2019, and direct the Intelligence Officer concerned to await the orders to be passed by the Assessing Authority, for the assessment years in question, and thereafter initiate penal proceedings against the petitioners, if found necessary.”
Therefore, applying the afore principles, in these cases also, it is for the jurisdictional authority to consider the issue, and not for the intelligence wing.
In view of the afore, I am of the opinion that the impugned imposition of penalties in these cases requires to be set aside.
Therefore, these writ petitions would stand disposed of as under:-
Exts.P1, P2, and P3 in both writ petitions would stand set aside.
The authorities, under the provisions of the KGST Act and KVAT Act, would be entitled to proceed against the respective petitioners, if so advised, with reference to the provisions of the afore Statutes, for completion of assessments.
APPENDIX OF WP(C) NO. 7947 OF 2023
PETITIONER’S EXHIBITS
EXHIBIT-P-1 PHOTOCOPY OF PENALTY ORDER U/S 45A DT.23.11.2022 FOR 2003-04.
EXHIBIT-P-2 PHOTOCOPY OF PENALTY ORDER U/S 45A DT.23.11.2022 FOR 2004-05.
EXHIBIT-P-3 PHOTOCOPY OF PENALTY ORDER U/S 67(1) DT.23.11.2022 FOR 2005-06.
EXHIBIT-P-4 PHOTOCOPY OF STATEMENT OF SRI ALAVI DT. 06.03.2007 ALONG WITH MALAYALAM TYPED DOCUMENT.
EXHIBIT-P-5 PHOTOCOPY OF NOTARISED AFFIDAVIT BY SRI ALAVI DT.07.03.2007.
EXHIBIT-P-6 PHOTOCOPY OF REPLY TO PROPOSAL NOTICE BY SRI ALAVI DT. 18.06.2007.
EXHIBIT-P-7 PHOTOCOPY OF NOTARISED AFFIDAVIT BY SRI ALAVI DT. 17.04.2007.
EXHIBIT-P-8 PHOTOCOPY OF STATEMENT GIVEN DURING CROSS EXAMINATION BY SRI ALAVI ALONG WITH MALAYALAM TYPED DOCUMENT DT.26.07.2007.
EXHIBIT-P-9 PHOTOCOPY OF JUDGMENT DT. 14.03.2016 IN WPC NO. 4124/2009.
EXHIBIT-P-10 PHOTOCOPY OF JUDGMENT DT. 10.10.2019 IN WPC NO. 26802/2019.
EXHIBIT-P-11 PHOTOCOPY OF STATEMENT GIVEN DURING CROSS EXAMINATION BY M/S. GUJARAT GUARDIAN LIMITED DT.28.01.2020.
EXHIBIT-P-12 PHOTOCOPY OF STATEMENT GIVEN DURING CROSS EXAMINATION BY M/S. SAINT GOBIN INDIA PVT LTD DT.22.01.2020.
EXHIBIT-P-13 PHOTOCOPY OF STATEMENT GIVEN DURING CROSS EXAMINATION BY M/S. ASAHI INDIA GLASS LTD 31.12.2019.
EXHIBIT-P-14 PHOTOCOPY OF STATEMENT GIVEN DURING CROSS EXAMINATION BY M/S. TRIVENI GLASS LTD DT.02.12.2019.
EXHIBIT-P-15 PHOTOCOPY OF CONCLUDING SUBMISSION FILED ON 18.01.2022.
APPENDIX OF WP(C) NO. 15156 OF 2023
PETITIONER’S EXHIBITS:
EXHIBIT -P-1 PHOTOCOPY OF PENALTY ORDER U/S 45A DT. 23.11.2022 FOR 2004-05.
EXHIBIT-P-2 PHOTOCOPY OF PENALTY ORDER U/S 45A DT. 23.11.2022 FOR 2004-05.
EXHIBIT-P-3 PHOTOCOPY OF PENALTY ORDER U/S 67(1) DT. 23.11.2022 FOR 2005-06.
EXHIBIT-P-4 PHOTOCOPY OF INTERIM ORDER DT. 27.03.2023 IN WPC NO. 7947/2023.
EXHIBIT-P-5 PHOTOCOPY OF INTERIM ORDER DT. 03.04.2023 IN WPC NO.7947/2023.
EXHIBIT- P-6 PHOTOCOPY OF STATEMENT OF SRI ALAVI DT.06.03.2007 ALONG WITH MALAYALAM TYPED DOCUMENT.
EXHIBIT-P-7 PHOTOCOPY OF NOTARISED AFFIDAVIT DT. 07.03.2007 BY SRI ALAVI.
EXHIBIT-P-8 PHOTOCOPY OF REPLY TO PROPOSAL NOTICE DATED 18.06.2007 BY SRI ALAVI.
EXHIBIT-P-9 PHOTOCOPY OF NOTARISED AFFIDAVIT DT.17.04.2007 BY SRI ALAVI.
EXHIBIT-P-10 PHOTOCOPY OF STATEMENT GIVEN DURING CROSS EXAMINATION BY SRI ALAVI DATED 26.07.2007.
EXHIBIT-P-11 PHOTOCOPY OF JUDGEMENT DT.14.03.2016 IN WPC NO. 4124/2009.
EXHIBIT-P-12 PHOTOCOPY OF JUDGEMENT DT. 10.10.2019 IN WPC NO.26802/2019,
EXHIBIT P-13 PHOTOCOPY OF INTERIM ORDER IN WPC NO. 7947/2023 DT. 21.03.2023