St. Michael''s Oil Mills vs State of Kerala

K.S. Paripoornan, J.—The petitioner is an assessee to sales tax. We are concerned with the assessment year 1977-78. The business premises of the petitioner was inspected on 29th March, 1978. Excess stock of 4,130 kgs. of copra was found. So also, an excess stock of 317 kgs. of coconut oil was found. The total value of the unaccounted stock was fixed at Rs. 32,080. Proceedings u/s 28(8) of the Kerala General Sales Tax Act were initiated. The first respondent levied a penalty of Rs. 16,040 being 50 per cent of the value of the unaccounted stock. This is evidenced by exhibit P2 order dated 31st August, 1978. In revision, the Deputy Commissioner of Agricultural Income Tax and Sales Tax fixed the value of the unaccounted stock at Rs. 28,910 and on that basis limited the penalty to a sum of Rs. 14,455. In further revision, the Board of Revenue, by exhibit P5 order dated 1st April, 1980, affirmed the decision of the Deputy Commissioner. At the same time, the Board of Revenue initiated suo motu proceedings and by a separate order dated 1st April, 1980, passed u/s 37 of the Kerala General Sales Tax Act, cancelled the order passed by the Deputy Commissioner dated 30th July, 1979 and restored the penalty levied by the Intelligence Officer, evidenced by exhibit P2 dated 31st August, 1978. In this original petition, the challenge is against exhibit P2 order passed by the Intelligence Officer, exhibit P3 order passed in revision by the Deputy Commissioner and exhibit P5 order passed by the Board of Revenue, refusing to interfere with exhibit P3. The order passed by the Board of Revenue in revision, dated 1st April, 1980, setting aside the order of the Deputy Commissioner dated 30th July, 1979 and restoring the order of the Intelligence Officer, evidenced by exhibit P2, is challenged in appeal, M.F.A. No. 318 of 1980.

We heard counsel for the petitioner in O.P. No. 2323 of 1980 and the appellant in M.F.A. No. 318 of 1980, Mr. Jose Joseph, as also the learned Government Pleader, who appeared for the respondents. It was contended that there was no proper physical weighment of the stock at the time of inspection. The Deputy Commissioner, on a perusal of the records of inspection, held that the stock was physically weighed and recorded and Shri K.V. John, Managing Partner, was also present at the time of inspection. This finding of fact was affirmed in revision by the Board of Revenue. So, in proceedings under Article 226 of the Constitution, it is not open to the petitioner to contend that there was no physical verification of the stock of oil, which is necessary to arrive at the penalty leviable u/s 28(8) of the Act. We repel the contention of the petitioner/appellant to the contrary.

Counsel for the petitioner/appellant vehemently contended that in passing exhibit P2 order the Intelligence Officer did not apply his mind at all. It was argued that the total excess quantity of copra and oil were valued at Rs. 32,080 and the first respondent mechanically levied the maximum penalty of Rs. 16,040. There was no application of the mind in levying the maximum penalty. The Board of Revenue, by order dated 1st April, 1980, has restored the said order, though the Deputy Commissioner interfered with exhibit P2 order in exhibit P3 proceedings. Since there is no application of the mind, exhibit P2 is illegal and infirm. The order of the Board of Revenue is also vitiated in restoring the said proceedings.

We see force in the said plea. The first respondent-Intelligence Officer is a quasi-judicial authority. Penalty proceeding is a quasi-criminal proceeding in character. In imposing the penalty u/s 28(8) of the Act, the officer has to act judicially. He should act fairly and in accordance with the principles of natural justice. He is duty bound to apply his mind to the facts of the case. He cannot act arbitrarily or mechanically. The section states that the maximum penalty leviable is 50 per cent of the value of the unaccounted stock. The language employed in Section 28(8) of the Act itself shows that the levy of penalty is permissive and not compulsive. The officer should exercise his discretion and apply his mind to the facts of each case. He should be first of all satisfied that penalty is exigible. Even so, he has to further apply his mind judicially and fix the quantum of penalty to be imposed. There are thus two different stages of aspects in the matter. The mere fact that Section 28(8) of the Act permits the levy of 50 per cent of the value of the unaccounted stock as penalty, does not mean that the officer can and should impose 50 per cent of the value of the unaccounted stock as penalty in all cases. It depends upon the facts and circumstances of each case, as to whether penalty is exigible, and if so, what is the quantum of penalty that should be levied.

The order levying the penalty should show or it should be at least discernible from the records, that both the distinct or different aspects, were borne in mind in levying the penalty. Admittedly, the first respondent has not at all borne the above principles in mind in levying the maximum penalty of 50 per cent of the value of the excess stock in this case. There is no proper discussion or finding on the different aspects discussed above. Exhibit P2 order is infirm. The restoration of the said order by the Board of Revenue, by proceedings dated 1st April, 1980, is equally infirm. In this connection, counsel for the petitioner/appellant referred to us the decision of a learned Judge of this Court in O. Paramasivan v. State of Kerala 1971 Tax LR 1241. Issac, J., after adverting to the facts of the case and Section 10A of the Central Sales Tax Act, observed as follows:

The quantum of the penalty must depend on the gravity of the offence, which in turn depends on the attending facts and circumstances. The case before me is certainly not one for imposition of the maximum penalty. Nor has the Sales Tax Officer considered it to be so.

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A reading of the impugned orders would show that the Sales Tax Officer acted mechanically on a misconception that he was bound to impose the maximum penalty u/s 10A in every case, and that he has no discretion in that matter. The quantum of punishment is a thing to be determined in exercise of the judicial discretion vested in the authority under the above section. It follows that the Sales Tax Officer has acted in violation of the law in imposing the maximum penalty on the petitioner.

We concur with the said observation. It is also appropriate to note that the said observations were approved by a Bench of this Court in Marikar (Motors) Ltd. v. Sales Tax Officer ILR (1973) Ker 204.

In the light of the above, we quash exhibits P2, P3 and P5 orders in O.P. No. 2323 of 1980. We also set aside the order of the Board of Revenue dated 1st April, 1980, which is appealed against in M.F.A. No. 318 of 1980.

The original petition and the miscellaneous first appeal are disposed of as above.