Venkateshwara Hatcheries Private Limited vs The Commissioner of Commercial Taxes

K. Vinod Chandran, J.—The petitioner was aggrieved with the detention of the intra-state transports made of "day old chicks" and demand of security deposit at the rates prescribed in Exts. P1 & P3 issued by the Commissioner, Commercial Taxes under Section 3 of the Kerala Value Added Tax Act, 2003 (for short, ''KVAT Act'').

The petitioner contends that the petitioner is engaged in the business of hatchery from where ''day old chicks'' are transported for sale to farmers. The petitioner also is paying tax on the sale effected. However, on detention, the petitioner was directed to remit security deposit on the ground that there is undervaluation. According to the department Exts. P1 & P3 circulars prescribe the floor-rate for chicken and ''day old chicks'' and hence payment of advance tax is necessary for such transportation. The invoices having not disclosed the value at the floor-rate, made applicable by the Commissioner, undervaluation was alleged and security deposit was demanded on the estimation made as per the floor-rate specified by the Commissioner by circular.

The learned Special Government Pleader (Taxes), contend that for evasion prone commodities, to plug tax evasion; floor-rate has been prescribed. The Commissioner is entitled to prescribe such floor-rates as has been upheld in Kmp Timbers and Saw Mills Vs. Commercial Tax Inspector and Another, . The learned Special Government Pleader also would contend that the sale by the petitioner''s are to unregistered dealers whose resultant turnover would not be taxed for reason of the same being lesser than the registrable turnover. This according to the State is an exercise in evasion which needs to be thwarted.

Primarily, Exts. P1 and P3 circulars, prescribe rates for payment of advance tax, with respect to interstate transport (inter-state purchase), preventing any evasion of tax where the goods brought into the State are first sold within the State. The floor-rate fixed by the Commissioner definitely cannot decide the sale price which is to be taken for assessment purposes as has been held in M/s. U.K. Monu Timbers, Kottacherry, Kanhangad, Kasaragod District Vs. State of Kerala .

One other aspect which has to be emphasised is that a detention of goods under Section 47 is for the purpose of adjudicating upon, any evasion attempted and to decide on the imposition of penalty. The demand of security deposit is also for adjusting it towards the penalty imposed. What is attempted by the notices at Exts. P4 & P5 is to ferret out evasion, on the basis of the floor-rate fixed by the Commissioner, on the ground of undervaluation. This goes against the dictum laid down in U.K. Monu Timbers (supra):

"The circular is only for the purpose of collecting tax in advance and cannot be considered as an unassailable document of universal application with respect to the price at which the goods are to be sold".

The floor-rate prescribed in Ext. P1 is for live chicken and chicken meat. ''Day old chicks'' are indicated in Ext. P3. The same would be applicable only for the import into the State especially since the prescription is for the purpose of Section 47(16A) of the KVAT Act. Sub-section 16A speaks of advance tax with respect to the anticipated sale. That takes in inter-state purchases made by the dealers within the State intended for further sale. The transport is in pursuance of purchase and the sale is yet to take place. The intra-state transactions detained by Exts. P4 & P5 are in pursuance to a tax suffered sale and transport is an incidence of such sale; wherein there is no warrant for advance payment of tax.

In such circumstance, this Court is not convinced that the detention made as per the notices impugned hereunder are proper, especially since the security deposit demanded is based on the circular prescribing the floor-rate. If defects are noticed, definitely transport could be detained and security deposit demanded only on the invoice rate and not on the floor-rate fixed by the Commissioner.

In such circumstances, the writ petition is disposed of, declaring that the transport of ''day old chicks'' cannot be detained only on the question of undervaluation, with reference to the floor-rate fixed by the Commissioner, and even if detained for other defaults no security deposit can be demanded on the basis of such floor-rate fixed by the Commissioner. Such exercise would lead to arrogating, by the detaining officer; the powers of the assessing officer.

The writ petition is disposed of, with the above declaration.