IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 14TH OCTOBER 2009 / 22ND ASWINA 1931 ST.Appl..No. 12 of 2008() ------------------------- AGAINST THE ORDER NO.R1.39373/2005/TX of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT -------------------- M/S. NATIONAL SPICES, CHENGAL, KALADY, ERNAKULAM DISTRICT, REPRESENTED BY ITS MANAGING PARTNER. BY ADV. SRI.K.JAJU BABU SMT.M.U.VIJAYALAKSHMI SRI.BRIJESH MOHAN SRI.T.R.SADEESAN SRI.T.S.SHYAM PRASANTH RESPONDENT(S): --------------- STATE OF KERALA, REPRESENTED BY ITS SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVT.SECRETARIAT, TRIVANDRUM. BY G.P. SRI.MOHAMMED RAFIQ THIS SALES TAX APPEAL HAVING BEEN FINALLY HEARD ON 14/10/2009, ALONG WITH STA NO.13 OF 2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. .................................................................... S.T. Appeal Nos.12 & 13 of 2008 .................................................................... Dated this the 14th day of October, 2009. JUDGMENT Ramachandran Nair, J. The appeals filed under Section 40 of the KGST Act are against suo moto revisional orders issued by the Commissioner under Section 37 of the KGST Act restoring penalty levied on appellant by cancelling the order of the first revisional authority for the assessment years 1999- 2000 and 2000-2001. We have heard counsel appearing for the appellant and Government Pleader for the respondent. 2. The appellant was a trader in spices. During search, the department found that the appellant was in possession of Bank Pass Books and signed Cheque Books of one of the employees. When enquiry was conducted, it was noticed that amounts shown in the account of the employee were actually profits derived in business by the appellant and consequently penalty was levied for evasion of sales tax. Even though the Deputy Commissioner cancelled the penalty orders, the Commissioner vacated the same in suo moto proceedings 2 for the reason that such orders were unsustainable. The contention of the counsel is essentially one of violation of natural justice in the proceeding which led to penalty. In the first place, counsel contended that appellant was not given opportunity to cross-examine the employees concerned. However, Government Pleader submitted that no cross-examination is required in this case because the document seized from the appellant clearly prove beyond doubt unaccounted transactions done in the name of the employee. We are in agreement with this argument because appellant has not been able to explain under what circumstances the signed blank Cheques and Pass Books pertaining to the account operated by one of the employees was found in the house of the appellant. The department also found that as a small time employee in a trading firm, the concerned employee does not have the resources to deposit such huge amounts in his Bank Account. We are of the view that the documents recovered clearly establish beyond doubt unaccounted business dealings of the appellant in the name of one of his employees. Therefore, in principle we uphold the order of the Commissioner. There is no violation of natural justice in this case because department has not relied on any statement from employee or 3 evidence furnished by him for levying penalty against the appellant. On the other hand, reliance is solely on the document seized from the appellant and appellant could not establish under what circumstances he happened to be the custodian of signed blank Cheque Books and Pass Books pertaining to the Bank Account of his employee. Blank signed Cheque Book is retained by the appellant only to withdraw moneys lying in the Account of the employee without his knowing when and what amount would be withdrawn from the Account. The appellant has not brought the employee with any satisfactory explanation to the defence of the appellant about source of funds for deposit in the Bank. In the circumstances, we are of the view that evidence relied on sufficiently establish unaccounted business by the appellant and siphoning off profit to the Bank Account of the employee. In the circumstances, we uphold the order of the Commissioner in principle confirming penalty on the appellant. However, counsel for the appellant submitted that appellant went into bad days and has closed business. We feel leniency in quantum of penalty can be granted provided appellant has paid assessed tax on the suppressed turnover for two years i.e. 1999-2000 and 2000-2001 and 4 interest under Section 23(3A) of the KGST Act on such tax liability. There is no record to prove the same and therefore, we direct the Intelligence Officer to verify tax payments made by the appellant pertaining to the assessed suppressed turnover and if full tax assessed along with interest under Section 23(3A) stands paid, then there will be direction to the Intelligence Officer to reduce penalty to equal amount of tax as against double the amount sustained by the Commissioner. However, if the appellant has not paid the tax and interest as above, then the full amount of penalty will stand confirmed. If the appellant has settled liability under amnesty scheme, then the matter should be treated as concluded. In other words, amounts paid under amnesty scheme need not be modified based on this judgment. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms