IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN FRIDAY, THE 29TH AUGUST 2008 / 7TH BHADRA 1930 WP(C).No. 32677 of 2004(M) -------------------------- PETITIONER: ------------------- AKAY FLAVOURS & AROMATICS LIMITED NALLANIKUNNU, ELAVUMTHITTA P.O., PATHANAMTHITTA-689 625, REPRESENTED BY ITS MG.DIRECTOR, DR. BALU P. MALIAKEL. BY ADV. SRI.JOSEPH MARKOSE (SR.) SRI.MITHUN MARKOS RESPONDENTS: --------------------- 1. THE SALES TAX OFFICER, COMMERCIAL TAXES, PATHANAMTHITTA. 2. COMMISSIONER OF COMMERCIAL TAXES, TRIVANDRUM. BY GOVERNMENT PLEADER SRI MATHEW VADAKKEL FOR R1 & 2 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 29/08/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C).NO.32677/2004 APPENDIX PETITIONER'S EXTS: EXT.P1 TRUE COPY OF LETTER OF PERMISSION DTD. 16/12/93 OF THE MINISTRY OF INDUSTRY. EXT.P2 TRUE COPY OF THE 100% EOU GREEN CARD ISSUED BY THE DEVELOPMENT COMMISSIONER, CEPZ. EXT.P3 TRUE COPY OF LETTER DTD.23/3/2001 OF THE DEVELOPMENT COMMISSIONER, CEPZ. EXT.P4 TRUE COPY OF ASSESSMENT ORDER DTD. 3/3/2003 FOR 1998-1999. EXT.P5 TRUE COPY OF ASSESSMENT ORDER DTD.3/3/2003 FOR 1999-2000. EXT.P6 TRUE COPY OF COMMON ORDER DTD. 30/7/2004 OF THE SALES TAX APPELLATE TRIBUNAL, THIRUVANANTHAPURAM. EXT.P7 TRUE COPY OF PENALTY ORDER DTD. 3/3/2003 OF THE IST RESPONDENT. EXT.P8 TRUE COPY OF ORDER DTD. 22/9/2003 OF THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES, PATHANAMTHITTA. EXT.P9 TRUE COPY OF ORDER DTD. 11/8/2004 OF THE 2ND RESPONDENT. P.R.RAMAN, J. --------------------------- W.P.(C).NO.32677 OF 2004 ---------------------------- DATED THIS THE 29TH DAY OF AUGUST,2008 JUDGMENT Petitioner is an assessee under the Kerala General Sales Tax Act. He challenges Exts.P7 to P9 penalty orders interalia contending that they are without jurisdiction, unconstitutional, arbitrary, illegal and passed without application of mind by the authorities. Petitioner established a manufacturing unit, which is 100% Export Oriented Unit (EOU). After obtaining necessary permission from the Government of India, according to him, he started commercial production from 1/10/1995. Petitioner claimed exemption for a period of 5 years from the date of commercial production and on the basis that he is entitled for such exemption for a period of five years from the date of commercial production. At the time of purchase of materials, he issued certificate in the prescribed form to the dealers from them he purchased the goods based on which the dealers were not liable to pay any purchase tax -2- W.P.(C).No.32677/2004 under Section 5A. The authorities took the view that the tax exemption is available based on which the petitioner should have issued such certificate only for a period of five years from the date of approval of the unit by the Government of India. According to him, the date of approval is 16/12/1993 and the five years' period will be over on 15/12/1998. But admittedly certificates were issued even beyond that period and for the assessment years 1998-99 and 1999-2000 such certificates issued by him were found to be with a view to evade of payment of tax and thus he was imposed penalty under Section 45A of the Act. Revision filed before the higher authorities however was not successful. Hence this writ petition. 2. According to the petitioner, assessments were completed accepting his contention that he is liable to be exempted for a period of five years from the date of commercial production. Though the assessments were revised subsequently, ultimately the Tribunal accepted the contention of the petitioner in the assessment proceedings that he is entitled for exemption -3- W.P.(C).No.32677/2004 for a period of five years from the date of commercial production and to hold otherwise to defeat the object of notification for granting exemption. 3.The question that arises for consideration is as to whether the penalty imposed on the petitioner as sustained by the revisional order is in any way illegal and is liable to be set aside. Ext.P1 is a letter dated 16/12/1993 issued by the Government of India with reference to the petitioner's application dated 29/10/1993, which shows that the petitioner is extended all facilities and privileges admissible under the 100% Export Oriented Scheme for the establishment of a new undertaking at Nallanikkunnu, Muttathukonam, Pathamanthitta in the State of Kerala for the manufacture of essential oils, Oleoresins and Curcumin of various annual capacities. The above permission however was subject to certain conditions stipulated in the Annexure to the letter of permission granted as also the other conditions mentioned in paragraph 2 of the said letter. As per paragraph 4, the letter of permission is valid for 3 years from the -4- W.P.(C).No.32677/2004 date of issue, within which the petitioner should implement the project and commence commercial production and since he started commercial production, intimation is to be sent to the Administrative Ministry Departments concerned under intimation to Ministry of Commerce and the Development Commissioner concerned. Evidently, this is a letter of permission granted prior to the starting of commercial production. Later, by Ext.P2(2) dated 27/10/1994 approval has been granted under the Special Scheme of the Government of India as a 100% Export Oriented Scheme and that the unit is entitled to top priority treatment from all concerned and Central and State Governments. This is subsequently renewed on the expiry of the five years' period by Ext.P2 dated 28/10/1999. On a reading of Ext.P2 and P3, it could be seen that approval normally granted for a period of five years is liable to be extended thereafter on a similar term. Now I may refer to the notification SRO.1727/93 as per which exemptions were granted in respect of tax to goods/persons/institutions under Section 10 of the K.G.S.T. Act. -5- W.P.(C).No.32677/2004 As per Clause 5 of Part I, exemption is granted in respect of tax payable under the Act, by dealers on their turnover of sale of goods mentioned in column 2 of Schedule VI to industrial undertaking/manufacturers mentioned therein and by industrial undertakings/manufacturers on their turnover of purchase of goods mentioned in column (2) of the said Schedule subject to the conditions, if any, specified in column (3) thereof, against each. Item No.8 of Schedule VI of the said notification reads as follows: --------------------------------------------------------------------------------------------------------- Sl. Name of goods and the name of Industrial Conditions No. undertakings/manufacturers to which such goods are sold/by which such goods purchased. ---------------------------------------------------------------------------------------------------------- (1) (2 ) ( 3) ---------------------------------------------------------------------------------------------------------- 8. Industrial raw-materials, plant and 1. The exemption shall be for a machinery (including components), period of five years from the spare parts, tools and [Consumables, date of approval of such units other than petroleum products falling by the Central Government. under item 97 of the First Schedule to the Kerala General Sales Tax Act, 2. The seller shall obtain and in relation thereto to 100% export produce a certificate in the oriented Units for use in the manufacture Form in Annexure-1. of goods. -6- W.P.(C).No.32677/2004 4.From the condition stipulated above it could be seen that exemption is for a period of five years from the date of approval of such units by the Central Government. The whole controversy in this case therefore centers round the question as to what is the date of approval of the units by the Central Government. As far as Ext.P1 is concerned, the period of five years will expire by 15/12/1998. If the date of approval is taken as on 27/10/1994 (vide Ext.P2), the five years period will expire by 26/10/1999. Nowhere it is stated that the exemption is for a period of five years from the date of commercial production. But the Authorities held that five years period is to be commenced from the date of approval, the date of Ext.P1 namely, 16/12/1993 must be reckoned as the date from which the exemption period starts. Hence, no certificate could have been issued by the petitioner, after the expiry of five years period reckoned from 16/12/1993. It is in that view of the matter that the Authorities found that the petitioner has sought to evade payment of tax and imposed penalty under Section 45 A of the K.G.S.T. Act. -7- W.P.(C).No.32677/2004 5. Incidentally, it was pointed out by the learned counsel for the petitioner that the same view taken by the Assessing Authority was rejected by the Tribunal in its final order accepting the contention of the petitioner that five years period is to be reckoned from the date of commercial production as otherwise it will defeat the very object of the notification for granting exemption. 6. Heard both sides. 7. It is now settled that the penalty proceedings and the assessment proceedings are different and that the assessment proceedings taken by the authorities concerned cannot be binding on the authorities while imposing penalty. Therefore, it has to be considered whether the view as expressed in the order passed by the authorities for imposing penalty is correct in law. In this connection it has to be stated that the notification granting exemption as is referred to above not only exempts industrial raw-materials but also plant and machinery including components, spare parts, tools etc. Therefore to say that the -8- W.P.(C).No.32677/2004 exemption starts from the date of commercial production only. Otherwise it will defeat the object of the notification, which does not appear to be correct, since in order to get exemption for plant and machinery including components, spare parts, tools etc., necessarily the purchase would have been effected prior to the commercial production, because it is towards the establishment of the unit that the plant and machinery and other tools are purchased. Therefore, if it is held that the period should be reckoned from the date of commercial production then the purchase of machinery, plant etc. made for establishing the unit prior to the starting of the commercial production will not be entitled for any exemption and thus it will defeat the object of the notification. Therefore, the reason that commercial production should be the starting point for calculating the period of five years as otherwise it will defeat the object of the notification cannot be accepted as correct. But the word ''approval'' is specifically used only in Ext.P2(2) dated 27/10/1994 and not in Ext.P1 and therefore there is every possibility of a doubt being -9- W.P.(C).No.32677/2004 raised as to whether the period of five years should be calculated from Ext.P1 or from Ext.P2(2) as the case may be. Admittedly, even the Assessing authorities have accepted the contention of the petitioner and granted him relief and that they revised the assessment on re-consideration of the matter. On the assessment side the revised assessments were set aside by the Tribunal accepting the contention of the petitioner. Therefore, it is obvious that two views are possible. If so, taking the view and thinking that the assessee is entitled for exemption, the period of which is calculated from the date of commercial production or at least from the date of Ext.P2(2), cannot be said to be contumacious conduct on his part with a view to evade payment of tax. If that be so, Section 45A cannot be invoked in the present case. 8. A Division Bench of this Court in P.D.Sudhi v. Intelligence Officer, Agricultural Income Tax and Sales Tax, Mattancherry and others (1992 (85) STC 337) held that even if a person has committed any one of the defaults specified in -10- W.P.(C).No.32677/2004 Section 45A(1) of the Act and the concerned authority is also “satisfied” about the same, the levy of penalty is not compulsive, but only enabling or permissive. It is also held that the foundation does not the mere default for the liability to penalty, but it is the contumacious or fraudulent or other blame-worthy or objectionable conduct of an assessee in fulfilling his obligations mentioned in Section 45A of the Act, that will attract the levy of penalty. The concept of mens rea is embedded in the expression “evaded” or “sought to be evaded”occurring in Section 45A(1) of the Act. 9. In that view of the matter, the penalty imposed on the petitioner as per Exts.P7 and confirmed by the subsequent authorities as per Exts.P8 and P9 are quashed. 10. However, from Ext.P5 assessment order it could be seen that for the year 1999-2000 the petitioner had purchased clove of Rs.1,89,000/- under bill No.28/13/12/99. This however is beyond five years and even reckoning the starting point for exemption is the date of Ext.P2(2), namely, 27/10/1994. Thus, -11- W.P.(C).No.32677/2004 the maximum penalty could be imposed is only Rs.8,000/-, which is sustained. Writ Petition is disposed of as above. P.R.RAMAN, Judge. kcv.