IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE K.M.JOSEPH THURSDAY, THE 24TH JANUARY 2008 / 4TH MAGHA 1929 S.T.APPEAL No.1 of 2004 ------------------------------------------------- ORDER NO.R2.35280/00/CCT & R3.21894/00 TO R2.21897/00 (STRP.NO.76/00 TO 79/00) DATED 27.03.2004 OF THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM (COMMON ORDER FOR 1991-92, 1992-93, 1993-94 AND 1994-95) (ASSESSMENT YEAR 1994-'95) ......................... APPELLANT/ASSESSEE:- ------------------------------------ ALEYAMMA GEORGE, M/S. CROWN RUBBER INDUSTRIES, ERUMELI, KOTTAYAM, NOW RESIDING AT KUTTIPARAMBIL HOUSE, VENKURUNHI PO, MUKKUTTUTHARA, PATHANAMTHITTA. BY ADV. DR.K.B.MUHAMED KUTTY (SR.) SRI.K.M.FIROZ. RESPONDENT/ REVENUE:- ------------------------------------- THE COMMISSIONER OF COMMERCIAL TAXES, COMMERCIAL TAXES DEPARTMENT, PUBLIC OFFICE BUILDING, VIKAS BHAVAN, THIRUVANANTHAPURAM. BY SENIOR GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS SALES TAX APPEAL HAVING BEEN FINALLY HEARD ON 24/01/2008, ALONG WITH S.T.A NO.2 OF 2004, S.T.A.NO.3 OF 2004 AND M.F.A.(TAXES) NO.119 OF 2004, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: H.L.Dattu, C.J. & K.M.Joseph, J. ------------------------------------------------------------------------- S.T.Appeal Nos.1 of 2004, 2 of 2004, 3 of 2004 and M.F.A.(Taxes) No.119 of 2004 ------------------------------------------------------------------------- Dated, this the 24th day of January, 2008 JUDGMENT K.M.Joseph,J. These appeals were filed by the common appellant. The appellant calls in question Annexure-C order in all these cases, which were passed by the Commissioner of Commercial Taxes, Thiruvananthapuram invoking the powers under Section 37 of the Kerala General Sales Tax Act, 1963 (“Act” for short) for the years 1991-92 to 1994-95, viz., for four years. (2) The Intelligence Officer imposed a penalty on the appellant for the assessment years in question on the basis of suppression committed by the appellant. The appellant is an assessee registered under the Act. She is a dealer in Hawai Chappals. The Intelligence Officer inspected the Head Office business premises of the appellant on 6.2.1995 and prepared SIR No.277132. Certain records found at the business premises were recovered. The branch business place of the appellant at Vinkurinji was also inspected on the next day, i.e. on 7.2.1995 by the Intelligence Officer and SIR No.277134 was prepared. In the course of the inspection, partly used Exercise Note Book (three in number) and Business Slips (thirty two in number) were recovered. Subsequently, the regular books of accounts of the appellant were called for on two occasions, i.e. on 3.2.1995 and 9.3.1995, but the appellant did not produce the same. Thereafter the Intelligence Officer proceeded to verify the records and penalties for the five years 1990-91 to 1994-95 were imposed. The matter was carried in revision before the Deputy Commissioner, who S.T.A.No.1/2004 & connected cases. - 2 - remanded the matter. It is pursuant to the remand, Annexure-A orders in all these cases were passed by the Intelligence Officer imposing a penalty on the appellant for four years, i.e. 1991-92 to 1994--95. The Deputy Commissioner, by Annexure-B order in all these cases, proceeded to partly allow the revisions by reducing the quantum of penalty. Taking exception to the orders passed by the Deputy Commissioner, the Commissioner of Commercial Taxes invoked his powers under Section 37 of the Act, by which the order of penalty as ordered by the Intelligence Officer stands restored, finding that the order of the Deputy Commissioner was prejudicial to the interest of the Revenue. It is challenging Annexure-C in all these cases, these appeals are filed. (3) The appellant has framed the following common question of law for our consideration and decision. It is as under: “Whether on the facts and in the circumstances of the case, the respondent is justified in law in holding that the revision order of the Deputy Commissioner is erroneous and prejudicial to revenue?” (4) We heard Dr.K.B.Mohammed Kutty, learned Senior Counsel appearing for the appellant and Sri.Muhammed Rafiq, learned Senior Government Pleader appearing for the respondent. (5) Dr.Mohammed Kutty points out that the facts and circumstances of this case do not warrant exercise of the powers by the Commissioner of Commercial Taxes under Section 37 of the Act. He would submit that the order of the Deputy Commissioner is one which is a possible view and there was no warrant for invoking of the powers under Section 37 of the Act by the Commissioner. (6) The learned Government Pleader strongly justifies the impugned order. S.T.A.No.1/2004 & connected cases. - 3 - (7) It is not in dispute that a Exercise Note Book was seized from the premises. It contains details of number of transactions relating to Hawai sheets. The appellant had not disputed that the Note book is not related to her business. Her only contention was that only a part of the consumption of Hawai sheets recorded in the Note Book relates to the production of slippers by her unit. It was her definite case that the remaining quantity had been received to do job work for a sister concern, viz., M/s.Premier Rubber Factory. This contention of the appellant did not find favour by the Intelligence Officer, on the following four grounds: “(a) M/s.Premier Rubber Factory was also inspected on 6.2.1995 in the presence of its manager, and there was no mention in the records of any goods having been transferred to Crown Rubber Industries or any other concern for job work. (b) No delivery chalans were produced in support of the transfer of goods claimed either during the inspection on 6.2.1995 or the previous inspections on 20.10.92 or 12.07.94. (c) The accounts of Premier Rubber Factory do not show that any payment had been made for job work for Crown Rubber Industries, at the time when accounts were verified on 27.6.1995. (d) There is no mention in the stock register of Premier Rubber Factory that goods had been transferred to Crown Rubber Industries”. (8) We find that the Deputy Commissioner in partly allowing the appeals filed by the appellant for all these years, apparently, mainly guided by three aspects. The Deputy Commissioner took note of the inspection of another sister concern, viz., M/s.Thomson Synthetics (P) Ltd. It is found by him as follows:- “In the said SIR it is specifically stated that “cutting and assembling of Hawai Chappals out of Thomson Hawai Sheets and straps brought from Erumely”. This finding in the SIR proves that job work is being done at Crown. So also at the time of S.T.A.No.1/2004 & connected cases. - 4 - inspection on 7.2.95 the complete physical stock of all items found there was taken which includes 380 Thomson Hawai Sheets, 500 pairs of Thomson Hawai Straps and 1500 chappal covers with brand name “Thomson”, sheets, straps and chappal covers of no other are found in the business place. These facts conclusively proves that there is job work of manufacturing of chappals in Crown Rubber Industries in the brand name of “Thomson””. He would draw our attention to the finding regarding the delivery note, which reads as follows: “I have gone through the connected records and found that the books of accounts were first verified by the Intelligence Officer on 21.11.95 and at the time of verification the delivery chalans wereproduced. Hence I consider that the contention regarding non-placing of delivery chalan before the authorities by the applicant at the first available opportunity and its non-production at the time of inspection do not affects its veracity”. The Deputy Commissioner also considered the plea of job work. According to him, independent registration do not in any way affect the units to be qualified as sister concerns. His finding is to the following effect: “The version regarding payment of job work charges was met by the applicant stating that the job work charges were adjusted only on 31.3.1995. The reason for such an adjustment was that M/s.Premier Rubber Factory and Crown Rubber Industries are sister concerns. The plea of sister concern were tried to negative by the Intelligence Officer by stating that both the units are independently registered under the Act. Regarding this the then Deputy Commissioner, Kottayam while disposing Revision Petition Nos.9 to 13/96 as per order dated 15.5.96 in page 17 has discussed that Sri.K.V.George the husband of the applicant is the Managing Director of M/s.Thomson Synthetics (P) Ltd., Erumely, Sri.Varghese Thomas, brother of Sri.K.V.George is a partner of M/s.Premier Rubber Factory and the applicant Smt.Aleyamma George, W/o.Sri.K.G.George is the proprietrix of M/s.Crown Industries, that since Sri.Varghese Thomas is employed abroad, the works, manufacture and sales, order canvassing, packing, despatching, etc. are done under the direct supervision of Sri.George. Independent registration do not any way affect the units to be qualified as sister concerns. In fact units having separate registration can only be called sister units. If all the units are working under the same registration, they are S.T.A.No.1/2004 & connected cases. - 5 - parts of a single unit. So to be called as sister units, it is not necessary that units must be under a single registration”. (9) We find that there is little merit in the contention of the appellant. It is to be noted that the recovery of the Note Bolok is not in dispute. It showed huge suppression of the turnover on the part of the appellant. The only effort by the appellant to explain away this suppression was, to contend that only a part of the consumption of Hawai sheets recorded in the Note Book relates to the production of slippers by her unit and the remaining quantity had been received to do job work for a sister concern, viz., M/s. Premier Rubber Factory. There was no case set up by the appellant that any part of the purchases of the Hawai rubber sheets is relatable of job works of M/s.Thomson Synthetics (P) Ltd. Therefore, the reliance placed by the Commissioner on the inspection in relation to M/s.Thomson Synthetics (P) Ltd. is totally without warrant. It is to be noted that it was found by the Intelligence Officer that the suppression was of a substantial nature. It is also found by the Intelligence Officer that at the time of inspection the appellant did not have a case of job work and it was raised only in her reply to the penalty notice dated 28.9.1995. The Intelligence Officer has also noticed that the delivery challans were prepared only to suit the convenience of the appellant as it was not produced earlier. The Intelligence Officer categorically found as to why the appellant was not regularly maintaining the books of accounts is not explained by her. (10) We find merit in the grounds which weighed both the Intelligence Officer as also the Commissioner of Commercial Taxes to impose maximum penalty on the appellant. We note that no delivery challans were produced in support of the transfer of goods claimed either at the time of inspection on 6.2.1995 or on the previous inspections. The account of Premier S.T.A.No.1/2004 & connected cases. - 6 - Rubber Factory do not show that any payment had been made for job work to Crown Rubber Industries at the time when accounts were verified on 27.6.1995. There is no mention in the stock register of Premier Rubber Factory that goods had been transferred to Crown Rubber Industries. No mention is there in the records of M/s. Premier Rubber Factory that any goods having been transferred to Crown Rubber Industries or any other concern for job work. In this state of affairs, we do not find any grounds to interfere with Annexure-C order. We find that Annexure-C order has been passed correctly in exercise of the jurisdiction under Section 37 of the Act by the Commissioner of Commercial Taxes as Annexure-B order is clearly prejudicial to the interest of the Revenue. (11) Dr.Mohammed Kutty, learned Senior Counsel appearing for the appellant, submitted that even if it is found that the penalty was justified, the quantum of penalty has to be interfered with having regard to the facts and circumstances of this case. Having regard to the facts and as found by the Intelligence Officer and reiterated by the Commissioner, we do not see any merit in the said contention either. Accordingly, the appeals fail and they are dismissed and the question of law raised by the appellant is answered against the appellant and in favour of the Revenue. Ordered accordingly. Sd/- H.L.Dattu Chief Justice Sd/- K.M.Joseph vku/- Judge - true copy -