IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER MONDAY, THE 28TH JULY 2008 / 6TH SRAVANA 1930 W.A.No.1536 of 2008 ------------------------------------- AGAINST THE JUDGEMENT IN W.P.(C).NO.9272/2008 DATED 12/06/2008 .................... APPELLANT: PETITIONER:- ----------------------------------------- T.P.FINIMOLE, D/O.T.K.PURAVATH, ADVOCATE, AGED 32 YEARS, THEKKILAKKATTU HOUSE, NO.VI/349, THATTEKKADU.P.O, PALAMATTAM, KOTHAMANGALAM, PIN-686691. BY ADV. SRI.M.M.ABDUL AZIZ (SR.) SRI.M.A.ABDUL HAKHIM SRI.JYOTHISH.J.KALLINGAL RESPONDENTS: RESPONDENTS:- --------------------------------------------------- 1. ASSISTANT COMMISSIONER (AA), COMMERCIAL TAXES, KASARGOD. 2. DEPUTY COLLECTOR (RR), CIVIL LINES, KAKKANAD, ERNAKULAM. R1 & R2 BY SPL. GOVT. PLEADER (TAXES) SRI.VINOD CHANDRAN. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 28/07/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- H.L.Dattu, C.J. & A.K.Basheer, J. ---------------------------------------------- W.A.No.1536 of 2008 ---------------------------------------------- Dated, this the 28th day of July, 2008 JUDGMENT H.L.Dattu,C.J. The judgment of the learned Single Judge in W.P.(C). No.9272 of 2008 dated 12.06.2008 is the subject matter of this Writ Appeal. 2. The petitioner is an Advocate. To facilitate a person to register himself as a dealer, the petitioner had offered her assistance, like, identifying the person before the registering authority/assessing authority. Apart from that, she had no other role to play in the business activities of one Sri.T.P.Varghese. 3. For the assessment years 2004-05 and 2005-06, the assessing authority, after issuing notice to the petitioner, has proceeded to pass a protective assessment order under Section 26 of the Kerala Value Added Tax Act, 2003 (“KVAT Act” for short), inter alia, directing the petitioner to pay huge tax liability. Pursuant to the orders so passed, has also issued Exhibit P8 and P9 demand notices. 4. Aggrieved by the order so passed under Section 26 of the Act and the demand notices issued pursuant thereto, petitioner was before this Court in W.P.(C).No.9272 of 2008. W.A.No.1536 of 2008 - 2 - 5. The primary grievance of the petitioner in the writ petition was that, the order passed by the assessing authority is one without jurisdiction and contrary to the statutory provisions and, therefore, the same requires to be annulled by this Court. 6. This Court, while disposing of the writ petition, has directed the petitioner to file an appeal, if she so desires, against the orders passed by the assessing authority under Section 26 of the Act. So far as the demand notices issued, the learned Single Judge has observed that those demands would be stayed till the petitioner files an appeal as provided under Section 55 of the Act. 7. To appreciate the stand of the petitioner, it would be useful to refer to Section 26 of the Act. The said provision provides for passing of protective assessments. The said Section reads as under: “26. Protective assessment.- Notwithstanding anything to the contrary contained in any judgment, decree, order, direction or decision of any Court, Tribunal or other Authority, where the assessing authority has reason to believe that any person is, or was carrying on business in the name of, or in association with any other person, either directly, or indirectly, whether as agent, employee, manager, power of attorney holder, guarantor or in any other capacity, such person and the person in whose name the registration certificate, if any, is taken, shall jointly and severally, be liable for the payment of the tax, penalty or other amount due W.A.No.1536 of 2008 - 3 - under this Act which shall be assessed, levied and recovered from all or any of such person or persons, as if such person or persons are dealers: Provided that before taking action under this section, the persons concerned shall be given a reasonable opportunity of being heard”. 8. The main words that require to be taken note of by this Court while interpreting Section 26 of the Act are the expression “reason to believe”, “was carrying on business in the name of, or in association with any other person, either directly, or indirectly” and, lastly, “such person and the person in whose name the registration certificate, if any, is taken, shall jointly and severally, be liable for the payment of the tax”. 9. The expression “reason to believe” has been explained by the apex Court in several of its decisions. One leading case is Dr.Partap Singh & another v. Director of Enforcement, Foreign Exchange Regulation Act & others [(1985) 3 SCC 72]. In the said decision, the Court has observed that: “The expression 'reason to believe' is not synonymous with subjective satisfaction of the officer. The belief must be held in good faith; but cannot merely be a pretence”. Further the court has stated: “It is open to the court to examine the question whether the reasons for the belief have a rational connection or a W.A.No.1536 of 2008 - 4 - relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section”. 10. This view of the apex Court is reiterated in the subsequent decisions also. Reference to all those decisions may not be necessary for the disposal of this Writ Appeal. 11. Section 26 of the Act, as we have already stated, provides for passing of the orders of protective assessment. The said provision commences with a non-obstante clause. The assessing authority is authorised, if he has reason to believe that any person is, or was carrying on business in the name of, or in association with any other person, either directly, or indirectly, whether as agent, employee, manager, power of attorney holder, guarantor or in any other capacity, such person and the person in whose name the registration certificate is taken, shall be jointly and severally liable for the payment of the tax, penalty or other amount due under this Act. The expressions “carrying on business in the name of, or in association with any other person, either directly, or indirectly” should be borne out from the orders passed under Section 26 of the Act. In the absence of such a finding by the assessing authority while passing the orders of protective assessment, in our opinion, it would be difficult for this Court to sustain the orders passed by the assessing authority. W.A.No.1536 of 2008 - 5 - 12. Having seen the possible construction that could be placed on Section 26 of the Act, we have carefully perused the notices issued by the assessing authority before completing the proceedings under Section 26 of the Act. In the notice, in one or two places, the assessing authority has stated, that the petitioner/appellant, as an Advocate, had introduced Sri.T.P.Varghese to the Department and, further, she had identified his signatures at the time when Sri.T.P.Varghese filed application for the purpose of registration. Apart from this allegation, we do not find any other allegation in the show cause notice issued by the assessing authority. In fact, the said notices came to be replied by the petitioner and, in that, had specifically stated that she has nothing to do with the business conducted by T.P.Varghese. In spite of the explanation offered, the assessing authority without holding proper enquiry, has proceeded to pass the impugned order invoking its powers under Section 26 of the Act. Even in the said order, except alleging that the petitioner had helped Sri.T.P.Varghese in getting his registration done by the authorities under the Act, there is no other allegation that the petitioner is, either directly or indirectly, connected with the business of Sri.T.P.Varghese. In view of the language used in Section 26 of the Act, the legal position is beyond dispute, that the assessing authority must have some rational basis to form the belief that the petitioner was carrying on the business in the name of or in association with any other person either W.A.No.1536 of 2008 - 6 - directly or indirectly, whether as an agent, employee etc. This should be reflected in the order passed under Section 26 of the Act. The non-compliance of the same would be fatal to the proceedings. In a case of this nature, in our opinion, in the absence of specific finding to the effect that the petitioner was either directly or indirectly was carrying on with the business with any other person, the orders passed by the assessing authority cannot be sustained by this Court. In our opinion, the order passed by the assessing authority is contrary to the statutory provisions and also contrary to the well established principles of law. In A.V.Venkateswaran vs. R.S. Wadhawasmi, AIR 1961 SC 1506, it is stated that, “complete lack of jurisdiction in any officer or authority to take the impugned action would be a good ground not to insist on the exhaustion of statutory remedies. It was further pointed out that this exception along with the one where an order is passed in violation of the principles of natural justice cannot be regarded as exhaustive of the exceptions, and even beyond them a discretion vests with the High Court to entertain a petition notwithstanding the existence of an alternative remedy. It was observed that the application of the general principles to the facts of each case must necessarily be dependant on variety of individual factors which must govern proper exercise of the discretion of the court and that in a matter which is thus pre-eminently one of discretion, it is not possible or even if were, it would not be desirable to W.A.No.1536 of 2008 - 7 - lay down any inflexible rules which should be applied with rigidity in every case which comes up before Court”. Therefore, though the petitioner has alternate remedy, in the peculiar facts and circumstances of the case, we are not inclined to relegate the petitioner to avail the alternate remedy provided under the Act. 13. The Supreme Court in the following decisions, Lalji Haridas vs. Income Tax Officer and another, (1961) XLIII ITR 387, and Jagannath Hanumanbux vs. Income Tax Officer, [1957] XXXI ITR 603, has stated under what circumstances protective assessment can be passed by the assessing authority. These pronouncements were made when the Income-tax Act did not provide for passing of protective assessment orders. Now by incorporating section 26 of the Act the assessing authority is empowered to pass protective assessment order under certain circumstances only. 14. Having given our anxious consideration to the case pleaded by the appellant, we are of the firm opinion that the order passed by the assessing authority is contrary to statutory provisions. Therefore, learned Single Judge was not justified in relegating the petitioner to prefer an appeal, if she is aggrieved by the orders passed by the assessing authority in exercise of his powers under Section 26 of the Act. 15. Since we have come to the conclusion that the order passed by the assessing authority is contrary to the provisions of the Act, W.A.No.1536 of 2008 - 8 - the impugned order requires to be set aside. Accordingly, we allow the appeal. The impugned order passed by the assessing authority is set aside. There will be no order as to costs. Ordered accordingly. H.L.Dattu Chief Justice A.K.Basheer vku/dk. Judge