IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUESDAY, THE 20TH OCTOBER 2009 / 28TH ASWINA 1931 WP(C).No. 28863 of 2009(C) --------------------------------------- PETITIONER: ----------------------- PRINCE FORTIFIED STEELS PVT LTD, PERUMBARA,KUTTIERY(PO),TALIPARAMBA,KANNUR-670141. REPRESENTED BY C.P.NAZEER AHAMMED, MANAGER. BY ADV. SRI.VIJAYAN. K.U. SRI. K.N.SREEKUMAR RESPONDENTS : --------------------------- 1. INTELLIGENCE INSPECTOR,SQUAD NO.IV, DAPARTMENT OF COMMERCIAL TAXES,EDAPALLY, KOCHI-24. 2. STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT,TAXES DEPARTMENT,GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM. BY ADV. SRI. C.K. GOVINDAN, GOVERNMENT PLEADER THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 20/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.K. ABDUL REHIM, J - - - - - - - - - - - - - - - - - - - - - - - W.P.(C)No. 28863 of 2009 - - - - - - - - - - - - - - - - - - - - - - - Dated this the 20th day of October, 2009 J U D G M E N T 1. Petitioner is a Company running a manufacturing unit engaged in production of MS Ingots, by melting of various types of scrap iron in induction furnace. Petitioner is a registered dealer under the provisions of Kerala Value Added Tax Act, 2003 (KVAT Act). It is contended that the petitioner is regularly paying tax. According to the petitioner they have imported high melting scrap in bulk quantity from Middle East, for the purpose of using it as raw material in production of MS Ingots. As per specific order placed with a dealer in Sharjah, UAE, various quantities of goods were imported, covered by Ext.P2 series, six specific invoices. But on import the goods were seized by the customs authorities at Cochin Port alleging mis-declaration of the goods. Adjudication proceedings was completed and with respect to goods covered under three W.P.(C)No. 28863 of 2009 -2- (3) specific invoices, release was ordered on the request of the petitioner, permitting redemption after mutilation under customs supervision, on payment of penalty and redemption fine, under the provisions of the Customs Act. But with respect to goods covered under three (3) other invoices, the customs authorities have imposed penalty after adjudication, without permitting mutilation, based on the findings arrived to the effect that, there is mis-declaration regarding the goods and the goods imported are not high melting iron scrap, as declared, but iron rods. 2. Pursuant to detention of the goods by the customs authorities the 1st respondent had issued Ext.P4 to P7 notices under Section 47 (2) of the KVAT Act detaining the goods demanding Security Deposit. The allegation raised in the notices is that, the goods imported is Tore Steel and not iron scrap, as evidenced from physical verification, and it is reasonably suspected that the import of 'Tore Steel', which is a manufactured product is with an intention to sell the same and thereby to commit unaccount purchase of iron W.P.(C)No. 28863 of 2009 -3- scrap locally. It is suspected that the attempt is to camouflage sale of Tore Steel manufactured with such unaccuounted local purchases under the guise of import of iron scrap. 3. With respect to the goods already released by the customs authorities on permitting mutilation, the adjudication proceedings pursuant to Ext.P4 notice contemplated under Section 47 was completed and Ext.P11 notice was issued by the Intelligence Officer, wherein the goods were ordered to be released, without any Security Deposit, subject to mutilation. It is further noticed that with respect to those goods so released, the department has collected Advance Tax on issuing notice as evidenced by Ext.P12 and the petitioner had paid Advance Tax as evidenced by Ext.P13 certificate of payment. 4. The petitioner is now aggrieved by detention of goods covered under Exts.P5 to P7 notices with respect to which the customs authorities have not permitted mutilation. The 1st respondent had demanded payment of W.P.(C)No. 28863 of 2009 -4- security deposit based on the above stated allegations. Contentions of the petitioner is that the action initiated under Section 47 is not sustainable since the goods are intended for bonafide use as raw material in the factory of the petitioner and no sale as such can be effected with respect to the goods imported. It is also contented that the action initiated under Section 47 is premature and without jurisdiction, since the goods have not crossed the customs frontier and application of the provisions of the KVAT Act cannot be invoked. 5. Heard Government Pleader appearing for the respondents. The finding arrived at by the customs authorities on the basis of adjudication as evidenced from Exts.P14 & P15 was brought to my notice. It is evident that the customs authorities after making enquiry found that the claim of the petitioner that the imported goods are high melting iron scrap was not accepted and on physical verification it is found that major portion of the goods imported are iron rods. Therefore the suspicion raised by W.P.(C)No. 28863 of 2009 -5- the authorities that the petitioner may effect sale of the imported goods as finished product, has got reasonable basis, is the contention. It is explained that the apprehension is that the petitioner may effect unaccounted purchase of iron scrap locally and may camouflage sale of finished product made out of such purchase under the guise of the so called import purchase of iron scrap raw material. 6. Having considered the rival contentions, I am of the opinion that the decision as to whether the goods imported is high melting iron scrap or finished iron rods is the matter which need physical verification during adjudication under Section 47 of the Act. The further question whether there was any attempt at evasion of payment of tax depends on the nature of utilisation of the goods imported. However it is pointed out that iron rod is a notified item for which advance tax is liable to be paid. Therefore I am of the opinion that, pending finalisation of the adjudication proceedings as contemplated under Section 47 of the KVAT Act, the goods can be ordered to be W.P.(C)No. 28863 of 2009 -6- released on the petitioner paying 50% of the amount demanded under Exts.P5 to P7 notices towards Advance Tax, without prejudice to finalisation of the proceedings under Section 47, and on furnishing adequate security for the amount of Security Deposit demanded. 7. In the result, the writ petition is disposed of directing the 1st respondent to release the goods detained under Exts.P5 to P7 notices on the petitioner paying Advance Tax to the extent of 50% of the Security Deposit demanded under the said notices and on furnishing Security Bond without sureties in the form prescribed under the KVAT Rules for the entire value of security deposit demanded under the said notices. 8. It is made clear that the payment of the Advance Tax is without prejudice to completion of the enquiry contemplated under Section 47 (5) & (6) and without prejudice to imposition of penalty if ultimately found liable. 9. The competent authority under Section 47 is hereby directed to expedite the adjudication proceedings W.P.(C)No. 28863 of 2009 -7- and to complete the same after affording opportunity to the petitioner, as early as possible, at any rate within a period of two months from the date of release of such goods. C.K. ABDUL REHIM JUDGE shg/