IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN WEDNESDAY, THE 18TH FEBRUARY 2009 / 29TH MAGHA 1930 WA.No. 385 of 2009() -------------------- AGAINST THE JUDGEMENT/ORDER IN WPC.3073/2009 Dated 02/02/2009 .................... APPELLANT(S): PETITIONER ------------------------ M/S.ACME FURNITURE & INTERIORS, A DIVISION OF ACME PROJECTS & DEVELOPERS INDIA PVT.LTD, MARY TOWER, N.H.47, UNIVERSITY JUNCTION, KOCHI-33, REPRESENTED BY K.M.FIROZ KHAN, MANAGING DIRECTOR. BY ADV. SRI.ARIKKAT VIJAYAN MENON SRI.HARISANKAR V. MENON SMT.MEERA V.MENON SRI.MAHESH V.MENON RESPONDENT(S): RESPONDENTS -------------------------- 1. COMMERCIAL TAX OFFICER (WC & LT), ERNAKULAM. 2. INTELLIGENCE OFFICER, SQUAD NO.VI, DEPT OF COMMERCIAL TAXES, ERNAKULAM. 3. INTELLIGENCE OFFICER, SQUAD NO.VIII, DEPT OF COMMERCIAL TAXES, ERNAKULAM. BY SPL. G.P. SRI.VINOD CHANDRAN THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 18/02/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. .................................................................... Writ Appeal No.385 of 2009 .................................................................... Dated this the 18th day of February, 2009. JUDGMENT Ramachandran Nair, J. The appeal is filed against judgment of the learned Single Judge whereunder the Single Judge declined to entertain the challenge against penalty order on account of availability of alternate relief by way of appeal before the statutory authority. Appellant, a registered dealer under the Kerala Value Added Tax Act, 2003 (hereinafter called "the Act") is engaged in furniture business. Their business premises was searched by the departmental officers on 6.6.2007. Notice was issued to the appellant on 25.6.2008 under Section 67 pointing out that variation in stock was noticed during inspection and consequently appellant was called upon to file objection against proposal for penalty. Since appellant did not file reply, another notice was issued on 2 29.8.2008 proposing penalty for attempted evasion of tax for two years. Even though the adjudicating authority is bound to complete adjudication pursuant to search under Section 67 within one year from the date of detection of offence, appellant did not raise any objection of time bar even after receipt of two notices. However, when the penalty order dated 28.11.2008 was received by the appellant on 1.1.2009, appellant filed Writ Petition challenging the said order on the ground that the officer ceased to have jurisdiction by virtue of limitation of one year provided under the proviso to Section 67(1) of the Act. The respondents submitted before the learned Single Judge that the Deputy Commissioner in exercise of powers conferred under proviso to Section 67(1) had extended the time for completion of the proceedings and so much so, the penalty order cannot be challenged on the ground of limitation. After noting this, the learned Single Judge disposed of the W.P.(C) leaving freedom to the appellant to raise objection on limitation also in the statutory appeal which the appellant can file. It is against this judgment, the appellant has filed the Writ Appeal. We 3 have heard counsel for the appellant and Special Government Pleader appearing for the respondents. 2. Counsel for the appellants has relied on decision of the Supreme Court in C.I.T. V. ORIENTAL RUBBER WORKS (1984) 145 ITR 477 and contended that unless the proceedings for extension of time is communicated to the appellant, such order is invalid and consequently the penalty order issued under Section 67 beyond the statutory time limit will also be beyond powers of the officer. It is further contended that appellant was entitled to notice from the Deputy Commissioner before granting extension of time. It is also contended that the extension of time to be granted by the Deputy Commissioner should also be within the period of limitation i.e. one year from the date of detection of offence. Even though we do not find any grievance for the appellant against the judgment of the learned Single Judge, we feel the question raised need to be answered by this court because the provisions are new and have not been subject to any judicial interpretation by courts. Besides the abovereferred decision of the 4 Supreme Court, counsel for the appellant has also relied on decision of the Karnataka High Court in SHAW WALLACE & CO. LTD. V. DEPUTY COMMISSIONER OF COMMERCIAL TAXES (1998) 111STC 339. However, on going through the provisions considered in the two judgments, we notice that the provisions explained by the courts are not similar to the relevant provision in the KVAT Act. Therefore, the decisions have no application as such. For easy reference the relevant portion of Section 67(1) with the proviso is extracted hereunder: "S.67. Imposition of penalty by authorities:- (1) Notwithstanding anything contained in Section 71 if any authority empowered under this Act is satisfied that any person,-- (a) being a person required to register himself as a dealer under this Act, did not get himself registered; or ......... (i) has failed to comply with all or any of the terms of any notice or summons issued to him by or under the provisions of this Act or the rules made thereunder; or ......... 5 (l) has abetted or induced in any manner another person to make and deliver any return or an account or a statement or declaration under this Act or rules made thereunder, which is false and which he either knows to be false or does not believe to be true, such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of tax or other amount evaded or sought to be evades where it is practicable to quantify the evasion or an amount not exceeding Ten thousand rupees in any other case: Provided that the authority empowered under this section shall dispose of the case within one year from the date of detection of offence mentioned under this section except where the extension of time is granted by the Deputy Commissioner." 3. It is obvious from the above provision that limitation of one year provided for completion of proceedings under Section 67(1) is to be reckoned from the "date of detection of offence". The appellant proceeds to assume that date of detection of offence is the date on which the search was made. We do not think any offence was detected in this case on the date of search. In fact, detection of offence requires verification of physical stock, comparison of the same with the accounts maintained and only when the Inspecting Officer is prima 6 facie satisfied that there is an offence, it could be said that he has detected an offence. In the normal course, on the date of inspection they take the inventory of goods, mark the records or even recover the records. It is only when records are analysed with reference to physical stock found, the officer can come to a finding as to whether any offence is prima facie committed. However, nothing stops the officer from on the spot comparison of the accounts with physical stock enabling him to detect the offence then and there. It is only on detecting the offence, the officer gets jurisdiction to issue notice proposing penalty for any of the offences mentioned in sub-clauses (a) to (l) of Section 67(1) of the Act. The Section does not mention as to within what time the officer should verify the records to find out whether person searched has committed any offence or not. Since no limitation is provided for verifying this, the officer is bound to do it within a reasonable time from the date of search. In this case we are told that the records were verified on 19.7.2007. However, it is not known whether the process of evaluation was carried out then or later. In any case we are of the 7 view that the date of detection of offence is the date from which limitation of one year runs under proviso to Section 67(1). So much so, the appellant cannot contend that limitation has to be reckoned from the date of search. Counsel for the appellants contended that proceeding is time barred even with reference to date of verification of accounts which was on 19.7.2007. Here again, we have already expressed our view that the verification of accounts need not be the date of detection of offence. During verification, the officer has to evaluate the accounts and compare the same with physical stock and only when he detects offence, he gets jurisdiction to proceed to levy penalty. Even though statute does not require the officer to record detection of offence, initiation of proceedings under Section 67 is sufficient evidence of detection of offence. 4. The next contention raised by the appellant is that the Deputy Commissioner before extending the time is bound to issue notice to the appellant. We do not find anything in the Act to indicate the grounds on which Deputy Commissioner can extend the time for completion of 8 proceedings under Section 67(1). However, statute certainly contemplates justification for the Deputy Commissioner to extend the time for completion of proceedings. It may be initiated at the request of the officer or may be in suo moto proceedings by the Deputy Commissioner himself. In any case the contention of the counsel that the extension of time should be granted by the Deputy Commissioner within the time limit of one year is a tenable contention. If records prove that extension of time is granted beyond one year from date of detection of offence, then such proceedings automatically become invalid affecting the validity of the penalty order itself. This is a matter which requires to be examined by the appellate authority with reference to records. However, we do not think any adjudication proceedings is contemplated under the Act requiring notice to be issued to the dealer or even issuing a communication extending the time. If the dealer raises objection to the penalty notice on ground of limitation, then the Assessing Officer is bound to communicate the order of the Deputy Commissioner and thereafter only he gets jurisdiction to continue the 9 proceedings against the assessee. However, in this case appellant has not raised the objection of limitation when notice was served proposing penalty. So much so, appellant can raise the objection only in appeal and the learned Single Judge rightly held so. We, therefore, dismiss the Writ Appeal leaving freedom to the appellant to verify the records and raise limitation as a ground, which appellate authority will consider with reference to the records and in the light of the meaning assigned to the Section. Appellant is granted two weeks time from date of receipt of this judgment to file appeal, if it is not already filed. C.N.RAMACHANDRAN NAIR Judge K.SURENDRA MOHAN Judge pms