IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUESDAY, THE 4TH MAY 2010 / 14TH VAISAKHA 1932 WP(C).No. 22667 of 2009(C) -------------------------- PETITIONER(S): --------------- BENNY JOSEPH, KOCHIKUNNEL HOUSE, PINANGODE ROAD, KALPETTA, WAYANAD DISTRICT. BY ADV. SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE SRI.VINOD T.U. SRI.K.S.ARUN BABU RESPONDENT(S): --------------- 1. THE COMMISSIONER OF COMMERCIAL TAXES, COMMISSIONERATE OF COMMERCIAL TAXES, THIRUVANANTHAPURAM. 2. DEPUTY COMMISSIONER OF COMMERCIAL TAXES, DEPT. OF COMMERCIAL TAXES, MALAPPURAM. 3. ASSISTANT COMMISSIONER (KVAT), DEPT. OF COMMERCIAL TAXES, MALAPPURAM. GOVERNMENT PLEADER SRI.VINOD CHANDRAN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 23/09/2009, ALONG WITH WPC NO. 24991 OF 2009 THE COURT ON 04/05/2010 DELIVERED THE FOLLOWING: WP(C).22667/2009 APPENDIX PETITIONER'S EXHIBITS:- EXT.P1:- TRUE COPY OF THE ORDER DT.10.12.2008 ISSUED BY THE SALES TAX INTELLIGENCE OFFICER, MALAPPURAM. EXT.P2:- TRUE COPY OF THE NOTICE DT.18.6.2009 ISSUED BY R3 EXT.P3:- TRUE COPY OF THE NOTICE DT.18.6.09 ISSUED BY R3 EXT.P4:- TRUE COPY OF THE REPLY DT.2.7.09 EXT.P5:- TRUE COPY OF THE REPLY DT.2.7.09 EXT.P6:- TRUE COPY OF THE APPLICATION DT.4.7.09 EXT.P7:- TRUE COPY OF PETITION DT.7.7.09 SUBMITTED BEFORE THE FINANCE MINISTER EXT.P8:- TRUE COPY OF THE LETTER DT.9.7.09 ISSUED BY THE PUBLIC INFORMATION OFFICER. EXT.P9:- TRUE COPY OF THE ADDL. REPLY DT.24.7.09 EXT.P10:- TRUE COPY OF THE PETITION DT.24.7.09 SUBMITTED BEFORE R3 EXT.P11:- TRUE COPY OF THE APPLICATION DT.24.7.09 SUBMITTED BEFORE THE PUBLIC INFORMATION OFFICER. EXT.P12:- TRUE COPY OF THE ORDER DT.30.7.09 ISSUED BY R3 EXT.P13:- TRUE COPY OF THE ORDER DT.25.7.09 ISSUED BY R3 EXT.P14:- TRUE COPY OF THE ORDER DT.31.10.08 ISSUED BY THE SALES TAX INTELLIGENCE OFFICER. EXT.P15:- TRUE COPY OF THE ORDER DT.1.2.08 ISSUED BY THE SALES TAX OFFICER, MANJERI. RESPONDENT'S EXHIBITS:- NIL OKB //TRUE COPY// P.A. TO JUDGE C.K.ABDUL REHIM, J. ---------------------------------------------------- W.P.(C).Nos.22667 And 24991 Of 2009 ----------------------------------------------------- Dated this the 4th day of May, 2010 J U D G M E N T ---------------------- 1. Challenge in these writ petitions are against assessments completed under the provisions of the Kerala General Sales Tax Act, 1965 (KGST Act) and the Kerala Value Added Tax Act, 2003 (KVAT Act). In WP(C).No:22667/09 Ext.P12 is the order of assessment under KGST Act for the year 2007-08, with respect to sale of liquor in the Bar Hotel of the petitioner namely, “Hotel Picnic”. Ext.P13 is the assessment under KVAT Act for the very same year with respect to sale of grocery and food items. In WP(C).No.24991/09 Ext.P8 is the order of assessment under KGST Act for the year 2007-08, with respect to sale of liquor in the Bar Attached Hotels of the petitioner. The petitioners in both these cases are challenging orders of assessment without filing statutory appeal, alleging that there is gross violation of principles of natural justice and that the assessment is completed on the basis of written instructions issued by the 2nd respondent, the Deputy Commissioner. It is contended that the assessments were completed on the dictates of higher authority and not on W.P.(C).Nos.22667 & 24991/09 2 independent consideration of the assessing authority. Relying on settled legal principles it is contended that such assessment is nullity in the eye of law and the same need be quashed in exercise of jurisdiction vested under Article 227, despite availability of alternate remedy by way of statutory appeal. Eventhough the petitioner contended that availability of alternate statutory remedy is not a bar for entertaining writ petition and placed reliance on the decision of South Travancore Distilleries Allied Products Vs. Asst. Commissioner of Commercial Taxes (1999 (1) KLT SN 4 (C.No.44)), I am not impressed about any material available which warrants interference of this court for quashing the impugned orders bye-passing the statutory remedy of appeal, but for the contention that the additions proposed at equal amount of the conceded turnover, was only on the basis of written instructions issued by the 2nd respondent at the time of approval of the assessments. Hence these writ petitions are entertained to the limited extent of examining merit of such contention. 2. A brief description of the factual aspects in both W.P.(C).Nos.22667 & 24991/09 3 the cases will be of beneficial in this context. The petitioner in WP(C).No.24991/09 is having two branches; one at Meenangadi in Wayanad District and the another at Palakkad. On 22.3.2008 an inspection was conducted at the branch at Meenangadi namely, “Hotel Vanarani” by the Intelligence Officer. Eventhough variation of stock detected was of negligible value, huge differential in the gross profit declared was detected, along with non-maintenance of true and complete books of accounts. The offences alleged were compounded by the petitioner by remitting a sum of Rs. 2 lakhs as compounding fee in lieu of prosecution. During inspection it was revealed that the petitioner was showing gross profit only at the rate of 20%. But in the returns filed 50% gross profit was conceded. However the returns were not accepted and the assessing authority proposed best judgment assessment through Ext.P3 notice. In Ext.P3 the assessing authority added differential sales turnover estimated on the basis of inspection with respect to “Hotel Vanarani” as well as differential sales turnover with respect to the Palakkad branch, calculating gross profit at 40%. W.P.(C).Nos.22667 & 24991/09 4 Apart from that equal amount of the conceded turnover of 'Hotel Vanarani' was added to cover probable omissions and suppressions. The petitioner submitted Ext.P4 and P5 objections to the proposal. Apprehending that the assessment will be finalised without affording further opportunity, the petitioner filed WP(C).No.19101/09 before this court. In Ext.P6 judgment, direction was issued to the assessing authority to give opportunity to the petitioner to produce requisite materials and to consider such materials if any produced before finalising the assessment. But, according to the petitioner, without affording adequate further opportunities, the assessment was finalised as per Ext.P8 confirming the proposal made under Ext.P3. It is the specific case of the petitioner that Ext.P8 assessment was made by the 1st respondent on the basis of instructions issued by the 2nd respondent Deputy Commissioner. It is alleged that when the order was submitted by the 1st respondent for approval of the 2nd respondent, it was returned with specific directions in writing to the effect that addition of 100% shall be made on the conceded turnover. It is contended that the W.P.(C).Nos.22667 & 24991/09 5 Approval Register contains such written instructions and therefore the assessment is completed without independent appreciation of factual aspects, by the assessing authority. On the other hand the assessment was completed on the dictates of the higher authority and hence it is unsustainable and is a nullity in the eye of law. The petitioner relied on a decision of the Hon'ble Supreme Court in Commissioner of Income Tax Vs. Greenworld Corporation ((2009) 314 ITR 81 (SC)). In the said decision the hon'ble Apex Court observed that the order of assessment passed by the assessing officer on the dictates of higher authority, being wholly without jurisdiction, was a nullity and therefore with a view to doing complete justice between the parties the assessment proceedings should be gone through again. 3. In WP(C).No.22667/2009 there was an inspection on the business premises of the petitioner on 31.3.2003. Before that, application filed by the petitioner for payment of the tax at the compounded rate under Section 7 of the KGST Act with respect to the year concerned was rejected through Ext.P15 order, assigning the reason that the application filed W.P.(C).Nos.22667 & 24991/09 6 after 31.7.2007 could not be entertained. As that of the previous case, here also the stock variation detected during inspection was of negligible value. But huge suppression of gross profit was detected along with non-maintenance of true and correct accounts. The petitioner had compounded the offence by paying compounding fee of Rs.2 lakhs in lieu of prosecution. It is contended by the petitioner that assessment with respect to the year was completed by accepting declared gross profit at the rate of 50%. Ext.P1 order is produced to substantiate such a contention. But on a perusal of Ext.P1 it is revealed that the order was issued permitting payment of tax in installments, in response of an application filed by the petitioner in Form-21H with a request for such permission. However the petitioner was issued with Ext.P2 notice under the KGST Act and Ext.P3 notice under the KVAT Act proposing additions of equal amount of conceded turnover for probable omissions and suppressions. Petitioner objected such proposal through Ext.P4 and P5. Subsequently various communications were there between the petitioner and the assessing authority, in W.P.(C).Nos.22667 & 24991/09 7 which the petitioner had sought information regarding declared gross profit of other Bar Hotels in the District as well as average rate of declared profits with respect to other such assessees etc. However, the proposals were confirmed through Ext.P13 and P14 orders, which are impugned in this writ petition. It is contended by the petitioner that the addition of 100% of the conceded turnover on the allegation of probable omissions and suppressions is made by the 1st respondent based on the written instructions issued by the 2nd respondent in the case of “Hotel Vanarani”. Therefore the assessment orders are assailed on the very same grounds as raised in WP(C).No.24991/09. 4. As observed above, I am not proposing to go into the merits of the assessments based on facts and figures, since the petitioner has filed these writ petitions without resorting to remedy of statutory appeal. The only question which I am proposing to examine is within the limited premise as to whether the assessing authority had completed the assessment as per dictate of the 2nd respondent or not. In the counter affidavit filed in WP(C).No.24991/09 it is W.P.(C).Nos.22667 & 24991/09 8 mentioned that, considering gravity of the suppression detected, the addition of equal amount is minimal, just and reasonable and the proposal was made purely based on materials available on record wherein the assessing authority had acted under bonafide faith. It is contended that the proposal was issued after verifying all the records. According to the respondents, Ext.P8 assessment order was passed by the 1st respondent independently after verifying all the records, penalty files and the reply filed by the petitioner. It is specifically stated that the allegation that the 2nd respondent directed to add exorbitant amount towards suppressed turnover, etc. are baseless and incorrect. But it is stated that the 1st respondent has discussed the matter with the 2nd respondent as a routine work and the proposal notice and the orders were issued strictly as per law. 5. In the counter affidavit filed in WP(C). No.22667/2009 it is stated that the addition proposed was only to commensurate with the suppression detected. It is specifically stated that the addition proposed in that case was merely approved by the 2nd respondent. But it is admitted W.P.(C).Nos.22667 & 24991/09 9 that, in the case of 'Hotel Vanarani' the assessing authority had initially proposed only an addition of Rs.4,000/-, against an admitted gross profit suppression of about Rs.48 lakhs, due to an oversight. But during the time of approval this was brought to notice of lower authority and interests of revenue was protected. It is contended that approval and other internal matters are only departmental issues and those are only procedures wherein directions of superior officers are given in the course of supervisory matters. It is also contended that if the assessee files appeals against the impugned orders the same will be considered by independent agency under the statute and that merely because the assessment was completed based on any direction of the approving authority the same will not cause any prejudice as far as such appeals are concerned. 6. Heard, Sri.Vinod Chandran, learned Special Government Pleader (Taxes). As directed by this court the “Assessment Approval Register” maintained in the office of the 1st respondent was produced for perusal. It is noticed that assessment with respect to Hotel Picnic (WP(C). W.P.(C).Nos.22667 & 24991/09 10 22667/09), for the years 2007-08 under the KGST as well as KVAT Acts was approved by the 2nd respondent without any remarks written thereon. But in the case of the petitioner in WP(C).24991/09 there is an endorsement in the remark column as follows:- “Discussed. Equal addition of the conceded TO may be considered in view of huge profit suppression of that Branch.” From the above fact it is evident that there occurred a revision of the rate of additions based on the remarks noted by the higher authority. But the question to be considered is as to whether such revision was effected totally without application of mind by the assessing authority, merely based on remarks noted by the approving authority. However, since I am not proposing to quash the orders of assessment impugned, it is not fair on my part to arrive at any conclusion as to whether there was any proper application of mind by the assessing authority. In my opinion the remarks seen made in the 'Approval Register' by itself could not be taken as a dictate or a mandatory direction issued by the higher authority, with respect to finalisation of the assessment. At W.P.(C).Nos.22667 & 24991/09 11 the same time I find merit in the contention that the assessing authority might have been carried away by such remarks made by the approving authority, in the matter of fixing the rate of addition for probable omissions and suppressions. It is pointed out by learned Special Government Pleader that appeals if any filed against the impugned orders of assessment will be dealt with by an authority who is the Deputy Commissioner (Appeals), and that the 2nd respondent is not dealing with such appeals. Therefore it is contended that such Appellate Authority will be free to examine all aspects of the matter untrammeled by direction if any issued by the 2nd respondent at the time of approving the assessment. Therefore in the matter of appeal against the assessments impugned, the petitioners will not be met with any prejudices. As in the case of all other similarly situated assessees the appeals if any filed against the impugned assessments will be considered by the Statutory Appellate Authority, who has got equal power to evaluate assessments and to finalise the same as that of the assessing authority. Hence I am of the opinion that the matter need W.P.(C).Nos.22667 & 24991/09 12 only be relegated for consideration of the Appellate Authority in the normal course of statutory appeal. 7. Under the above mentioned circumstances I am of the considered opinion that the impugned assessments are not liable to be quashed exercising powers under Article 226 of the Constitution of India. At the same time the petitioners shall be afforded with adequate opportunity to file statutory appeals. Considering the fact that the assessments were pending under challenge in these writ petitions, I am of the opinion that the petitioners shall be given opportunity to file appeals, if such appeals are not already filed. Hence the petitioners are given liberty to file appeals against Ext.P12 & P13 orders in WP(C).No.22667/09 and Ext.P8 order in WP (C).No.24991/09, within a period of one month from today. If statutory appeals are filed within the period as stipulated above, the Appellate Authority shall treat such appeals as one filed within time and shall dispose of the same on merits, untrammeled by any material regarding approval of assessment and also untrammeled by any of the observations contained in this judgment. The petitioners are also at W.P.(C).Nos.22667 & 24991/09 13 liberty to seek appropriate interim reliefs from the Appellate Authority pending disposal of the appeals. However interim orders granted by this court will continue for a period of two months from today. The writ petitions are disposed of with the above observations. C.K.ABDUL REHIM, JUDGE. okb