IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER TUESDAY, THE 23RD SEPTEMBER, 2008/1ST ASWINA, 1930 ST.Rev. No. 136 of 2005 -------------------------------- ORDER DT. 16.7.2004 IN TA.694 of 2001 OF S.T.A.TRIBUNAL, Addl.Bench, ERNAKULAM. .................... REVISION PETITIONER/APPELLANT: ------------------------------- M/S YESES INTERNATIONAL BHARATH PETROLEUM CORPORATION ERNAKULAM INSTALLATION, ERNAKULAM. BY ADVS. SRI. N. MURALEEDHARAN NAIR & SRI. V.K. SHAMSUDHEEN. RESPONDENT/RESPONDENT: -------------------- STATE OF KERALA BY SR. GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ALONGWITH ST.REV. No. 150/05 ON 05.9.2008, THE COURT ON 23.09.2008 PASSED THE FOLLOWING: H.L. DATTU, C.J. & A.K. BASHEER, J. ------------------------------------- S.T.Rev. Nos.136 and 150 of 2005 ------------------------------------ Dated this, the 23rd day of September, 2008 ORDER H.L. DATTU, C.J. Both these revision petitions pertain to the assessment year 1996-97. 2. S.T.Rev. No.136/2005 is filed questioning the correctness or otherwise of the order passed by the Sales Tax Appellate Tribunal in T.A. No.694 of 2001 dated 16.7.2004 under the provisions of the Central Sales Tax Act and S.T.Rev. No.150 of 2005 is filed questioning the orders passed by the Appellate Tribunal in T.A.No.693 of 2001 dated 16.7.2004 under the provisions of the Kerala General Sales Tax Act, 1963. 3. Petitioner is a registered dealer under the provisions of the Kerala General Sales Tax Act, 1963 (the KGST Act, for short) and Central Sales Tax Act, 1965 (the CST Act, for short). The petitioner is a dealer in superior kerosene oil having branch offices at Ernakulam and Pondicherry. Petitioner is borne on the files of the Assistant Commissioner (Assessment), Special Circle-III, Ernakulam. Petitioner used to import superior kerosene oil from abroad under the import licence granted by Government of India. The import is done through Madras and Kochi Ports. During the assessment year 1996-97, petitioner imported S.T.RevNos.136 & 150 of 2005 - 2 - 5616.454 KLs of Kerosene through Kochi port and out of which 1595.001 KLs were sold locally and 4728 KLs were transported to Pondicherry by way of branch transfer is the claim of the petitioner. 4. The Intelligence Officer of the Intelligence Wing of the Department had inspected the business premises of the petitioner on 5.7.1996 and 8.10.1996 and had noticed certain discrepancies in the books of account maintained by the dealer and pointing out those omissions and commissions had prepared shop inspection reports, SIR No.190472/5.7.1996 and SIR No.33051/8.10.1996 and the same had been served on the assessee. 5. Petitioner had filed its annual returns both under KGST Act and CST Act for the assessment year 1996-97. In the returns filed for the purpose of KGST assessments, the assessee had declared the total and taxable turnover of Rs.474,85.047 and Rs.129,16,407 respectively. In the returns filed for the purpose of CST assessment, the assessee had claimed inter-State stock transfer of 4728.000 KLs of superior kerosene oil for Rs.345,68,640/-. The returns filed both under KGST Act and the CST Act came to be rejected by the assessing authority, in view of the orders passed by the Intelligence Officer under Section 45A of the KGST Act, pursuant S.T.RevNos.136 & 150 of 2005 - 3 - to shop inspection reports dated 5.7.1996 and 8.10.1996 respectively. 6. The assessing authority after rejecting the books of accounts and the annual returns filed by the assessee and literally incorporating the findings and conclusions reached by the Intelligence Officer while passing the order under Section 45A of KGST Act for the purpose of imposing penalty for the offence said to have been committed under that provision, had issued proposition notice, proposing to reject the returns and complete the assessments by resorting to best judgment assessment. Though the notice came to be served on the assessee, for the reasons best known to it, did not choose to file any objections to the proposal made in the pre-assessment notice. 7. The assessing authority has completed the best judgment assessment both under KGST and CST Acts by merely incorporating the findings and conclusions reached by the Intelligence Officer while passing the order levying penalty under Section 45A of the KGST Act. The order of best judgment assessment passed by the assessing authority is extracted in order to appreciate the stand of the assessee's learned counsel Sri.V.K.Shamsudheen. The same is as under:- “I have independently verified the records and found that the defects noticed are still exists. S.T.RevNos.136 & 150 of 2005 - 4 - Departmental delivery notes recovered by the intelligence wing not produced for my verification. The total turnover as per monthly returns conceded as Rs.47659047/- whereas as per accounts it is conceded as Rs.474,85,047. The difference comes to Rs.1,74,000/- This is not explained. In view of the above observations, it is proposed to reject the return and accounts and finalise the assessment for 1996-97 to the best of judgment.”. 8. This is in so far as KGST assessment is concerned. 9. The CST assessment completed by the assessing authority is in no way better than KGST Act. It is still worse. In the best judgment assessment order passed, the assessing authority once again merely incorporates the reasoning of the intelligence officer for levying penalty under Section 45A of KGST Act and then proceeds to observe: “The above said proposals were duly communicated to the assessee as per this officer pre-assesssment notice dated 20.10.2000 and invited objections if any. The assessee has received the notice on 9.11.2000, but not utilised the opportunity afforded till date. The assessee has neither responded nor filed objections. Therefore, it is presumed that the assessee has no objection against the proposal. In the S.T.RevNos.136 & 150 of 2005 - 5 - circumstances the proposal are confirmed and the assessment order under CST for 1996-97 stands completed as already proposed.” 10. By the aforesaid best judgment assessment orders, the assessing authority had made huge additions to the conceded taxable turnover and also has denied the claim of branch transfers made by the assessee and has treated the entire turnover as inter-State sales. 11. In the first appeals filed, the first appellate authority has not made any improvement in the order passed by the assessing authority. A perusal of the orders passed would only indicate that he has merely confirmed the improper order passed by the assessing authority. 12. In the second appeals filed by the assessee before the Appellate Tribunal in T.A. No.693/2001 and T.A.No.694/2001, the Tribunal by its common order dated 16.7.2004 has adopted the 'cut and paste' concept and has sustained the orders passed by the authorities under the Act. The conclusion and the findings of the Tribunal is as follows: “In view of the above said observations, the assessing authority rejected the return and accounts and assessed the differential turnover of Rs.1,74,000/- as per defect noticed in para 5 under K.G.S.T. and turnover of Rs.13,90,41,240/- under C.S.T.. In appeal, the S.T.RevNos.136 & 150 of 2005 - 6 - assessments were confirmed. It is a fact that the assessee has not replied to pre-assessment notice even though the assessee has received the notice on 9.11.2000. The appellant has not maintained books of accounts for the entire transactions of Cochin Office as evidenced from the records seized at the time of inspection and the statement given by the proprietor when departmental officers visited the office at Madras. At the time of inspection of branch office at Kochi, the inspecting officers recovered used and unused invoices relating to M/s. Fluka Organics, Madras. The above firm has no business place in Kerala. The appellant has received the Delivery Notes from the assessing authority during the year 1996-97, but the appellant has not furnished the same for verification before the authorities below or before this Tribunal. The assessing authority has alleged that the appellants have effected interstate sales of Kerosene direct from Kerala and as per accounts the appellant had no interstate sales. The entire quantity other than sold locally were shown as stock transfer to Pondicherry. Verification of registers maintained at Border Check Post at Pondicherry revealed that no vehicle with kerosene passed through Check posts to Pondicherry as claimed by the appellant. Further enquiry made by the Departmental Officers to the branch office at Pondicherry also revealed that they S.T.RevNos.136 & 150 of 2005 - 7 - have no storage facility to keep huge stock of Kerosene. Further deposition of the driver of the lorry that they have transported consignment from Kochi Office sold at Coimbatore and nearby places. This fact is evidenced from the copy of the rent receipts paid by the appellant for the transport of Kerosene from Kochi to Coimbatore. The above findings of the assessing authority is not rebutted by the appellant. The appellant has not produced the transporting copy of the delivery note which is under the custody of the appellant and the stock transfer to Pondicherry could be established by the transporting copy of the Departmental Delivery Note. The records seized at the time of inspection evidences that the appellant has effected unaccounted transactions under the guise of stock transfer. Considering the quantum of suppression detected by the Intelligence Wing which comes to Rs.3,45,68,640/- we are of the view that the addition made by the assessing authority and sustained by the first appellate authority and levy of tax on the above amount under C.S.T. is fair and reasonable and therefore we confirm the decision of the authorities below in this case. Since the difference in the total turnover as per monthly return and total turnover conceded as per accounts amounts to Rs.1,74,000/- has not been properly explained by the appellant, the levy of tax on Rs.1,74,000/- under KGST S.T.RevNos.136 & 150 of 2005 - 8 - Act is also confirmed”. 13. The assessee, being aggrieved by the orders passed by the Sales Tax Appellate Tribunal has presented these revision petitions under Section 41 of the KGST Act and in that has framed the following questions of law for our consideration and decision. They are:- 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in confirming the denial of branch transfer discarding the fact that the goods reached Pondicherry and the same were assessed at Pondicherry as evidenced by Annexure D order? 2. Whether on the facts and in the circumstances of the case the Appellate Tribunal has erred in law in confirming the addition made by the Assessing Authority when the said authority has no case that the petitioner has made any unaccounted purchase and no pattern of suppression is also established? 3. Whether on the facts and in the circumstances of the case the addition sustained by the Appellate Tribunal is correct and has any nexus to the alleged irregularities? 14. The learned counsel Sri.Shamsudheen for the assessee would contend, that, the assessing authority merely relying on the findings of the Intelligence Officer while passing the order under Section 45A of S.T.RevNos.136 & 150 of 2005 - 9 - the KGST Act could not have rejected the annual returns filed by the assessee. By this, what the learned counsel intends to convey is, an estimation by best judgment may take into account an element of guess work, but it is still a 'judgment' and hence must have some basis. 14. Sri.Mohammed Rafiq, learned Government Advocate would tell us, that, since the assessee did not have file any 'Objections' to the proposal made in the pre-assessment notice, the assessing authority had no other option but to confirm the proposal made and therefore, at this belated stage, the assessee can neither blame nor take any exception to the best judgment assessment orders passed. The learned counsel supports his submission by referring to a case law of this court - Abdul Rasheed vs. State of Kerala, reported in ILR 1997(1) Page 77. 15. It is well settled that the assessing officer is a quasi judicial authority. He exercises his quasi judicial functions while completing the assessment and qualifying the tax liability of an assessee under the Act. 16. Tax incidence is the ultimate product of assessment. The word “assessment” is a term of varying import. The word is sometimes used to mean the computation of the amount of tax and at other times to S.T.RevNos.136 & 150 of 2005 - 10 - mean the whole procedure laid down for imposing the liability on tax payer. The term 'assessment' used in the Act comprises the provisions relating to the subject matter of taxation, rate of tax, basis at which the quantum of tax is to be arrived at, the exemptions to be given and the authorities for enforcing tax liability. The procedure for assessment should comply with the rules of natural justice and if not it would be unreasonable restriction violating both Articles 14 and 19 of the Constitution of India. Even in the case of best judgment assessment, the assessee should be offered an opportunity to explain every material gathered and intended to be used against him by the authority. 17. Taxing statutes generally authorise imposition of penalty for delay in filing returns, concealment of tax liability, default in payment of tax, contravention of mandatory provisions etc. The proceedings for imposition of penalty are quasi criminal in nature. This power of imposing penalty is only discretionary and the penalty shall not be ordinarily imposed unless the person/dealer has acted deliberately in defiance of law or guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligation. Even if the statute prescribes a minimum penalty the authority will not be justified in imposing it, if the breach was S.T.RevNos.136 & 150 of 2005 - 11 - technical or venial or was the result of bonafide belief. Section 45A of the Act provides for imposition of penalties on contumacious or fraudulent assessees. The various grounds for penalties are fully enumerated there. The object of the provision is to provide a stimulant to a dealer to observe the mandate of the provisions of the Act. 18. Tax and penalty like tax and interest are distinct and different concepts under tax laws. What is good for levying penalty may not be good for the purpose of passing an order of assessment, re- assessment or the best judgment assessment. We hasten to add, that, the assessing authority can certainly make use of the information collected by the intelligence officer of the department as a piece of evidence while completing regular or best judgment assessment, but at any rate, that cannot be the sole basis on which the entire assessment could be made. The assessing authority has to make independent verification of the particulars furnished by the dealer in the annual returns filed. In the course of such enquiry, if for any reason, the assessee does not cooperate with the assessing authority, he can definitely draw adverse inference against the assessee. On conclusion of the enquiry, he has to record a definite finding one way or the other. S.T.RevNos.136 & 150 of 2005 - 12 - 19. In the instant case, what has been done by the assessing authority is that after rejecting the annual returns filed by the assessee, has issued the pre-assessment notice, incorporating verbatim the findings and the conclusion reached by the intelligence officer of the department while passing the order imposing the penalty under Section 45A of the Act. Since there was no response from the assessee to the proposal made, he has confirmed the proposal made in the pre-assessment notice, while completing the assessment proceedings for the assessment year in question both under KGST and CST Acts. The assessment order so passed is only yet another affirmation or confirmation or endorsement of the penalty order passed by the intelligence officer, except an addition made towards the probable suppression during the assessment year in question. This is not what is expected of the assessing authority, even while completing the assessment proceedings by resorting to best judgment assessment. The order of assessment should definitely indicate the application of mind by the assessing authority even while completing the best judgment assessment and he is not expected to emboss his “seal of approval” to the orders made by the intelligence officer of the department, since both these proceedings are distinct and different. In our considered view, the S.T.RevNos.136 & 150 of 2005 - 13 - assessing authority has not independently applied his mind, but has merely adopted whatever that was done by the intelligence officer of the department for the purpose of imposing penalty under Section 45A of the Act. As we have already observed that the assessing officer is a quasi judicial authority and while exercising his quasi judicial function, he has to apply his mind independently and while doing so, can also take into consideration the findings of the intelligence officer of the department and at any rate, that cannot be the sole basis. In this view of the matter, we cannot sustain the order passed by the assessing authority. Therefore, we have no other alternative but to set aside the order passed and remand the matter to the assessing authority with a direction to pass a fresh order in accordance with law. 20. In view of the above discussion, we cannot sustain the impugned orders passed by the authorities under the Act and that of the Appellate Tribunal. Accordingly, while allowing these Revision Petitions, we set aside the impugned orders. The matter is remanded to the assessing authority, with a direction to pass fresh assessment orders for the assessment year 1996-97 both under KGST and CST Acts, in accordance with law and in the light of the observations made by us in the course of S.T.RevNos.136 & 150 of 2005 - 14 - our order. In the facts and circumstances of the case, parties are directed to bear their own costs. Ordered accordingly. Sd/- H.L.DATTU, CHIEF JUSTICE. Sd/- A.K. BASHEER, JUDGE. DK. (True copy)