IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN MONDAY, THE 19TH JULY 2010 / 28TH ASHADHA 1932 ST.Appl..No. 1 of 2010() ------------------------ ORDER.R2-550/06/CT/2006 of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT/ASSESSEE ---------------------------- C.V. CHACKO, PROPRIETOR, HINDUSTAN ENGINEERING WORKS, KAYOORICKAL, KARIKODE.P.O, PERUVA, KOTTAYAM DISTRICT. BY ADV. DR.K.B.MUHAMED KUTTY, SENIOR ADVOCATE SRI.K.M.FIROZ RESPONDENTS/STATE: --------------- 1. THE SALES TAX OFFICER, VAIKOM. 2. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM. 3. DEPUTY COMMISSIONER, COMMERCIAL TAXES, KOTTAYAM. 4. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY TO TAXES, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. BY G.P. SRI.MOHAMED RAFIQ THIS SALES TAX APPEAL HAVING BEEN FINALLY HEARD ON 19/07/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... S.T. Appeal No.1 of 2010 .................................................................... Dated this the 19th day of July, 2010. JUDGMENT Ramachandran Nair, J. Heard Senior counsel Dr.Mohammedkutty appearing for the petitioner and Sri.Mohammed Rafiq, Government Pleader appearing for the respondent. Order under challenge in the appeal is the one issued by the Commissioner under Section 37 of the KGST Act confirming penalty levied on the appellant under Section 17(5A) of the KGST Act for the year 2000-2001. The penalty levied was cancelled by the first revisional authority, which was reversed by the Commissioner in exercise of suo moto revisional power which is under challenge in this appeal. 2. This court has held that penalty under Section 17(5A) of the Act at three times of differential tax is mandatory in respect of tax evaded in the assessment completed under Section 17(4) of the Act. Section 17(4) provides for completion of assessment based on return and statement of accounts furnished by the assessee and the further STA 1/2010 2 declaration by the assessee that the same are true and correct. However, as against a maximum penalty for evasion in the case of normal assessment at twice amount of tax, Section 17(5A) provides for three times of tax for dishonest practice by the assessee on the department. In this case there can be no dispute that Section 17(5A) is squarely applicable because assessee did not disclose the turnover pertaining to softwood sale to a Central Government undertaking. However, when the Intelligence Wing of the Department collected details from the company and when it came to the notice of the assessee, assessee filed revised return and paid the tax with reduced interest under amnesty scheme. Senior counsel appearing for the appellant contended that penalty is harsh and arbitrary because assessee volunteered to pay tax even before penalty notice was issued. However, Government Pleader submitted that it is only to get rid of the penalty the assessee paid the tax voluntarily which is done after detection and initiation of proceedings for penalty, though notice probably would not have been issued. In any case we notice that penalty is based on full tax, whereas in the assessment assessee is granted concessional rate and the tax liability is only Rs.1,02,880/-. The maximum penalty that could be demanded is only three times of STA 1/2010 3 tax which as per assessment at concessional rate is only Rs.3,08,604/- as against Rs.21,99,950/- originally levied and confirmed in revision by the Commissioner based on full rate of tax applicable to the goods. Even though appellant's case for cancellation of penalty is not tenable because penalty as per settled position is mandatory in the case of filing false return, we feel levy of penalty based on full rate of tax is not justified. In fact, the tax referred to in Section 17(5A) is the actual differential tax assessed which in this case is only Rs.1,02,880/-. We, therefore, allow the appeal in part by sustaining the penalty in principle but by reducing it to Rs.3,08,640/- as against Rs.21,99,950/- confirmed by the Commissioner in suo moto proceedings under Section 37 of the KGST Act. If payment is not made, assessee is free to apply for amnesty benefit before the department and avail eligible relief. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms