IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR TUESDAY, THE 27TH MAY 2008 / 6TH JYAISHTA 1930 ST.Rev..No. 450 of 2005 ------------------------- TA.745/2003 of S.T.A.TRIBUNAL,ADDL.BENCH,PALAKKAD PETITIONERS/ASSESSEE. -------------------------------------- P.S.JOHNY, PROPRIETOR, VIMU GAS AGENCIES, OLLUR, THRICHUR. BY ADV. SRI.KMV.PANDALAI RESPONDENTS: ------------- STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADER SHRI MUHAMMED RAFIQ THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 27/05/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.Dattu, C.J. & T.R. Ramachandran Nair, J. - - - - - - - - - - - - - - - - - - - - - - - - S.T. Revision No.450 of 2005 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 27th day of May, 2008. ORDER H.L.Dattu, C. J. The revision petitioner is a dealer in gas cylinders. He is also a dealer registered under the provisions of Kerala General Sales Tax Act and Central Sales Tax Act. For the assessment year 1999-2000, he had filed his annual returns declaring a total unexempted sales turnover of Rs.1,69,61,917.65. 2. These returns came to be rejected by the assessing authority and thereafter, has proceeded to complete the best judgment assessment by merely relying upon the shop inspection report said to have been done on 29.12.2000. Before completing the best judgment assessment, the assessing authority had issued a pre-assessment notice proposing to levy tax on the sales of 7200 gas cylinders said to have been purchased from Bharath Petroleum Corporation Limited, Coimbatore, by way of inter-state sales effected. 3. After receipt of the pre-assessment notice issued, the assessee has filed his detailed objections, inter-alia bringing to the notice of the assessing authority that the sales of 7200 gas cylinders has been accounted and shown separately as taxable item in the revised return filed on 9.7.2002. 4. The assessing authority, as already stated, merely depending on the shop inspection report and the compounding of the offence by the assessee departmentally in lieu of prosecution, has rejected the explanation offered by the assessee to the pre- assessment notice issued and has proceeded to add the sales turnover of 7200 gas cylinders to the total turnover declared by the assessee and has levied tax at the rate of S.T.Rev.450/05 2 10% and 12%. 5. The assessee had unsuccessfully filed appeals before the first appellate authority as well as before the Tribunal. 6. In this revision petition, the assessee has framed three questions of law for our consideration and decision. They are as under: “1. Was the authorities below justified in confirming the addition merely on the basis of the compounding proceedings made in lieu of prosecution, without independent detection of any variation in the accounts scrutinised by the Assessing Authority? 2. Was the Tribunal justified in dismissing the appeal without independent consideration of various contentions raised by the petitioner and merely relying on the compounding proceedings which is an entirely different proceedings for an entirely different purpose? 3. Were the authorities below not duty bound to independently consider the facts and circumstances of the case before passing the assessment order and confirming the same in appeal, without being followed by the findings of the Intelligence Officer?” 7. Shri K.M.V. Pandalai, learned counsel appearing for the assessee would submit, that, at the time of shop inspection by the authorities under the Act on 29.12.2000, in the books of accounts maintained by the assessee there was misclassification of the taxable items and non-taxable items. Since it had been pointed out by the Intelligence Officer, the assessee had compounded the offence departmentally. But at the time of filing revised returns before completion of the S.T.Rev.450/05 3 assessment proceedings, the assessee had properly declared the taxable turnover. Since the declaration so made by the assessee would tally with the books of accounts maintained, there was no reason for the assessing authority to add the sales turnover of 7200 gas cylinders to the declared total turnover. Though this aspect of the matter was brought to the notice of the first appellate authority as well as before the Tribunal, all the authorities merely depending on the shop inspection report of the department dated 29.12.2000, had rejected the plea of the assessee. The assessee, therefore, requests us to interfere with the orders passed by the authorities under the Act as well as by the department. 8. Shri Muhammed Rafiq sought to justify the impugned orders passed by the assessing authority as well as by the Tribunal. Learned Government Advocate also produced before us the records maintained by the assessing authority for the assessment year in question. 9. The assessment year in question is 1999-2000. The assessee had filed his annual returns on 27.4.2000. The shop inspection in the business premises of the assessee was carried out by the Intelligence Wing of the Department on 29.12.2000. In the shop inspection report, it was noticed that the assessee had misclassified the taxable items under the heading non-taxable items. This was brought to the notice of the assessee. Since there was a mistake committed by him while writing the books of accounts, the assessee had compounded the offence departmentally in lieu of prosecution proceedings. Therefore, before completion of the assessment for the assessment year in question, the assessee had filed the revised return dated 9.7.2002 and in that revised return, he had properly declared the items which are taxable for the assessment year in question. Though the assessing authority had the advantage of S.T.Rev.450/05 4 looking into the books of accounts maintained by the dealer, he did not prefer to do so, but merely proceeded to complete the best judgment assessment based on the shop inspection report dated 29.12.2000. 10. In our opinion, the assessee is the second dealer of gas cylinders in the State. In his business activity, the assessee effects both intra and inter-state purchase of gas cylinders. In the assessment year in question, he had purchased 7200 gas cylinders from M/s. Bharath Petroleum Corporation Limited, Coimbatore. The gas cylinders so purchased were shown as non-taxable items in the books of accounts maintained. But when the mistake was pointed out by the Intelligence Wing of the Department, the assessee had rectified the mistake and therefore, has filed revised returns on 9.7.2002. In the revised returns so filed, the assessee has made the proper declaration of both taxable and non-taxable turnover. The assessing authority was expected to have looked into the declaration so made by the assessee in his revised returns and should have passed an appropriate order. In the instant case, the assessing authority has merely proceeded to rely upon the shop inspection report to make an addition of sale of 7200 gas cylinders to the declared turnover of the dealer for the assessment year in question. In our opinion, this would not have been done by the assessing authority and more so, could not have confirmed both by the Appellate Authority as well as by the Tribunal. In that view of the matter, in our opinion, the order passed by the assessing authority in so far as it makes an addition of sales of 7200 gas cylinders to the total turnover, requires to be deleted. Accordingly, we pass the following order: The revision petition is allowed. The impugned order passed by the Tribunal is S.T.Rev.450/05 5 set aside. A direction is issued to the assessing authority to delete the additions made in the orders of assessment passed for the assessment year 1999-2000 and issue a fresh demand notice. Ordered accordingly. H.L. Dattu, Chief Justice. T.R. Ramachandran Nair, Judge. Kav/dk