IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUESDAY, THE 15TH MARCH 2011 / 24TH PHALGUNA 1932 WP(C).No. 6266 of 2011(G) ------------------------- PETITIONER: ------------------ 1. ABHISHEK S., ABHISHEK HOUSE, AASRAMAM P.O., KOLLAM. 2. M/S.SATHAYAN GOLD, PUNNATHANAM JUNCTION, AASRAMAM P.O., KOLLAM, REPRESENTED BY ITS MANAGING PARTNER SATHYANADAN K. BY ADVS. SRI.S.SANTHOSH KUMAR SMT.P.LISSY JOSE. RESPONDENT: ------------------- THE INTELLIGENCE INSPECTOR, SQUAD NO.1, COMMERCIAL TAXES, KOLLAM-691021. ADDL. R2 IMPLEADED ------------------------------- ADDL.R2. THE INTELLIGENCE OFFICER, SQUAD NO.1, O/O.INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, KOLLAM, IMPLEADED AS PER ORDER DT. 15.3.2011 IN IA.4166/2011 BY SENIOR GOVERNMENT PLEADER SRI.C.K.GOVINDAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15/03/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: VK C.K.ABDUL REHIM,J. ------------------------------- WP(C).NO. 6266 of 2011 --------------------------------- Dated this the 15th day of March, 2011 JUDGMENT The 1st petitioner is the registered owner of a Car bearing No.KL-23B-5076. The 2nd petitioner is a firm dealing in gold ornaments having registration under the provisions of the Kerala Value Added Tax Act (KVAT Act). The Managing Partner of the 2nd petitioner firm is the father of the 1st petitioner. On 11.2.2011 the above said vehicle was intercepted by the respondent while it was carrying Gold ornaments. According to the petitioners, the gold ornaments were taken to various dealers for showing the same as samples by a representative of the 2nd petitioner firm and it was transported on the strength of a declaration issued by the 2nd petitioner regarding ownership and the purpose for which it was transported. 2. On interception the respondent initiated proceedings under section 47(16) of the KVAT Act for confiscation of the Gold Ornaments, on the basis of the allegation that the transport was not accompanied by proper documents as prescribed under the WP(C) .6266/2011 2 KVAT Act and also on the basis of suspecting genuineness of the consignor and the consignee. The respondent had also initiated a proceedings under section 47(2) of the KVAT Act on issuing Ext.P5 notice, on the basis of an allegation that an 'estimate bill book' recovered from the vehicle revealed sales of 8539.728 grams of gold ornaments to various dealers, whose identity was not fully disclosed, and therefore suspecting evasion of payment of tax. In the said notice it is alleged that, the 2nd petitioner had suppressed turn over with respect to sale of gold ornaments, conducted between April,2010 to January, 2011, and committed habitual and chronic evasion of tax legitimately due to the Government. Estimating the value of goods sold from 21.1.2011 till date, security deposit was demanded to the tune of Rs.15,07,672/-. 3. Initially the 2nd petitioner firm had filed a composite reply to the notices issued under section 47(16) and 47(2) of the KVAT Act. But the respondent had issued Ext.P7 proceedings under section 47(16) ordering confiscation, on rejecting the explanation submitted by the 2nd petitioner. But the respondent had issued a further notice under section 47(2) as evidenced WP(C) .6266/2011 3 from Ext.P8, revising the value estimated and the security deposit demanded. As per Ext.P8 a sum of Rs.43,62,452/- was demanded as additional security deposit. Both the petitioners have submitted further objections to Ext.P8 notice as evidenced from Exts.P9 and P10. Ext.P10 is the objection submitted by the 1st petitioner who is the registered owner of the vehicle. Subsequently, this writ petition was filed seeking release of the vehicle on the basis of a contention that the proceedings initiated under section 47(2) is totally unsustainable and that the detention of the vehicle is not legal and proper. 4. According to the petitioners, the vehicle could not be proceeded against under section 47(2) and (3) of the KVAT Act, since the alleged evasion of payment of tax, has no connection with the vehicle and transport of any such gold ornaments, which was allegedly sold to various dealers during different dates, were not proved to be transported in the vehicle in question. During pendency of the writ petition the Additional 2nd respondent had adjudicated the matter and issued Exts.P11 and P12 notices. Ext.P11 is a notice issued against the 1st petitioner. In Ext.P11, request made by the 1st petitioner for release of the WP(C) .6266/2011 4 vehicle was rejected, alleging that there is collusion between the dealer and the owner of the vehicle and the person in charge of the vehicle. In Ext.P11 the authority found that the dealer had effected sales by issuing estimate slips and such slips were recovered from the vehicle. Hence it is proved that there was deliberate attempt to evade payment of tax by using very same vehicle, which is owned by the son of the dealer, and the circumstances makes it clear that there was a practice being followed in using the very same vehicle by the dealer and conducting very same mode of transaction. Relying on a decision of the Hon'ble Apex Court in Pavithran vs. Poulose (1978 KLT 431) it is found that if there is any proof which is revealed through interception of the vehicle to the effect that unaccounted sales was effected, then security deposit can be demanded for the value of such sales even if there is no physical presence of such goods. 5. Through an amendment the petitioner is challenging Exts.P11 and P12 in this writ petition. Contention of the petitioners is that section 47(2) of the KVAT Act authorises only a detention of the goods and vehicle demanding security deposit, WP(C) .6266/2011 5 pending finalisation of the enquiry proceedings . But section 47 (5) and (6) do not authorise imposition of penalty on the allegation of any irregular transaction alleged to have been conducted during any past period. If any such irregular past transaction is detected, a proceedings for imposition of penalty under Section 67 can only be initiated against the dealer. In such case a proceedings for imposition of penalty as contemplated under section 47(5) and (6) of the Act could not be sustained. It is further contended that, the decision of the apex court upon which the 2nd respondent had placed reliance is not having any bearing or relevance in the context, because in the said case the question was as to whether the authorities who were inspecting the vehicle has got power to enquire and whether the goods removed from the vehicle was transported under proper documents. Further, the said decision was rendered in a criminal miscellaneous petition filed for quashing the steps initiated against the sales-tax officers. 6. The question mooted for consideration is as to whether a proceedings under section 47 (2) can be initiated for detaining the vehicle on the basis of an allegation that from the records WP(C) .6266/2011 6 recovered it was revealed that the dealer who was carrying the goods was involved in unaccounted and irregular transactions on previous occasions. Further question is as to whether penalty can be imposed under section 47(5) and (6), on getting proof to the effect that the dealer had involved in any irregular transaction on previous occasions. It is clear and evident that the respondent has no case that the vehicle in question was intercepted during any such transactions, alleged to have been conducted by the dealer during any previous occasions. Without there being any interception of the vehicle with respect to transport of goods allegedly transacted on unaccounted basis, no proceedings will be sustainable under section 47 of the Act. Of course if any such unaccounted and irregular transactions were unearthed, the same can be taken for initiating steps for imposition of penalty against the dealer under section 67 of the KVAT Act or under any appropriate provisions of the statute. But without there being any interception of the vehicle during the course of transport, no proceedings under section 47 can be initiated and no imposition of penalty can be sustained against the vehicle in question, as contemplated under section 47(5) and WP(C) .6266/2011 7 (6). Therefore it is evident that the proceedings initiated under section 47 of the KVAT Act by virtue of Exts.P11 and P12 on the basis of an allegation that the 2nd respondent had engaged in illegal and irregular transactions on any day prior to the date of interception, is illegal and unsustainable. Hence those notices are hereby quashed. 7. However, learned Government Pleader appearing on behalf of respondents points out that the vehicle in question is liable to be proceeded against under the provisions of section 69 (1) of the KVAT Act and that the respondents had already initiated steps in this regard. Since any such proceedings is not a subject matter of challenge in this writ petition, I am not expressing any opinion on the merits of such an issue. 8. Since it is noticed that the vehicle in question was detained from 11.2.2011 onwards, I am of the view that the same can be released to the 1st petitioner on his proving ownership of the vehicle, subject to condition of the petitioners jointly executing security bonds for the value of demand raised with respect to proceedings if any initiated under section 69(1) of the KVAT Act. Such security bond need be executed in the WP(C) .6266/2011 8 form prescribed under the KVAT Rules, without sureties. The writ petition is disposed of with the above directions. C.K.ABDUL REHIM,JUDGE pmn/