IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 6TH FEBRUARY 2008 / 17TH MAGHA 1929 MFA.No. 579 of 2003() --------------------- R4.42495/1999 of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT: ----------- M/S. TECSUN RUBBER PRODUCTS, MOORKANIKARA, THRISSUR-680 752 REPRESENTED BY ITS SOLE PROPRIETOR, T.G. RAVINDRAN. BY ADV. SRI.P.R.VENKETESH RESPONDENTS: ------------- 1. COMMISSIONER OF COMMERCIAL TAX, THIRUVANANTHAPURAM. 2. DEPUTY COMMISSIONER OF SALES TAX, THRISSUR. 3. ADDITIONAL SALES TAX OFFICER-II, I CIRCLE, THRISSUR. BY GOVERNMENT PLEADER SHRI K.P. PRADEEP THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 6.2.2008 ALONG WITH MFA NO. 580 OF 2003 MFA NO. 581 OF 2003 MFA NO. 582 OF 2003 MFA NO. 584 OF 2003 MFA NO. 589 OF 2003 THE COURT ON 06/02/2008 DELIVERED THE FOLLOWING: C.N. Ramachandran Nair & T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - - - M.F.A.NOs.579, 580, 581, 582 584 & 589 of 2003 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 6th day of February, 2008. JUDGMENT C.N. Ramachandran Nair, J. Heard learned counsel for the appellant and learned Govt. Pleader appearing for the respondents. 2. Appeals arise from the suo-motu revisional orders of the Commissioner of Commercial Taxes issued under Section 37 of the Kerala General Sales Tax Act cancelling the Deputy Commissioner's order in first revision and restoring the penalty levied by the assessing officer for the assessment years 1987-88 to 1992-93. The appellant is a manufacturer of tread rubber, purchasing rubber and other raw materials at concessional rate under Section 5(3) of the K.G.S.T. Act by issuing Form 18. The condition for availing concessional rate for purchase of raw materials, packing materials, etc. is payment of sales tax either under K.G.S.T. Act or under C.S.T. Act on the products manufactured. Admittedly, the appellant transferred substantial quantity of the products on stock transfer basis to outside the State on which no tax was payable or paid under the KGST Act MFA 579/2003 etc. -2- or CST Act in this State. Consequently, penalty was levied at 1 ½ times of the differential tax saved or evaded by the appellant. Even though the Deputy Commissioner reduced the penalty, the Commissioner of Commercial Taxes reversed the order holding that there is no justification for reducing the penalty and therefore the orders issued were prejudicial to the interest of the Revenue. 3. Before us, learned counsel for the appellant contended that the Commissioner had no jurisdiction to invoke suo-motu revisional powers, as the orders passed in revision reducing the penalty, were not prejudicial to the interest of the Revenue. According to him, the discretion exercised on the basis of the facts established, cannot be said to be an act prejudicial to the interest of the Revenue. However, learned Govt. Pleader submitted that but for the Commissioner's order reversing it, the first revisional authority's orders would have led to loss of revenue and therefore such orders were prejudicial to the interests of the Revenue. 4. The question whether the order revised is an order prejudicial to the interest of the Revenue, is to be considered with reference to the consequences of the orders sought to be revised. This is a case where the appellant saved or avoided payment of full rate of tax on raw materials purchased by declaring that goods manufactured will be sold in or from MFA 579/2003 etc. -3- Kerala. The appellant has no case that they were entitled to the concessional rate for purchase of raw materials for use in the manufacture of goods for stock transfer. In other words, concessional rate should have been claimed only for purchase of raw materials used for the production of goods for sale in this State. Therefore, the conduct of the appellant has led to loss of revenue which is the differential tax payable on the raw materials. This loss can be made up through tax-linked levy of penalty. The only defence put forward by the appellant was that the appellant was not aware of the requirement for payment of tax on the product in the State to avail the concessional rate for purchase of raw materials. Learned counsel for the appellant also pointed out that there is no conscious evasion of tax and the transactions were correctly accounted by the appellant. We are unable to accept this contention because deliberately or otherwise appellant's conduct led to loss of revenue and the remedy to compensate the State is through penalty as provided under Section 45A(f) of the Act. We find that the claim was made for the years 1987-88 to 1992-93 and compensatory penalty was levied only during 1996-97. In other words, by the time penalty was levied, there was delay in payment of differential tax ranging from 4 to 8 years. If differential tax and statutory interest thereon are taken as compensatory, the same will be more than the penalty levied by the assessing officer and MFA 579/2003 etc. -4- sustained by the Commissioner. If the Commissioner had not restored the penalty by reversing first revisional order, obviously the State would have suffered loss to the extent of the reduction granted by the Deputy Commissioner who, while issuing the order, did not take into account the adverse effect on the Revenue on account of the conduct of the appellant in availing concessional rate of tax without entitlement. We, therefore, hold that there was no justification for the Deputy Commissioner in reducing the penalty and the order so passed was prejudicial to the interest of the Revenue and the Commissioner rightly reversed it. We have already held that on account of the delay in levying penalty, the differential tax and interest attributable thereon will be more than the penalty levied. In this view of the matter, we dismiss the appeals upholding the orders of the Commissioner. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/ MFA 579/2003 etc. -5- C.N. Ramachandran Nair & T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - . No. - - - - - - - - - - - - - - - - - - - - - - JUDGMENT MFA 579/2003 etc. -6- 6th February, 2008.