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 SEPTEMBER 2011 / 28TH BHADRA 1933 OT.Rev.No. 90 of 2010() ----------------------- TAVAT.383/2009 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM .................... REVISION PETITIONER/RESPONDENT/REVENUE --------------------------------------- STATE OF KERALA, REP.BY DEPUTY COMMISSIONER (LAW) COMMERCIAL TAXES, ERNAKULAM BY GOVERNMENT PLEADER, SRI.MOHAMMED RAFEEQ RESPONDENT/APPELLANT/ASSESSEE: --------------- M/S.SREE RAMACHANDRAN ENTERPRISES, PAZHAVANGADI STREET,FORT , THIRUVANANTHAPURAM-695001 ADV. SRI.MILLU DANDAPANI FOR R1 THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 19/09/2011, ALONG WITH O.T.R.V.NOS.91, 93, 94, 95, 96, 97, 98, 99, 100 OF 2010, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: O.T.R.V.Nos.90/2010 APPENDIX ANNEXURE-A: COPY OF THE ASSESSMENT ORDER DT.18.10.2008. ANNEXURE-B: COPY OF THE COMMON ORDER OF THE DEPUTY COMMISSIONER (APPEALS) DT.4.5.2009. ANNEXURE-C: COPY OF THE ORDER OF THE STAT DT.26.7.2010. //TRUE COPY// PA TO JUDGE C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. ------------------------------------------ O.T.R.V.Nos.90, 91, 93, 94, 95, 96, 97, 98, 99 & 100 OF 2010 ------------------------------------------- Dated this the 19th day of September, 2011 O R D E R ~~~~~~~ C.N.Ramachandran Nair, J. Of the ten revision cases, five are filed by the assessee and five by the department, all arising from the common orders of the Tribunal disposing of five penalty appeals. While the assessee has prayed for cancellation of the orders of the Tribunal confirming penalty, the department's case is that 50% reduction in penalty granted by the Tribunal is arbitrary and illegal. Consequently, the prayer of the department is to restore the penalty levied by the Intelligence Officer and confirmed in first appeals. 2. We have heard the learned Government Pleader appearing for the State and the learned counsel appearing for the assessee. 3. The assessee is a dealer in readymade garments and textiles with a single godown declared. It is seen that four other O.T.R.V.Nos.90/2010 etc. 2 sister concerns under the same management shares the same godown with the assessee. On information received, the Intelligence wing of the department conducted search in five undeclared godowns maintained by the assessee. The search conducted on 18.8.2008 disclosed unaccounted goods worth Rs.1,62,13,882/- stocked by the assessee in five undeclared godowns. Similarly, when accounts were verified it was noticed that the assessee was engaged in preparing profit and loss account wherein only 50% of the sales is accounted. The Intelligence Officer levied penalty under Section 44(8) of the Kerala Value Added Tax Act, 2003 (herein after referred to as the 'Act') at 50% of the value of the goods stocked in the undeclared godowns. The assessee raised the contention before the Intelligence Officer that at 10.25 a.m. on the date of search the assessee's Accountant gave letters declaring the godowns of all the sister concerns and since the search was started only at 11 a.m. on that date, the godowns should not be treated as undeclared godowns as provided under Section 44(10) of the Act. However, the Intelligence Officer did not find any merit or bonafide in the contention because atleast one of the undeclared godowns where huge stock was maintained was opened more O.T.R.V.Nos.90/2010 etc. 3 than 1½ years back by the assessee. Therefore, the Intelligence Officer by relying on Section 44(8) read with Section 44(10) levied penalty at half the value of the stock found in the undeclared godowns. When the connected appeals were filed against penalty orders, the first appellate authority verified the mahazar and the accounts produced and he found that besides stocking the goods in the undeclared godowns, the assessee has suppressed the details of goods. The assessee's contention that godowns were declared on the date of search but before commencement of search was turned down by the first appellate authority. On second appeals filed by the assessee, the Tribunal in principle confirmed finding of storing of stocks in undeclared godowns by the assessee and the unaccounted sales of goods. The Tribunal in principle upheld penalty but reduced the penalty to Rs.25 lakhs which is just 15% value of the goods found in undeclared godowns as against 50% of the value of the goods levied as penalty by the Intelligence Officer and confirmed in first appeals. It is against these orders of the Tribunal, both sides have come up in revision before us. O.T.R.V.Nos.90/2010 etc. 4 4. After hearing both sides and after going through the orders, we do not find any bonafide or merit in the contention of the assessee that the godowns were declared 45 minutes before the the commencement of search on 18.8.2008 because atleast one of the godowns in which huge unaccounted stock was found was taken on lease by the assessee 1½ years prior to the date of search. The assessee has no explanation as to why the godowns used for 1½ years was not declared to the department until 45 minutes prior to the commencement of search on 18.8.2008. So far as the contention of the assessee that each of the five undeclared godowns were maintained by each of the five sister concerns including the assessee, we do not find any merit in these contentions because only common godown was declared for all the sister concerns, which are admittedly managed by the same assessee. In fact, it is seen that confirmation letter for all the sister concerns was signed by one and the same person. We do not know how the department can grant separate registration under the Act for sister concerns with common godown. In any case, since the beneficiaries are one and the same and since all the godowns are undeclared godowns within the meaning of Section 44(10) of the Act penalty O.T.R.V.Nos.90/2010 etc. 5 is rightly levied under Section 44(8) of the Act. The principles of law followed by the Tribunal are those laid down by this Court in two reported decisions referred to in the Tribunal's order. Eventhough there has been an amendment to sub sections 8 and 10 of Section 44 by Act 10 of 2010 the said amendments do not apply in the case booked against the assessee based on search conducted on 18.8.2008. Further, the assessee also could not establish that the goods found stored in the undeclared godowns were accounted in the books of accounts. So much so, the penalty was rightly levied under Section 44(8) of the Act. 5. The learned Government Pleader contented that Tribunal has no authority to convert penalty levied under Section 44(8) to penalty levied for evasion of tax under Section 67(2) of the Act. What we notice is that the Tribunal has not converted the penalty from Section 44(8) to Section 67(2) and all what they have done is to compare the maximum penalties leviable for the undeclared stock which is above Rs.1.6 crores. Consequently, the Tribunal reduced the penalty from Rs.81 lakhs to Rs.25 lakhs by taking a lenient view in the matter, that is, by taking into account the tax sought to be evaded for the stock found in O.T.R.V.Nos.90/2010 etc. 6 undeclared godowns. The contention of the assessee's counsel is that the maximum penalty payable is only double the amount of tax and not four times of the tax sustained by the Tribunal. We have already noticed that the Tribunal has not converted the penalty from Section 44(8) to Section 67(2) and they have only stated the reasoning for reducing the penalty from Rs.81 lakhs to 25 lakhs, which should be taken as a leniency shown in favour of the assessee. We notice that Section 44(8) only says about the maximum penalty and so much so, the penalty that could be levied can be the amount fixed by the Tribunal which works out to 15% of the value of the goods found in undeclared godowns. When Tribunal has exercised discretion in favour of the assessee, we do not find any ground to deviate from their view. We, therefore, do not find any merit in the revision filed by both the revenue as well as by the assessee. Consequently, all the revision cases are dismissed. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) ps/23/9