IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY TUESDAY, THE 11TH JANUARY 2011 / 21ST POUSHA 1932 OT.Rev.No. 4 of 2009() ---------------------- TAVT.40/2008 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM .................... REVISION PETITIONER/RESPONDENT/REVENUE:- ---------------------------------------------------------------------- STATE OF KERALA, REP: BY JOINT COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY GOVERNMENT PLEADER SRI.MOHAMMED RAFEEQ. RESPONDENT/APPELLANT/ASSESSEE:- ------------------------------------------------------ M/S.INTEGRATED MEDICAL SYSTEMS, SNEHA NAGAR – 56, ERAVIPURAM P.O., KOLLAM DISTRICT. ADV. SRI.S.ANIL KUMAR (TRIVANDRUM) SRI.K.S.HARIHARAN NAIR THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 11/01/2011, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: C.N.Ramachandran Nair & Bhabani Prasad Ray, JJ. ==================================== O.T.R.V.(VAT)No.4 of 2009 ==================================== Dated this the 11th day of January, 2011. ORDER Ramachandran Nair, J. 1. The question raised is whether in the course of penalty proceedings initiated under Section 67 of the Kerala Value Added Tax Act the assessee is entitled to claim input tax credit so that penalty could be levied only with reference to the net tax liability due under the Act. We have heard Government Pleader appearing for the State and Adv.Sri.Anilkumar appearing for the respondent assessee. 2. The assessee, in spite of making sales of medical equipments during the year 2005-06, filed nil monthly returns as well as final return. However, the department collected invoice raised by the assessee to two hospitals in Kollam showing taxable sales of medical equipments made by the assessee which showed even tax collection. When penalty proceedings were initiated the assessee of course filed returns and paid the tax. However, since the assessee filed false OTRV4/09 -:2:- returns and paid the tax only on detection of the suppression and on initiation of penalty proceedings, the Intelligence Officer levied penalty which was confirmed in first appeal. In second appeal, the Tribunal confirmed the penalty against which revision filed by the assessee was dismissed by us vide judgment dated 19.11.2009 in O.T.R.V.49/09. This revision is filed by the State challenging that part of the order of the Tribunal directing the Intelligence Officer to consider assessee's eligibility for input tax credit and to reckon the penalty with reference to the actual tax sought to be evaded. 3. Government Pleader raised a contention that input tax credit claim cannot be considered under Section 67 of the KVAT Act. Prima facie, we are inclined to uphold this contention because, the input tax credit is part of the assessment proceedings wherein assessee itself can claim the benefit in the returns filed along with documents prescribed and in such cases the filing of returns will amount to an assessment by virtue of the operation of Section 21. However, in this case, what we notice is that, besides the detected turnover, the OTRV4/09 -:3:- assessee, while filing return, included the balance suppressed turnover and paid the tax. Admittedly, the department has also initiated turnover escaping assessment under Section 25 which now stands remanded for considering input tax credit in such assessment. In view of these developments, we feel there is no need to consider the question raised by the Revenue in the facts of this case. In view of the finding of the Tribunal that the assessee failed to produce original invoices and original purchase bills before the Intelligence Officer, the document purchased by the assessee should be critically scrutinized and if required, the assessment of the suppliers and their bills also should be verified while considering assessee's entitlement for input tax credit. We dismiss this STRV filed by the State, but with the above observation. C.N.Ramachandran Nair, Judge. Bhabani Prasad Ray, Judge. sl.