IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN THURSDAY, THE 8TH JANUARY 2009 / 18TH POUSHA 1930 ST.Rev..No. 3 of 2009() ----------------------- AGAINST THE ORDER DATED 28/11/2007 IN TA.217/06 IN RP.4/07 IN TA.207/2006 of S.T.A.TRIBUNAL,ADDL.BENCH,PALAKKAD .................... REVISION PETITIONER (S): ASSESSEEE ----------------------------- M/S. VASANTHA MODERN RICE MILL VADAVANNUR, KOLLENGODE, PALAKKAD, REP. BY ITS MANAGING PARTNER, SRI.K.S. PARASURAM. BY ADV. SRI.T.M.SREEDHARAN SRI.V.P.NARAYANAN RESPONDENT(S): REVENUE ---------------------- STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT, SECRETARIAT, THIRUVANANTHAPURAM. BY G.P. SRI. TEKCHAND THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 08/01/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR & P.N. RAVINDRAN, JJ. -------------------------------------------- S.T. Rev. No. 3 OF 2009 -------------------------------------------- Dated this the 8th day of January, 2009 JUDGMENT Ramachandran Nair,J. Petitioner is a small scale industrial unit which was enjoying sales tax exemption for seven years under notification SRO 1729 of 1993. During the period of exemption, petitioner was found to be engaged in transactions of suppression of purchase and sales leading to evasion of sales tax. By virtue of notification, SRO 295 of 1998, an industrial unit which was enjoying sales tax exemption is not entitled to continue the benefit of exemption, if it was detected of engaging in the offence of suppression of purchase or sales turnover. The notification however allows the unit to continue the exemption if the offence charged is compounded under Section 47 of the Kerala General Sales Tax Act, hereinafter called the "Act", and twice the amount of tax on the suppressed turnover is remitted by the dealer. During 2000-01 petitioner was found to have suppressed purchase and sales turnover 2 and petitioner compounded the offence by remitting twice the amount of tax on the suppressed turnover. Petitioner continued to avail exemption under notification SRO 1729 of 1993 amended by SRO 295/98. Petitioner repeated the offence again in the subsequent year, that is during 2001-02, but did not compound the offence, and suffered penalty for attempt to evade tax under Section 29A(4) of the Act. While completing the assessment for 2001-02 the assessing officer declined to grant sales tax exemption originally granted to the petitioner under SRO 1729 of 1993 on the ground that petitioner did not compound the offence by remitting the compounding fee under Section 47 of the Act or paid twice the amount of tax on the suppressed turnover under the saving clause contained in notification SRO 295/98. In appeal, the first appellate authority noticed that penalty levied was under Section 29A(4) of the Act and so much so there was no offence that could be compounded under Section 47 of the Act. On appeal by the department, Tribunal reversed the order of the first appellate authority by which the assessment declining sales tax exemption was restored. Petitioner filed rectification application stating that petitioner is still entitled to compound the offence under Section 47, if at all there 3 was offence, and avail the exemption. The Tribunal turned down the same against which this revision is filed. We have heard Sri. T.M. Sreedharan, counsel appearing for the petitioner and Government Pleader appearing for the respondent. 2. The first question raised is whether notification SRO 295/98 is attracted to a case where, pursuant to detection of purchase or sales suppression, penalty was levied only under Section 29A(4) of the Act and not under Section 45A of the Act. Since the question pertains to application of notification SRO 295/98 we have to necessarily refer to the wording of the notification and for this purpose notification itself is extracted hereunder: SRO No.295/98:- In exercise of the powers conferred by section 10 of the Kerala General Sales Tax Act, 1963 (15 of 1963) the Government of Kerala, having considered it necessary in the public interest so to do, hereby make the following amendments to Notification issued in G.O.(P) No. 155/93/TD dated 3rd November, 1993 and published as S.R.O. No. 1729/93 in the Kerala Gazette Extraordinary No.1122 dated the 4th November, 1993, as subsequently amended, namely:- AMENDMENTS In the said notification,- 4 (i) after sub-clause (ix) of clause 10 the following shall be inserted, namely:- (x) Industrial units in respect of which an offence of suppression of purchase or sales turnover is detected shall be debarred from availing of exemption under this notification from the date of detection of the offence. But industrial units which admit the offence, compound the same and pay the compounding fee under Section 47 of the Kerala General Sales Tax Act, 1963 and twice the tax on the suppressed turnover shall be permitted to continue to avail themselves of the exemption. (ii) In sub-clause (ix) of clause 11, after the words "desicccated Coconut out of Coconut" the following words shall be inserted, namely:- Chemical treatment of rubber wood and production of dressed or tanned hides out of raw hides This notification shall come into force on the 1st day of April, 1998 Explanatory Note (This does not form part of the notification, but is intended to indicate its general purport). In the Budget Speech for the year 1998099 it was announced to make provisions to debar industrial; units which misuse exemption. It was also proposed to include chemical treatment of rubber wood and tanning of hide and skins under manufacturing process. This notification is intended to achieve the above object. (K.G. Ex. No. 540 dated 31.3.1998) 5 From the above it is clear that an industrial unit enjoying sales tax exemption under notification SRO 1729/93 is barred from getting the benefit after detecting offence of suppression of purchase or sales turnover. In other words, an industrial unit enjoying sales tax exemption should account their entire transactions of purchase and sales and if they are found to be engaged in evasion, they will forfeit the benefit of exemption from the date of detection of offence. However, by way of exception, an industrial unit which has forfeited it's tax exemption on account of commission of offence can continue to enjoy the exemption by compounding the offence detected under Section 47 on payment of compounding fee and by remitting twice the amount of tax on the suppressed turnover. In fact this is exactly what was done by the petitioner in the preceding year that is during 2000-01, when it was found to have committed offence of purchase or sales suppression. During this year also, that is 2001-02, when the Intelligence Officer verified the goods under transport on 14.12.2001, petitioner was found to have transported goods purchase or sales of which was not covered by sale bill. In other words, offence of unaccounted sale or purchase was detected during 2001-02 also. Since 6 petitioner did not compound the offence, penalty was levied under Section 29A(4) of the Act. According to counsel for the petitioner, penalty levied was only Rs. 530/- which was remitted by the petitioner. The question to be considered is whether the proceedings that led to levy of penalty under Section 29A(4) is a transaction covered by notification SRO 295/98. On going through the notification, we find that notification covers every case of suppression of purchase or sales which is an offence punishable under Section 46 of the Act. Even though counsel for the petitioner contended that offences referred to in Section 46 are matters on which penalty could be levied under Section 45A, because both sections come under the same chapter, we are unable to accept this contention because this Court in M/S. SAHIB RUBBER INDUSTRIES V. STATE OF KERALA, (2006) 14 KTR 184, took the view that offences referred to in notification SRO 295/98 are not confined only to offences referred to under Section 46 of the Act. Further it is seen that Section 46(1)(f) provides residuary provision which makes all contraventions under the provisions of the Act and Rules as offences with effect from 29.7.1996. Admittedly petitioner was found to be engaged in purchase or sales suppression in 7 regard to goods transported by them and so much so there was offence punishable at least under Section 46(1)(f) of the Act which was not compounded by the petitioner under Section 47 of the Act. Moreover, penalty provided under Section 29A(4) and Section 45A is almost identical because for attempt to evade tax, penalty could be levied under either of the provisions. In fact Chapter VI which provides for requirement of maintenance of books of accounts, and procedure for transport of goods, makes a specific provision under Section 29A(4) for levy of penalty for attempt of evasion of tax pertaining to goods under transport. However, this does not mean that petitioner could not be levied penalty under Section 45A even for cases booked pursuant to inspection during transport of goods because Section 45A(g) provides for penalty for contravention of any of the provisions of the Act and Rules leading to evasion of tax. In other words both Section 45A and Section 29A(4) are not in conflict with each other but serve the same purpose of levying penalty on tax evasions or attempt of evasion. In other words, merely because penalty is levied under Section 29A(4) based on purchase or sales suppression of goods under transport, it cannot be said that there is no offence punishable under Section 46 that 8 could be compounded under Section 47 of the act. We therefore hold that the offence of purchase or sales suppression detected in the course of transport of goods also is a case covered by SRO 295/98 and so much so the view taken by the first appellate authority in allowing the petitioner's case was wrong and the Tribunal rightly reversed it. 3. The next question to be considered is whether compounding should have been permitted by the Tribunal based on rectification application submitted by the petitioner. Counsel for the petitioner submitted that petitioner was not prosecuted for any offence punishable under Section 46 and therefore there was no scope for compounding under Section 47 of the Act. However, according to him, petitioner is willing to compound the offence for availing the benefit of notification SRO 295/98. We do not think there is any requirement to launch any prosecution for any offence under Section 46 for denying the benefit of exemption under notification SRO 295/98. In fact what is stated in the notification is detection of an offence and not punishment for an offence under Section 46 of the Act. In other words, in order to deny sales tax exemption under SRO 295/98 what is required is only detection of an offence which may or may not end up in prosecution 9 and punishment. If an industrial unit which is detected of an offence wants to continue to avail exemption under the exception clause contained in the notification, it is for the dealer to opt for compounding of the offence detected by remitting the compounding fee and along with it payment of twice the amount of tax on suppressed purchase or sales turnover. Petitioner has not opted to compound the offence and has not paid any compounding fee or twice the amount of tax on the suppressed turnover. Penalty levied under Section 29A(4) and adjusted from out of security is not a substitute for payment of compounding fee and payment of twice the amount of tax on the suppressed turnover in terms of notification SRO 295/98. Even though we are inclined to hold that levy of penalty may not bar an industrial unit from offering to compound the offence and even higher authorities under the statute, the Tribunal and this Court can permit it, in the course of appeal or proceedings before them, we are not inclined to grant the relief to the petitioner, though not for the reasons stated by the Tribunal, but for the simple reason that petitioner which was enjoying sales tax exemption and was expected to maintain proper books of accounts was detected of repeated offence for different years. In fact we have already noticed 10 that during 2000-01 also petitioner was engaged in purchase or sales suppression and when the offence was detected petitioner compounded the offence, that too after the order was passed by the Appellate Tribunal. The object of SRO 295/98 in debarring exempted unit from availing sales tax exemption after detection of offence of purchase or sales suppression is to ensure that those industries which enjoy sales tax exemption should honestly account their entire transactions of purchase and sales and if they violate the same, it in turn will run counter to the exemption certificate granted to them which provides for sales tax exemption for the particular amount of tax which is directly linked to the turnover. In other words, exemption certificate could be strictly enforced only if dealer conforms to the discipline of maintenance of proper books of accounts. This Court upheld the validity of notification SRO 295/98 for the reasons stated above. Even though it is not so specifically stated in SRO 295/98, we do not think benefit of exception clause therein can be claimed by an industrial unit engaged in repeated offence of purchase or sales suppression. In other words, we are of the view that exception provided by way of pardon or amnesty to the erring industrial unit should be granted only once and 11 for repeated offence, an industrial unit should not be granted the benefit of notification SRO 295/98. We therefore decline to extend the benefit of Amnesty under the exception clause contained in SRO 295/98 for the repeated offence committed by the petitioner during 2001-02 also because petitioner already enjoyed the benefit in the preceding year. Consequently we dismiss the Tax Revision. (C.N.RAMACHANDRAN NAIR) Judge. (P.N. RAVINDRAN) Judge. kk 12