IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON FRIDAY, THE 16TH JULY 2010 / 25TH ASHADHA 1932 WP(C).No. 22322 of 2010(M) --------------------------------------- PETITIONER(S): ------------------------ COCHIN SHIPYARD LIMITED, PERUMANOOR P.O. COCHIN-682 O15, REPRESENTED BY ITS DIRECTOR (FINANCE) MR.RAVI KUMAR RODDAM. BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH RESPONDENT(S): --------------------------- 1. THE STATE OF KERALA, REPRESENTE BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVT.SECRETARIAT, THIRUVANANTHAPURAM-695001. 2. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM-695033. 3. THE DEPUTY COMMISSIONER (APPEALS), DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM, COCHIN-682 015. 4. INTELLIGENCE OFFICER (IB),ERNAKULAM, OFFICE OF THE DEPUTY COMMISSIONER (INT.), DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM, AT EDAPPALLY. BY SR. GOVT. PLEADER SRI.C.K.GOVINDAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 16/07/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R.RAMACHANDRA MENON, J -------------------------------------------- WP(C) NO. 22322 OF 2010 -------------------------------------------- Dated this the 16th day of July, 2010 JUDGMENT The petitioner, Cochin Shipyard Ltd., which is a Central Government undertaking, is before this Court challenging the condition imposed by the appellate authority vide Ext.P11, directing the petitioner to satisfy 50% of the liability and to furnish Bank Guarantee for the balance amount so as to avail the benefit of interim stay, during the pendency of the appeal. 2. The factual matrix as described in the Writ Petition shows that, the petitioner Shipyard, pursuant to a work order received from a Foreign Company had constructed and sold a vessel to the purchaser and it was exported as per the terms of the contract. The assessment of the petitioner has already become final. It is stated that, the transaction does not attract any tax liability at all, the subject matter having exported, as contemplated under Article 286 of the Constitution of India, read with Section 5 of the Central Sales Tax Act. In spite of this, Ext.P6 notice was issued proposing to impose penalty upon the petitioner on some wrong and misconceived idea, which in turn was replied by the petitioner vide Ext.P7, besides submitting Ext.P7(a) detailed notes of argument, also referring to the binding judicial precedents and the question of law involved. However without any regard to the same, the 4th respondent 2 WP(C) No. 22322/2010 passed Ext.P8 order, whereby a huge liability, to an extent of more than 25 crores, was mulcted on the shoulders of the petitioner, which in turn has been subjected to challenge by filing Ext.P9 appeal, along with Ext.P10 petition for stay, before the 3rd respondent. On moving the I.A. for stay, the 3rd respondent passed Ext.P11 order, of course granting interim stay however subject to the condition that, the petitioner satisfied 50% of the disputed amount and furnished Bank Guarantee for the balance as specified. 3. The learned counsel for the petitioner submits that, the idea and understanding of the 3rd and 4th respondents is per se wrong and illegal and there is absolutely no proper application of mind before passing the impugned orders, which hence are under challenge before this Court. 2. Heard the learned Government Pleader as well. 3. Referring the materials on record, the learned counsel for the petitioner submits that, the very observation made by the 4th respondent in Ext.P6 shows that, there is total non application of mind, in so far as the same is passed based on a wrong observation as follows:- “In the circumstances, it is conclusively proved that the company has effected local sales of vessels exigible to tax @ 4% KVAT with 1% Cess on VAT and wilfully evaded payment of tax due on the sale value of Rs.315,20,06,607/- which worked out to Rs.12,73,41,067/- under the guise of export sale by filing untrue returns before the assessing authority, which constitutes an offence punishable under Section 67(1) of the 3 WP(C) No. 22322/2010 KVAT Act, 2003”. The learned counsel submits that, the returns filed by the petitioner are very much correct and proper and that no tax liability has been sought to be fastened on the petitioner under any circumstance. It is in spite of this, the petitioner has been chosen to be penalized; for which there is absolutely no rhyme or reason and hence is liable to be interfered. The learned counsel further submits that, the mistake has been repeated by the appellate authority as well, while passing Ext.P11 order. The reasoning given by the appellate authority in Ext.P11 to hold the position against the petitioner is as follows: “All the above conditions stipulated in the agreement clearly show that Cochin Shipyard Ltd. has built, sold and delivered Rolls Royce Platform supply Vessel to the foreign buyer at the Company's shipyard and the Commercial Invoice and other document of title of the vessel transferred to the buyer upon delivery of the vessel at the shipyard of the Company before the goods have crossed the customs frontier of India. In the above reasons, I am of the view that the Company has effected local sale of vessels exigible to tax @ 4% with @ 1% cess on tax as wilfully evaded payment of tax due to the sale value of the Rs.315,20,06,607/- which worked out of Rs.12,73,41,067/- under the guise of export sale by filing untrue returns. But a maximum penalty imposed on this line is too bit high and excessive. So considering the above aspects, I find that there is a prima facie case for the appellant and hence the following orders are passed.” 4. The learned counsel for the petitioner submits that, the proper test is not whether the transaction has resulted in a sale in Kerala; but 4 WP(C) No. 22322/2010 whether the same has led to an 'export' with regard to which, there is absolutely no dispute whatsoever. Reliance is also sought to be placed on the three decisions rendered by the Constitution Bench of the Apex Court reported in State of Travancore-Cochin Vs. Shanmugha Vilas Cashew- nut Factory [1953 (4) STC 205 (SC)] (5 Member Bench), Burmah Shell Oil Storage & Distributing Co. of India Ltd. Vs. Commercial Tax Officer [1960 (11) STC 764 (SC)] (5 Member Bench) and Ben Gorm Nilgiri Plantations Co. Vs. Sales Tax Officer [1964 (15) STC 753 (SC)] (5 Member Bench), which in turn was followed by the Apex Court in the subsequent decision in Coffee Board Vs. Joint Commercial Tax Officer [25 STC 528] as well. This being the position, the condition imposed by the appellate authority while granting interim stay vide Ext.P11, does not have any rationale and that the matter requires to be considered in detail passing final orders in the appeal itself, submits the learned counsel. 5. The learned Government Pleader submits with reference to the materials on record that, proper reasoning has already been given by the appellate authority in Ext.P11 with reference to the stipulations contained in Ext.P1 agreement. But the crucial question to be considered is rather a question of law, to be applied to the given facts and circumstances. This Court finds it fit and proper to have the appeal 5 WP(C) No. 22322/2010 considered and disposed of, particularly in the light of the law declared by the Apex Court on the point. 6. In the above circumstances, the 3rd respondent is directed to consider Ext.P9 appeal and pass final orders in accordance with law, of course, giving an opportunity of hearing to the petitioner, as expeditiously as possible, at any rate, within two months from the date of receipt of a copy of this judgment. It is made clear that, till such orders are passed on Ext.P9 appeal, all further coercive proceedings, if any, shall be kept in abeyance; on condition that the petitioner furnishes sufficient security in respect of the disputed amount. It is also made clear that, this Court has not expressed anything as to the merits involved. The Writ Petition is disposed of accordingly. P.R.RAMACHANDRA MENON JUDGE dnc