IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM FRIDAY, THE 5TH MARCH 2010 / 14TH PHALGUNA 1931 WP(C).No. 126 of 2006(M) ------------------------ PETITIONER(S): --------------- ABY ENGINEERS AND CONSULTANTS (P) LTD., VISHAKAM, KASTHURBA NAGAR, KOCHI-20, REPRESENTED BY ITS PRESIDENT, MR.ABRAHAM BABU. BY ADVS. MR.A.M.SHAFFIQUE MR.E.K. NANDAKUMAR MR.JAYASANKAR A.K. MR.ANIL D. NAIR RESPONDENT(S): --------------- 1. SALES TAX OFFICER (RESERVE), 3RD CIRCLE, ERNAKULAM. 2. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES, ERNAKULAM. 3. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM. 4. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY (TAXES) GOVERNMENT OF KERALA, SECRETRIAT, THIRUVANANTHAPURAM. GOVERNMENT PLEADER MR. V.K. SHAMSUDHEEN FOR R1-3 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15/9/2009, THE COURT ON 05/03/2010 DELIVERED THE FOLLOWING: WP(C).126/06 APPENDIX PETITIONER'S EXHIBITS:- EXT.P1:- TRUE COPY OF THE REPLY SENT TO THE R1 DT.3.10.98 EXT.P2:- TRUE COPY OF THE ORDER ISSUED BY R1 DT.5.10.98 EXT.P3:- TRUE COPY OF THE ORDER ISSUED BY R2 DT.20.8.03 EXT.P4:- TRUE COPY OF THE ORDER ISSUED BY R3 DT.2.7.04 EXT.P5:- TRUE COPY OF THE ORDER ISSUED BY R2 DT.8.8.05 EXT.P6:- TRUE COPY OF THE ORDER ISSUED BY THE R3 DT.1.10.05 RESPONDENT'S EXHIBITS:- NIL OKB //TRUE COPY// P.A. TO JUDGE C.K.ABDUL REHIM, J. ------------------------------ W.P.(C).No.126 OF 2006 ------------------------------ Dated this the 5th day of March, 2010 J U D G M E N T ---------------------- 1. Issue involved in this writ petition pertains to legality and correctness of penalty imposed under Section 45A (c) and (g) of the Kerala General Sales Tax Act, 1963 (KGST Act). The petitioner, a registered dealer under the Act, has failed to file monthly return and to pay the tax due with respect to the month of July 1998, which was due on 15.8.1998. Pursuant to this the 1st respondent conducted a shop inspection on 18.9.1998 and information gathered on such inspection revealed that the petitioner had effected sale of Kerosene from 1.7.1998 to 14.7.1998 to the tune of Rs.43,02,900/- and collected a sum of Rs.2,04,900/- by way of sales tax. Alleging that there is violation of Section 17(1) of the Act read with Rule 21(7) of the KGST Rules, imposition of penalty was proposed against the petitioner alleging offences under clause (c) and (g) of sub-section (1) of Section 45A of the Act. Immediately on receipt of the proposal notice, the petitioner had remitted tax amount due for the month of July 1998 to the tune of Rs.2,23,736/- by way of Demand Draft W.P.(C).126/2006-M -2- on 26.9.1998. After remitting the tax due, petitioner submitted reply to the proposal stating reasons for non filing of return and delay in payment of tax, as due to the business problems of delay in getting Demand Draft from their head office at Chennai from where the financial transactions are being handled. According to the petitioner, the delay caused was due to the unavoidable and unforeseen reasons, and that it was not due to any attempt at evasion of payment of tax due. It is also contended that proposal for imposing penalty at the rate of double the amount of tax is unjustified. Finding that the reasons enumerated by the petitioner is not a valid excuse for not remitting the tax amount collected and holding that there is clear violation of compliance of statutory provisions within the time stipulated under the statute, the 1st respondent found that the act of the petitioner is not bonafide but willful and deliberate. It is stated that the offence committed is of serious nature as the tax collected was kept by them without remitting, for no valid reasons. Therefore penalty as proposed at the rate of double the amount of tax was imposed under Ext.P2 order. 2. The petitioner filed revision against Ext.P2 before W.P.(C).126/2006-M -3- the 2nd respondent. But there was a delay of 4 years, 7 months and 6 days in filing the revision petition. The petitioner sought to condone the delay explaining that they have received Ext.P2 proceedings during the year 1998 itself, but the said proceedings could not be traced out due to the reasons that they have shifted office in between and the Accountant who was in charge of handling such matters had resigned from their service. Therefore the revision could be filed only after obtaining a fresh carbon copy. But the 2nd respondent observed that the reason stated is not convincing in the absence of any corroborative evidence with respect to missing of the order originally served. Hence, finding that there is no justifiable reason forthcoming for condonation of delay the revision petition was rejected through Ext.P3 order. The matter was taken up before the 3rd respondent in further revision. The petitioner had produced the resignation letter of the Accountant and also a letter from the owner of the building regarding shifting of their office in order to substantiate the cause for delay. After elaborate consideration of those documents and on referring to the legal principles laid down W.P.(C).126/2006-M -4- by the Hon'ble Supreme Court in the decision reported in 1966 STC 228, it is observed that a possibility of occurring delay as explained by the petitioner cannot be ruled out. But finding that the petitioner has not established the same beyond any reasonable doubt the matter was remitted back to the 2nd respondent with direction to afford opportunity to the petitioner for substantiating the cause of delay before the 2nd respondent. In Ext.P4 order the 3rd respondent observed that if the petitioner can establish the delay was caused due to genuine reasons then the 2nd respondent shall consider the contentions regarding imposition of penalty and also regarding quantum of penalty. After remission of the matter the 2nd respondent again considered the aspect of delay and Ext.P5 order was issued. The 2nd respondent while considering the reasons for causing delay as explained by the petitioner, observed that there are serious laches on the part of the petitioner all through their dealing with the Sales Tax Department. The non filing of return and non payment of tax for the subsequent month as well as the matter relating to imposition of penalty consequent to inspection conducted by an intelligence squad etc. were considered by W.P.(C).126/2006-M -5- the 2nd respondent. Going into details of such aspects it was found that the petitioner had filed revision petition and other proceedings in between and the Accountant who alleged to have resigned from service was not handling the sales tax matters. Therefore condonation of delay was again refused, observing that the reasons explained are not genuine and bonafide. Hence the revision petition was again rejected through Ext.P5 order. 3. In a further revision filed before the 3rd respondent against Ext.P5, Ext.P6 order was passed. Eventhough the findings arrived by the 2nd respondent with respect to condonation of delay was upheld, the 3rd respondent found that the petitioner had however paid the defaulted tax in September 1998, which was actually due on 15.8.1998. Therefore it is held that imposition of double the amount of tax as penalty was not warranted. Accordingly the amount of penalty was reduced to an amount equal to the amount of tax due. The petitioner is challenging Ext.P6 order in this writ petition. 4. It is contended by the petitioner that the entire tax amount has been paid along with interest. The delay of W.P.(C).126/2006-M -6- about 40 days in remitting the tax due for the month of July 1998 was not a willful evasion. The delay in remittance was not practiced as a device or strategy to escape payment of tax and there was no deliberate act on the part of the petitioner in defiance of law. It is contended that there was no guilty or contumacious or dishonest acts on the part of the petitioner in discharging any obligations. Therefore it is contended that imposition of penalty under Section 45A was not at all warranted. It is also contended that even assuming, without admitting, that there is any liability for imposition of penalty, the maximum penalty which can be imposed is only an amount of Rs.10,000/-, the offence alleged being technical in nature. The petitioner had relied on various decisions of this court and that of the Hon'ble Supreme Court, in order to contend that imposition of penalty even if permissive is not compulsive. It is contended that the quantum of penalty to be imposed should always depend on the gravity of offence, which in turn should depends upon the facts and circumstances of the case. Reliance was placed on the decision reported in T.R. Ramachandran v. Sales Tax Officer ((1997) 106 STC W.P.(C).126/2006-M -7- 413) in which it is stated that belated payment of tax and filing of monthly returns if any amount to violation of the provision under Section 17 of the Act read with Rule 21(7) and 27(11), could not be stated as an evasion on the part of the petitioner, if there is reasonable cause for delay occurred in remitting the tax and filing of monthly return. In such case non compliance of the provision stipulated under the Rules can be considered as a contravention as contemplated in Section 45A. But the maximum penalty which could be imposed on such circumstances was only Rs.5,000/-. In a recent decision of a Division Bench of this court in Yeses International v. State of Kerala (2008 (4) KLT 454) it is observed as follows:- “Taxing statutes generally authorise imposition of penalty for delay in filing returns, concealment of tax liability, default in payment of tax, contravention of mandatory provisions etc. The proceedings for imposition of penalty are quasi criminal in nature. This power of imposing penalty is only discretionary and the penalty shall not be ordinarily imposed unless the person/dealer has acted deliberately in defiance of law or guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligation. Even if the statute prescribes a W.P.(C).126/2006-M -8- minimum penalty the authority will not be justified in imposing it, if the breach was technical or venial or was the result of bonafide belief. S.45A of the Act provides for imposition of penalties on contumacious or fraudulent assessees. The various grounds for penalties are fully enumerated there. The object of the provision is to provide a stimulant to a dealer to observe the mandate of the provisions of the Act.” Based on the dictum laid in the above said decision the petitioner seeks to quash Ext.P6 contending that even imposition of penalty equal to the amount of tax is unsustainable. 5. On an elaborate consideration of the facts and circumstances of the case it is evident that the petitioner had failed to file monthly return and to make payment of the tax collected by them within the time stipulated under the statute. However, it is noticed that the petitioner had remitted the tax amount along with interest immediately on receipt of proposal for imposition of penalty, ie., within about 40 days from the due date. Still further it is noticed that there was inordinate delay in challenging the penalty proceedings occurred from the side of the petitioner. However, in Ext.P6 order of the second revisional authority, W.P.(C).126/2006-M -9- the said authority had proceeded to consider the matter on merits and reduced the quantum of penalty to an amount equal to the tax amount due. Under such circumstances the question to be considered in this writ petition is only as to whether imposition of penalty based on the tax amount is justifiable, or as to whether the offence alleged is coming within the category of offence mentioned in Section 45A for which penalty can be imposed with an amount not exceeding Rs.10,000/-. Going by the provisions contained in Section 45A it is clear that the assessing authority being satisfied that there is commission of any offence enumerated under Section 45A(1)(a) to (g), shall direct payment of penalty of an amount not exceeding twice the amount of sales tax or the amount sought to be evaded. But wherever it is not practicable to quantify the evasion the amount of penalty which could be imposed is a maximum of Rs.10,000/- only. It is a case where the allegation is that of violation of Section 17(1) of the KGST Act and Rule 21(7) of the KGST Rules. Penalty is proposed under Section 45A(c) and (g) which pertains to failure to submit returns and action in contravention of any of the provisions of the Act or Rules. W.P.(C).126/2006-M -10- Since the offence alleged is non payment of tax due for the month of July 1998 the amount of tax sought to be evaded is quantifiable. But at the same time the fact remains that the tax amount was paid along with interest within a short period. Therefore the respondent ought to have considered the gravity of the offence while deciding the quantum of penalty. Eventhough in Ext.P6 the 3rd respondent had reduced the penalty equal to the amount of tax, there is no such consideration explicit on the face of the order. Since this is a matter pertaining to the year 1998 and about 12 years had elapsed since the date of the impugned order, I am not proposing to remit the matter back to the authorities any further. On the other hand, considering the entire facts and circumstances, I am of the considered opinion that reduction of the quantum of penalty is warranted. I feel that imposition of penalty to the tune of Rs.50,000/- will meet the ends of justice. Therefore I am inclined to modify Ext.P6 order to the above extent. 6. Accordingly the writ petition is disposed of modifying Ext.P6 order to the extent of reducing the quantum of penalty to an amount of Rs.50,000/-. The W.P.(C).126/2006-M -11- respondents shall issue revised demands accordingly, without any further delay. Needless to say that amounts if any already remitted has to be appropriated against such demand. C.K.ABDUL REHIM, JUDGE. okb