IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 4TH OCTOBER 2011 / 12TH ASWINA 1933 OT.Rev.No. 81 of 2010() ----------------------- TAVAT.168/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM .................... REV.PETITIONER/APPELLANT/ASSESSEE: --------------------------- M.K.JIBIN SHAH, PROPRIETOR, RELAX TODAY'S KITCHEN, IRINJALAKUDA,THRISSUR DISTRICT BY ADV. DR.K.B.MUHAMED KUTTY, SENIOR ADVOCATE SRI.K.M.FIROZ RESPONDENT/ RESPONDENT/REVENUE: ---------------------- THE STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM- GOVT.PLEADER, SRI.MOHAMMED RAFEEQ THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 05/07/2011, ALONG WITH OTRV NO. 82 OF 2010, THE COURT ON 4/10/2011 PASSED THE FOLLOWING: O.T.R.V.No.81/2010 APPENDIX ANNEXURE-A: COPY OF PENALTY ORDER DT.1.6.2009. ANNEXURE-B: COPY OF THE FIRST APPEAL ORDER (COMMON ORDER) DT.4.1.2010. ANNEXURE-C: COPY OF THE APPELLATE TRIBUNAL ORDER (COMMON) IN T.A.NO.169/2010 DT.12.8.2010 ANNEXURE-D: COPY OF THE REVISED ARREAR NOTICE DT.25.9.2010. //TRUE COPY// PA TO JUDGE “CR” C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. ------------------------------------------ O.T.R.V.Nos.81 & 82 OF 2010 ------------------------------------------- Dated this the 4th day of October, 2011 C O M M O N O R D E R ~~~~~~~~~~~~~~~~ P.S.Gopinathan, J. These revisions under Section 63 of the Kerala Value Added Tax Act are filed by the common assessee assailing the legality and correctness of the common order in TA VAT Nos.168 and 169 of 2010 on the file of the Kerala Value Added Tax Appellate Tribunal, Ernakulam. The O.T.R.V. No.81/2010 relates to the assessment year 2007-2008 and the other revision relates to the assessment year 2008-2009. As the revision petitions are against the common order and that the disputes are connected, these revisions are disposed of by a common order. 2. The facts leading to the revisions are as follows: On 2.1.2009, the Intelligence Officer (I.B), Thrissur, made a surprise inspection at the business establishment in the name and style M/s.Relax Todays Kitchen, at Irinjalakuda. No Books of Account was seen maintained in the establishment. Four O.T.R.V.No.81 & 82/2010 2 diaries, four note books, two bill books and a file containing order forms were seized from the establishment. On the following day, the revision petitioner along with one K.M.Althaf went to the office of the Intelligence Officer and gave a statement in the handwriting of the revision petitioner signed by K.M.Althaf stating that the establishment fromwhere the documents were seized was run by Relax Catering Service which was owned by K.M.Althaf along with his brother K.M.Ashfak and that the revision petitioner was the General Manager. They requested for taking copies of the documents stating that the copies of the documents were required for complying the business orders. Accordingly, accepting the statement, the copies of the documents were furnished. On enquiry with the Commercial Tax Office, Irinjalakuda it was informed to the Intelligence Officer that M/s.Relax Todays Kitchen was having VAT Registration with TIN No.32080949477 with effect from 1.4.2008 in the name of the revision petitioner as proprietor of the establishment. On further investigation, it was revealed that commercial gas connection was obtained in favour of the establishment on 5.4.2007 and up to 31.3.2008 the O.T.R.V.No.81 & 82/2010 3 establishment had consumed non-domestic cooking gas for Rs.3,24,241.92/-. From 1.4.2008 to 29.12.2008 non-domestic gas for Rs.1,13,071.74/- was consumed. Verification of the records revealed nothing about the business transaction during the year 2007-2008. But, for the following year up to the date of inspection, business transaction amounting to Rs.35,11,989/- was disclosed from the records seized. Since no document relating to the business transaction for the year 2007-2008 was found out, the Intelligence Officer made enquiries with the Indian Coffee Workers Co-operative Society Ltd., Kannur (Palakkad Branch) which reported an average fuel input and output ratio at 1:10 i.e., for one rupee fuel expenditure, turnover is Rs.10/-. On further investigation, the Intelligence Officer came to a conclusion that the establishment was actually run by K.M.Althaf and his brother K.M.Ashfak as a partnership business and that the revision petitioner, who had obtained registration in his name, was a benami of the partners. On the basis of fuel input output ratio collected, the business turnover for the year 2007-2008 was calculated at Rs.32,12,419/-. Concluding that the turnover was suppressed to evade tax for O.T.R.V.No.81 & 82/2010 4 the year 2007-2008, a penalty of Rs.8,03,104/- was imposed as against the revision petitioner and the partners by Annexure-A order under Section 67(1) read with Section 26. For the business turnover from 1.4.2008 to the date of surprise inspection assessed at Rs.35,11,989/- on the basis of the materials disclosed from the documents seized, a penalty of Rs.2,80,960/- was imposed. The penalty imposed is nothing but double the evaded tax amount, i.e., at the rate of Rs.12.5% and 4% for the year 2007-2008 and 2008-2009 respectively. 3. Being aggrieved, the revision petitioner moved appeals before the Deputy Commissioner (Appeals) as Sales Tax Appeal No.KVAT 1705 & 1706/2009. By Annexure-B order in both revisions, the Deputy Commissioner (Appeals) dismissed both appeals. Assailing the common order in appeal, second appeals were preferred before the Kerala Value Added Tax Appellate Tribunal, Ernakulam, which by the impugned common order concurred with the first appellate authority as regards order imposing penalty. But the Appellate Tribunal was pleased to reduce the penalty at equal amount of tax. Now these O.T.R.V.No.81 & 82/2010 5 revisions. 4. Following are the questions of law raised in both the revisions: “1. The decision of the Appellate Tribunal that the petitioner was a binami of K.M.Althaf and K.M.Ashfak is correct on the basis of the material on record? Whether the penalty under Section 67 read with Section 26 of the Act is valid? 2. The estimate of turnover on the basis of information gathered from M/s.Best Gas Agencies, a third party, is valid in the light of the disallowance of cross examination requested for by the petitioner? 3. Is it fare and proper to estimate the turnover only on the basis of data gathered from Indian Coffee Workers Co-operative Society without affording opportunity to appellant to cross examine the representative of the society, when it is sought for? Even otherwise can the estimate on that basis said to be fair and proper the two business are not similar in nature? 4. Is not the penalty unwarranted on the facts of the case? Is not the penalty retained, at any rate excessive?” O.T.R.V.No.81 & 82/2010 6 5. We have heard Advocate Dr.K.V.Mohammedkutty, the learned senior counsel appearing for the revision petitioner and Sri.M.Mohammed Rafeeq, the learned Government Pleader and perused the documents. Point No.1: 6. It is not disputed that the revision petitioner had obtained registration under the Value Added Tax Act with effect from 1.4.2008 as a proprietary concern. If that be so, the petitioner is the sole proprietor of the establishment. Revision petitioner cannot escape from the liability. The Intelligence Officer relied upon the statement given by K.M.Althaf in the handwriting of the revision petitioner to find that the petitioner is a benami of K.M.Althaf and K.M.Ashfak. Admittedly, on the basis of that statement the revision petitioner obtained the documents seized by the Intelligence Officer. Now the very case of the revision petitioner is that Althaf is an employee under him. If that be so, why the revision petitioner had given the statement signed by K.M.Althaf, wherein it is stated that the business was run by Althaf and Ashfak and stating that the revision petitioner O.T.R.V.No.81 & 82/2010 7 is the General Manager remains a mystery. The revision petitioner has no good explanation as against the statement. It is pertinent to note that the revision petitioner has not given any other statement claiming ownership. In that circumstance, we find that there is no illegality or impropriety or error in giving reliance to the only statement, which is not denied, to arrive at a conclusion regarding the ownership. 7. Yet another document that was relied upon by the Intelligence Officer regarding the ownership of the business is the brochure seized at the time of surprise inspection. The genuineness of the brochure was not at all disputed. The brochure would show that the establishment was owned by Althaf and company having its Head Office at Kaipamangalam and branches at Chavakad and Irinjalakuda. The brochure contained three telephone numbers, namely, 0480-3204144, 9846355404 and 9846535405. The first connection was given by Reliance Company and other two connections were given by Vodafone. Enquiry revealed that those connections were obtained in the name of K.M.Ashfak. The revision petitioner has O.T.R.V.No.81 & 82/2010 8 no explanation regarding the subscribing mobile connections in the name of a third person. These circumstances, coupled with the statement given by Althaf prepared in the handwriting of the revision petitioner persuade us to conclude that the business was run by Althaf and his brother Ashfak and that the revision petitioner is a name lender because registration under the VAT Act was obtained in the name of the revision petitioner. The brochure and the statement, which was written by the revision petitioner in his handwriting and signed by K.M.Althaf, are documents coming under Section 84 of the VAT Act. It is legitimate to have a presumption that the contents therein are true and correct until the contrary is proved. The revision petitioner has not even attempted to impeach the documents. Since the revision petitioner had obtained registration under VAT Act, he can no way avoid the consequences of the failure to maintain accounts as well as the failure to file periodical returns. It is true that, if the revision petitioner is the sole owner, the finding of the Intelligence Officer confirmed in appeals may be a cloud on his title. Now it is pertinent to note that though a very high penalty was slapped against Althaf and Asfak, they didn't O.T.R.V.No.81 & 82/2010 9 care to challenge it. Suppose they have no right, in our opinion, they would have assailed the order. Their silence looms large. When all these circumstances are taken together, we find little reason to diverge with the authorities below. We are of opinion that the finding on title over the establishment can be clarified and limited to for the purpose of proceedings under VAT Act. Therefore, the conclusion of the Intelligence Officer confirmed by the Deputy Commissioner (Appeals) and the Appellate Tribunal on that aspect is perfectly based upon the evidence collected. No interference is warranted. We would further clarify that the finding regarding the ownership of the establishment shall be confined to this proceedings and wouldn't bind upon the revision petitioner is a civil suit, if instituted relating to the dispute of title. Point found accordingly. Points 2 and 3: 8. As stated earlier, the revision petitioner had obtained VAT registration in his favour as proprietor of the establishment with effect from 1.4.2008. According to the revision petitioner, the business was run by him only from that date. At the same O.T.R.V.No.81 & 82/2010 10 time, it is not disputed that commercial gas connection from Best Gas Agencies, Irinjalakuda was obtained on 5.4.2007. There is continued consumption of gas. But the revision petitioner would contend that there was no business during the year 2007-2008. Documents collected during enquiry revealed that during the year non domestic gas worth Rs.3,21,241.92/- was purchased. According to the learned senior counsel, the sale by the gas agency might have been made to some other persons who had no gas connection and the sale might have been recorded in favour of the revision petitioner. No doubt, that argument is on surmises. It is very vague. The learned senior counsel heavily assailed the assessment of the turnover by the Intelligence Officer on the basis of the gas consumed. It was also alleged that the Intelligence Officer has declined permission to cross examine the gas agency, who had reported the sale and therefore, that assessment is not sustainable. Though the argument prima facie appears to be impressive, on a careful consideration of the entire facts and circumstances, we find little merit in the argument because if the petitioner had not done any business from the date of getting gas connection, the petitioner O.T.R.V.No.81 & 82/2010 11 could have proved the same even by other means. First of all, the petitioner could have produced the accounts even from the date of admitted starting of the business. Secondly, the revision petitioner could have produced the documents relating to the purchase of utensils and other materials required for starting the business. Even by the documents seized by the Intelligence Officer from 1.4.2008 to 29.12.2008 the revision petitioner had done business for more than Rs.35lakhs. Definitely, for doing such a voluminous business, the petitioner would have purchased necessary utensils and other items. The date of purchase of utensils would have been a good piece of document in support of the plea of the petitioner. But the petitioner had not cared to produce bills for purchase of those items. The non- production of such bills persuades us to infer that it was not produced for the reason that it may belie the argument. It is also relevant to note that the petitioner had not given any good explanation for taking gas connection one year before the actual commencement of the business. The normal presumption, though rebuttable, is that the gas supply was to the consumer. The revision petitioner had not at all ventured to rebut the O.T.R.V.No.81 & 82/2010 12 presumption. Adding to that, there is no whisper for the petitioner that he had made any complaint to the gas manufacturer that the gas agency had made illegal supply of huge quantity to a non-registered consumer and accounts were falsified to make the gas supply in the name of revision petitioner. In such circumstance, we have no other option but to reject the contention while concurring with the fact finding authorities below. It is also pertinent to note that even for the business started from 1.4.2008 the petitioner has not even maintained any bit of account relating to the business or any return submitted, though registration was obtained on 1.4.2008 and voluminous business for more than Rs.35 lakhs was done. It indicates that the attempt of the petitioner is to evade the tax by not maintaining the accounts or other documents. In the above circumstance, we find no merit in the contention. 9. None of the documents seized during the surprise inspection contain any mention regarding the business run during the year 2007-2008. Whereas the documents seized would reveal that from 1.4.2008 to 29.12.2008 there was O.T.R.V.No.81 & 82/2010 13 business turnover amounting to Rs.35,11,989/-. The learned counsel for the revision petitioner does not care to impeach the conclusion of the Intelligence Officer confirmed in appeal and second appeal regarding the business after 1.4.2008. The finding of fact by the two fact finding authorities below basing upon the documents seized, therefore, in our opinion, requires no interference. We concur with authorities below and find that the turn over for 1.4.2008 to 2.1.2009 is Rs.35,11,989/-. 10. As regards the income from the business turnover for 2007-2008, the Intelligence Officer gave reliance to the report obtained from the Indian Coffee Workers Co-operative Society. On the basis of the report, the Intelligence Officer came to a conclusion that for one rupee input for fuel there would be an output of Rs.10. The revision petitioner has got a case that though the revision petitioner applied for cross examining the office bearers of the Indian Coffee Workers Co-operative Society, it was not granted by the Intelligence Officer. Even then, we fail to find that the Intelligence Officer had gone erred in arriving at the conclusion impugned. In the absence of accounts to O.T.R.V.No.81 & 82/2010 14 determine the annual turnout what is possible is a best judgment assessment. The Intelligence Officer collected datas from the Indian Coffee Workers Co-operative Society in his attempt to have a rationale for such best judgment assessment. It is not disputed that Indian Coffee Workers Co-operative Society had established so many restaurants throughout the State and doing good business. The Co-operative Societies Act under which it was established mandate to maintain true and correct account which is liable to be audited. In the normal course, there is nothing wrong in relying upon accounts maintained in terms of the statutory requirement for the purpose of best judgment assessment. It is also not disputed that Indian Coffee Workers Co-operative Society had been running its units at various parts of the State in competition with private parties. They have been sustaining their business with retail transaction. Whereas the petitioner has been doing bulk business, especially, in connection with the marriage and other mass programs. In the normal course, in such caterings there would be very good margin than retail restaurants running on competitive basis. So, by giving reliance to the input and output ratio of the Indian O.T.R.V.No.81 & 82/2010 15 Coffee Workers Co-operative Society, in fact, the revision petitioner was benefited, because, the turnout of the revision petitioner was calculated with reference to turnout of an establishment run with marginal profit. On the other hand, the petitioner could have otherwise established that the expenditure for fuel would be more than 10% of the turnout. The revision petitioner had not cared to adduce any evidence on that aspect. It is pertinent to note that the fuel expense for 2008-2009, is Rs.1,13,071.04/-. The turnover as per the document seized is Rs.35,11,989/-. If the input output ratio is calculated it would come to 1:31. That being so, the Intelligence Officer could have assessed the income for 2007-2008 also on the basis of documents seized. If done so, the penalty imposed should have been more than three times. The search of the Intelligence Officer for a third party, that too a party having lesser gross profit to assess the fuel input output ratio was not at all erroneous. Such action had only caused advantage to the assessee and not any disadvantage. Neither it has caused any prejudice to the assessee. Therefore, in our opinion, eventhough the revision petitioner was not allowed to cross examine the O.T.R.V.No.81 & 82/2010 16 office bearers of the Indian Coffee Workers Co-operative Society, the revision petitioner was no way prejudiced and the conclusion arrived by the Intelligence Officer confirmed by the appellate authorities below is no way erred. If at all erred, it is only in favour of assessee. Such being the materials on record, we find no error, illegality or impropriety committed by the appellate authorities below in finding against the revision petitioner so as to be rectified in exercise of the revisional powers. Both appellate authorities below were justified to uphold the business turnout of the revision petitioner estimated by the Intelligence Officer on best judgement assessment for the year 2007-2008 and on the basis of the document seized for the period 1.4.2008 to 2.1.2009. We find no reason to interfere with. Points found accordingly. Point No.4: 11. Though the first appellate authority concurred with the maximum penalty imposed by the Intelligence Officer, the Appellate Tribunal was lenient in reducing the penalty at equal amount of tax. Even if the second appellate authority was erred, O.T.R.V.No.81 & 82/2010 17 in our opinion, it is only towards leniency. This is a case in which there is deliberate attempt to evade tax. Despite the mandate of Section 40 read with Rule 58 and Section 20 read with Rule 22 and 24, the revision petitioner, who was doing voluminous business, had not cared to maintain accounts or to file monthly, quarterly or annual returns or to remit the tax though a registration was obtained after an year of starting business. Sufficient materials are there to conclude that the tax evasion was deliberate. Assessee is not at all entitled to any further leniency. Therefore, the penalty imposed as modified in second appeal requires no interference. Point found accordingly. In the result, both the Revision Petitions are devoid of merits. Accordingly, the Revision Petitions are dismissed. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) ps/20/9