IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 12TH OCTOBER 2009 / 20TH ASWINA 1931 O.T.Appeal.No. 1 of 2009 ------------------------- ( AGAINST THE ORDER DATED 30/05/2009 IN R2.56024/05/TX IN of COMMISSIONER OF COMMERCIAL TAXES, TRIVANDRUM ) APPELLANT/RESPONDENT: ----------------------------- ONLINE SYSTEMS & SERVICES, KOTTAYAM REPRESENTED BY ITS PROPRIETOR, MR.SHYNU ANTONY. BY ADV. SRI.E.K.NANDAKUMAR ADV. SRI.A.K.JAYASANKAR NAMBIAR ADV. SRI.P.BENNY THOMAS ADV. SRI.ANIL D. NAIR RESPONDENT/REVISIONAL AUTHORITY: -------------------------------------------- THE STATE OF KERALA REPRESENTED BY THE SECRETARY, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADER ADV. MR. K.P. PRADEEP. THIS OTHER TAX APPEAL HAVING BEEN FINALLY HEARD ON 12/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R.RAMAN & P.R.RAMACHANDRA MENON, JJ. ------------------------------- O.T.Appeal No.1 of 2009 ------------------------------- Dated this the 12th October, 2009 J U D G M E N T Raman, J. M/s.Online Systems & Services, Chittoor Road, Ernakulam, is a Partnership Firm and is an assessee on the file of the Sales Tax Officer, I Circle, Ernakulam. They opened a branch at 9/189, No.1, Kandanchira Buildings, College Road, Kottayam, in 1998. They deal in Electronic Typewriter, Computer, Computer Peripherals and Telecommunication equipments. They are assessed regularly under the Sales Tax Act, for the entire sales turn over, at the head office at Ernakulam, as also at the Branch Office, Kottayam. Originally the Firm consists of two partners, Smt.Chinnamma Antony and Sri.Jose K.George, as it was at the formation stage. Whether there was any change in the constitution of the firm later is not the subject matter relevant for the purpose of deciding this case. From the file produced by the learned Government Pleader, it is seen that as per letter dated O.T.Appeal No.1 of 2009 2 3.4.2002, the assessee-firm informed the Sales Tax Officer, Kottayam, that the Branch at Kottayam will be closed from 1st of April, 2002 and on that basis, to make necessary changes in the file, since at the time of starting the branch at Kottayam, they had a branch registration on 3.1.1998. Subsequently, a shop inspection was conducted on 12.11.2004 by the Intelligence Squad, Kottayam, at the premises of Online Systems & Services, Kottayam, which was hitherto run as the Branch of the firm. 2. Based on the inspection, certain irregularities were noticed and accordingly, a notice under Section 45A of the KGST Act was issued against “M/s.Online Systems & Services, Kandachira Building, College Road, Kottayam”. This was served on Mr.Shynu Antony, the appellant in the present appeal. Among other things, it was alleged that the branch registration though valid with effect from 3.1.1998, the same was not seen renewed during 2002-2003; that the dealer has used computerised bills as well as manual set of bills simultaneously for effecting sales from Kottayam Branch; corresponding sales turn over to the tune of Rs.9,50,718/- effected through manual set of bills were O.T.Appeal No.1 of 2009 3 not seen accounted in the regular books of accounts; that the assessee submitted accounts relating to the head office showing the sales turnover of Rs.8,64,17,958/= and claimed exemption to the entire turnover; that the computer spare parts were assembled in the shop and sold it as computers, to evade payment of tax and bill was issued as though it was a sale of spare parts only, and some of the statements from purchasers were obtained in support thereof; and the Branch sales turnover to the tune of Rs.1,27,45,807/= was not seen included in the head office accounts and not reflected in the returns filed. Therefore, the entire sales turnover of the head office as well as the Branch of an amount of Rs.9,91,63,765/= was attracted to tax and additional sales tax. Therefore, it was proposed that a penalty of Rs.92,59,972/= representing double the amount of tax due, on the estimated turnover of Rs.10,05,43,173/= has to be imposed and objections were called for. To that, objections were filed, wherein it was contended that M/s. Online Systems & Services, Kottayam, is a Proprietary Concern, and the said Shynu Antony, the objector, is the Proprietor of the same, and it O.T.Appeal No.1 of 2009 4 was not run as branch office during the year 2002-2003. Therefore, the first objection raised was against the business premises where the shop inspection was conducted being treated as the Branch office of the Firm. It was also pointed out that the statements, if any, taken from third parties were not seen by the appellant and that copies were not given to him and he could prove that he has not effected any sales as alleged, if such particulars were furnished to him. He also explained the other irregularities pointed out. It was also contended that goods obtained from Online Systems & Services, Ernakulam, was an out-rate purchase of the goods from them, and there is no question of any irregular branch transfer as alleged. He also denied that he is not a partner of the firm, Online Systems & Services, and that the said assessee had no firm at Ernakulam, at the time of inspection of the premises. 3. The Intelligence Officer, after considering the objections, it is stated in Annexure-B order that regarding the stoppage of Kottayam Branch in 2002-2003, there was no mention made as reported by the Assessing Officer, Ernakulam. O.T.Appeal No.1 of 2009 5 It is also stated that the assessing authority issued notice regarding the status of Branch and no reply was seen filed. The Intelligence Officer, after considering, the various objections raised, came to the conclusion that in order to evade payment of tax, sales invoices were raised, as though they were having sale of spare parts of the computer and that the sale was infact assembled units. However, no mention was made as to whether computer sales effected by Online Systems & Services, Ernakulam, to the appellant was a branch transfer or a sale. Finally, a penalty of Rs.92,59,972/= as proposed was confirmed. The matter was taken in Revision before the Deputy Commissioner, who by his order dated 20.10.2005, Annexure-D produced in the case, modified the order of penalty, reducing it to Rs.50,000/=. Among other things, the Deputy Commissioner in his revisional order, entered the following findings. 4. On the contention regarding independent nature of the business concern at Kottayam, the Deputy Commissioner issued a letter seeking for clarification from the assessing authority, viz., the Sales Tax Officer, Ist Circle, Ernakulam. The assessing O.T.Appeal No.1 of 2009 6 authority while forwarding the assessment records on 18.08.2005 reported that the assessee had closed down their branch at Kottayam with effect from 01.04.2002 and surrendered the original certificate. The intimation of closure of the Branch at Kottayam is seen filed at page 19 of the assessment records and the surrendered branch certificate is also available in the file. The licence from Kottayam Municipality in the name of Shynu Antony was dated 07.07.2002, ie. before inspection. Subsequently, the appellant was a registered dealer before the Sales Tax Officer, Kottayam. In the said circumstances, he said that the Intelligence Officer had not contacted the assessing authority at Ernakulam on receipt of the objection to ascertain the independent nature of business. In view of the evidence as discussed above, it was held that the business concern at Kottayam is an independent proprietary concern from 2002-03 onwards owned by the appellant . The next issue was regarding the absence of books of accounts and stock variation arrived at. No irregularity was found in estimating the values on the excess stock found. O.T.Appeal No.1 of 2009 7 5. As regards the nature of unaccounted sales as per manual bills, it was found that the same has not been proved in the absence of books of accounts at the time of inspection and that the assessing authority can examine the said aspect again and make stock analysis at the time of assessment . The finding on the unaccounted sale is therefore vacated. 6. Coming to the question of adding Head Office sales along with branch sales of Rs. 9,91,63,675/- for calculating the suppression, it was found that there was no justification in taking the Head Office sales as suppression since the independent nature of the business concern was decided as above. Further, there was no inspection in the Head Office . Thus the penalty levied was found to be excessive and reduced it to Rs.50,000/- by way of modification. This penalty is arrived at for the offence of stock variation arrived at and for the absence of Books of Accounts at the time of inspection and also for non registration. 7. The Commissioner, Commercial Taxes suo motu proposed to revise the order passed by the Deputy Commissioner in exercise of power under Section 37 of the O.T.Appeal No.1 of 2009 8 KGST Act, 1963. He made a proposal as contained in Annexure- E and after hearing the parties confirmed his proposal, restoring the order of the original authority, by setting aside the order of the Deputy Commissioner. The said order is produced as Annexure-G in this case, aggrieved of which, this appeal is preferred. 8. We have gone through the file and we find that the intimation regarding closure of business at Kottayam had been given by the Ernakulam Office. Admittedly, the Head Office was situated at Ernakulam and later a branch was opened at Kottayam with due intimation. It was thereafter, from 2002-03 onwards, the business at Kottayam was sold to the appellant herein and the same was stated as running as a proprietary concern. Admittedly no notice was seen issued to the Ernakulam Office. Before rejecting the contention that the Ernakulam Office had closed down their branch at Kottayam, necessarily the partners of the firm ought to have been heard in the matter. It has to be noted that the appellant took the stand that the Kottayam branch has since been sold to the appellant, he is O.T.Appeal No.1 of 2009 9 carrying on the business as a proprietary concern; that the authorities issued further notice and proceedings in the same address of the appellant at Kottayam and that the authorities did not choose to issue notice to the Ernakulam Office . This is a serious infirmity in the procedure adopted . The materials said to have been sold under partnership to the appellant at Kottayam was treated as 'branch transfer' and it is on that presumption that the appellant was found as a defaulter in not showing the turnover and that the entire amount has been reckoned in the hands of the appellant for the purpose of quantification of penalty. Secondly, it is true that for using the invoice of the partnership concern by the appellant at Kottayam, penalty has been imposed on him. But if this was without the knowledge of the 'firm', then such misconduct on the part of the appellant is not a reason to fasten any liability on the 'firm'. It may be a case where the appellant despite the transfer, might have chosen to keep the goods in the office belonging to the 'firm'. Therefore, this is a case where final finding has to be arrived at, with notice to the Ernakulam office because many of the findings now O.T.Appeal No.1 of 2009 10 entered will affect the 'firm' and not the appellant, since even the present order imposing penalty is issued only in the firm's name. Therefore, we find that this procedural violation has vitiated the order passed by the revisional authority and accordingly, we set aside the said order without entering into the merits of the issue. After issuing notice to the partnership concern, a fresh finding shall be arrived at and proceeded in accordance with law. Accordingly, we remit the case to the Commissioner, who may pass necessary orders remitting the same to the original authority, if found, necessary. The Appeal is allowed as above. P.R. RAMAN, JUDGE. P.R. RAMACHANDRA MENON, JUDGE. lk