IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM WEDNESDAY, THE 16TH SEPTEMBER 2009 / 25TH BHADRA 1931 WP(C).No. 25661 of 2009(C) ---------------------------------------- PETITIONER(S): ------------------------- V.P.RASHEED, PROPRIETOR, E ORIENTAL TIMBERS, NH BYE PASS, EDAPPALLY, KOCHI. BY ADVS. MR.SHAIJAN C.GEORGE, MR.JOHN VIPIN, SMT.S.REKHA KUMARI, SMT.SAJITHA GEORGE. RESPONDENT(S): -------------------------- 1. STATE OF KERALA, REP.BY SECRETARY TO GOVERNMENT, DEPARTMENT OF COMMERCIAL TAXES, GOVERNMENT SECRETARIAT, TRIVANDRUM. 2. DEPUTY COMMISSIONER, COMMERCIAL TAXES, THEVARA, ERNAKULAM. 3. DEPUTY COMMISSIONER INTELLIGENCE, COMMERCIAL TAXES, EDAPPALLY, ERNAKULAM. 4. INSPECTING ASSISTANT COMMISSIONER (INTELLIGENCE), EDAPPALLY, ERNAKULAM. 5. INTELLIGENCE OFFICER III, (RAPID ACTION), COMMERCIAL TAXES, OFFICE OF DEPUTY COMMISSIONER (INT) EDAPALLY. BY GOVERNMENT PLEADER MR. V.K.SHAMSUDHEEN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 16/09/2009 ALONG WITH WPC NO. 25662 OF 2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss C.K.ABDUL REHIM,J. -------------------------------------------- WP(C).No. 25661,25662,25690,25705 & 25711 of 2009 --------------------------------------------- Dated this the 16th day of September, 2009. JUDGMENT The challenge in these writ petitions are against notices issued under section 67(1) of the Kerala Value Added Tax Act, 2003 (for short KVAT Act) by Intelligence Officer (III) (Rapid Action) Department of Commercial Taxes, Ernakulam, at Edappally, who is the 1st respondent in WPC.Nos.25705/2009 and 25711/2009 and 5th respondent in the other three cases. Petitioners in all these cases are carrying on the business dealing in timber. All of them are importers of timber from different nations and supplying the same by sale to various users inside the State. They are registered dealers under the KVAT Act and the Kerala General Sales Tax Act (for short the KGST Act) for the former periods. The impugned notices are issued with proposals for imposing penalty to the tune of various amounts. 2. The allegations in the notices in all these cases are one and the same and difference is only with respect to the quantum of penalty proposed based on the difference in WPC.25661/09 & conn. Cases. 2 quantity of goods dealt with each of the petitioners. The allegation is that the petitioners practiced 'under- quantification' of purchases imported from various countries in South East Asia, especially from 'Myanmur' and consequently effected unaccounted sales, which had resulted in evasion of payment of tax. The allegation is that the petitioners were practicing misapplication of measurement system while declaring the quantity of import and thereby they were practicing suppression of actual turn over. It is alleged that in 'Myanmur' the measurement followed is the system prevalent in British which is “Hoppus Ton (HT)” system. The measurements are being converted into metric system by the dealers adopting geometrical formula as applied in the case of swan timber. It is alleged that dealers in these cases mis-referred the "Hoppus Ton (HT)" measurement as measurement in 'Cubic Ton' and converted the same to 'Cubic Meter' by applying the geometrical formula. Therefore the allegation is that when conversion of the quantity is effected from 'Hoppus Ton' to 'Cubic Meter', there occurred under declaration of actual quantity. It is WPC.25661/09 & conn. Cases. 3 alleged that one 'Hoppus Foot' unit is converted as 1.273 'Cubic Feet' or as 0.036054 'Cubic Meter'. But relying on the informations received from the website of, Forest Department of Andhra Pradesh, 'Wikipedia', 'web encyclopedia' and institutions under Myanmur administration etc., it is alleged that one 'Hoppus Foot' is equivalent to 0.03605 'Cubic Meter' and one 'Hoppus Ton' is equivalent to 1.8027 'Cubic Meter'. Therefore it is alleged that the correct conversion rates were not used while declaring imported quantity of timber and instead of conversion of one 'Hoppus Ton' as equivalent to 1.416 'Cubic Meter' the correct conversion of one 'Hoppus Ton' as equivalent to 1.86 'Cubic Meters' ought to have been adopted. On the above basis the declared quantity of timber imported by each of these dealers for the year 2008-09 was reworked and the turn over estimated on the difference between the declared quantity and the quantity reworked, along with gross profit added thereon is treated as suppression and double the amount of tax due on the suppressed turn over is proposed to be imposed as penalty. The petitioners were directed to WPC.25661/09 & conn. Cases. 4 file objections within 7 days of receipt of the notices. 3. Contention of the petitioners is that the proposal for penalty is issued purely based on hypothetical data and on imaginary grounds. According to the petitioners each import specifies the quantity of timber involved, in terms of cubic meters and/or cubic feet, and also specifies the particulars of each log like serial number, length, girth, cubical contents in cft etc. Those facts are verifiable when the goods are at the customs premises or during whene transport is effected or when the goods are kept at the petitioners yards or even when the goods are transported from the petitioners yard to the customers. The above details are available in the “packing slip” which accompanies each import and correctness of such quantity could have been verified before issuing the proposal. According to the petitioners, conversion method was being followed continuously since the last several decades and the authorities of the customs department is following the same method by accepting the quantity specified in 'packing slips', mentioned in cubic meters and/or in cubic feet. The authorities of the Forest WPC.25661/09 & conn. Cases. 5 Department as well as the authorities of the Commercial Tax Department were following the very same system and the advance tax was collected by the Commercial Tax Department hitherto, accepting the measurement noted in the documents of import. The allegation of under estimation of quantity and the allegation of unaccounted sales of marginal quantity of timber, is based on hypothetical datas. It is merely presumed by the authority that such suppression of quantity was being practiced by the dealers. Suppression at the time of purchase, if to be held as true, there would have been clandestine payment to the seller abroad. Further, in order to have such suppression the dealers would have effected unaccounted sales. In most of the cases the import is effected through Cochin Port. Import is preceded by specific orders placed with the sellers outside the nation, and the sellers are issuing regular commercial bills and bills of lading. Such bills of lading are accompanied by 'packing slips' showing the particulars of each log. The purchases are made against 'letters of credit' issued by the petitioners' bankers. Imported timber is WPC.25661/09 & conn. Cases. 6 cleared from the port after the payment of import duty, on inspection by the customs authority and then only the bill of entry will be obtained. The goods so cleared will be stocked at the yard and subsequently transported after effecting payment of Advance Tax. Such goods are sold as logs itself to various customers on the strength of invoices which are accompanied by delivery slips, which will indicate measurement of each of such logs . All the above said dealings are made based on the quantity of each log mentioned in the documents of import and the purchase and sales made in logs are identifiable at any given point of time. Therefore the suppression alleged on hypothetical basis adopting a data of 'conversion formula' is absolutely without any basis and therefore undeclared sale alleged is totally baseless, is the cotnention of the petitioners. 4. It is noticed that on receipt of the impugned proposal the petitioners have submitted detailed objections. In some of the cases it is noticed that the proposals with respect to the quantity has been subsequently revised and supplemental objections were also submitted. In one of WPC.25661/09 & conn. Cases. 7 the cases the assessee is yet to file objection. 5. In WPC.No.25705/2009 the petitioner had submitted before the authority that certain quantity of timber imported is lying in Cochin Port at present, waiting clearance and therefore the authority was requested to conduct physical verification of the logs. In order to ascertain the quantity and to ascertain correctness of the registers maintained and the documents accompanying the import, the petitioners had informed that, they will make all arrangements for taking out the measurements by employing sufficient number of staff. But the authority concerned had not so far made any such verification, is the complaint. 6. At this stage, petitioners have approached this court expressing an apprehension that without adverting to the grounds raised in the objections submitted against the proposals and without conducting any physical verification as requested, finalisation of the penalty proceedings will be completed. In such cases the petitioners would be fetched with huge liability, for which the petitioners are not at all WPC.25661/09 & conn. Cases. 8 responsible, is the submission. Under such circumstances the petitioners are seeking interference of this court in order to quash the proposal itself. 7. The impugned notices are one issued calling for objections against the proposals for imposing penalty. The matter is within the realm of jurisdiction of the authority concerned. It is for the authority who is empowered to impose penalty to consider the objections raised by the petitioners against such proposals. Interference in any manner by this court at this stage, without even permitting the authority concerned to look into the objections, and to advert to the contentions raised therein, will be highly improper. Further this court may not be justified in interfering with the matter when the proceedings for imposing penalty is only at a preliminary stage of notices. Therefore I am not inclined to enter into any finding regarding merits of the allegations. Hence these writ petitions are liable to be dismissed. 8. However, considering the apprehension expressed by the petitioners it is necessary to observe that WPC.25661/09 & conn. Cases. 9 objections raised against the proposal for imposition of penalty need to be looked into by the authority concerned in a careful manner with proper advertence to the contentions raised therein. Imposition of penalty under section 67(1) is in the nature of penal action. It need not be emphasised that penalty can be imposed only if it is proved that there occurred actual suppression of turn over having tax liability. Wilful acts on the part of the dealers amounting to suppression of turn over, and thereby evasion of payment of tax, need be established for imposing penalty. From the facts and circumstances of the case I feel that the request raised by the petitioners for having physical verification of the goods for ascertainment of the quantity need consideration because for arriving at a conclusion as to whether there was actual under quoting and suppression of turn over, such measurement would be of much help. The petitioners have offered to bear all expenses required for such measurement. I find no justification in the officer having jurisdiction in denying such an opportunity to the petitioners to substantiate their contentions, when the WPC.25661/09 & conn. Cases. 10 petitioners have been issued with show cause notices proposing imposition of huge penalty. It is only just and proper in the interest of justice to give them such an opportunity to adduce materials before the authority. If the materials which they can adduce in order to substantiate their contentions can be gathered only through physical verification of the goods, the authority concerned shall not be reluctant to permit such an opportunity. 9. Under the above mentioned circumstances these writ petitions are disposed of holding that the impugned proposals for imposition of penalty warrants no interference at this stage. But at the time the authority concerned who had issued the proposal notices is hereby directed to have proper advertence to all contentions raised in the objections submitted or to be submitted by the petitioners. The petitioners shall be given time with due notice for submission of objections, if not already submitted. The said authority is directed to consider the request of the petitioenrs for physical verification and measurement of the timber either at the Customs Yard or at the place of their WPC.25661/09 & conn. Cases. 11 business, in order to ascertain veracity of the objections submitted. It is made clear that all arrangements for such measurement if arranged shall be made by the petitioners at their expenses. Before taking any decision with respect to imposition of penalty the authority shall consider all contentions based on the measurements so conducted, with due advertence to the contentions, taking note of the relevant parameters which are to be satisfied before imposing penalty, and the observations made herein above. The writ petitions are disposed of as above. C.K.ABDUL REHIM, JUDGE Pmn/ WPC.25661/09 & conn. Cases. 12