IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER WEDNESDAY, THE 27TH AUGUST 2008 / 5TH BHADRA 1930 S.T.Rev.No.119 of 2006 --------------------------------------- ORDER DATED 28.10.2003 IN T.A.NO.133/1997 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE. (ASSESSMENT YEAR 1991-1992) .................... REVISION PETITIONER/APPELLANT: ----------------------------------------------------- M/S. KELTRON COMPONENT COMPLEX LIMITED, KELTRON NAGAR, KALLIASSERY. BY ADV. SRI.RAJESH NAMBIAR RESPONDENT/RESPONDENT: ------------------------------------------- THE STATE OF KERALA. BY SPECIAL GOVERNMENT PLEADER SRI.VINOD CHANDRAN THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 27/08/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:- H.L.Dattu,C.J. & A.K.Basheer,J. -------------------------------------------- S.T.Rev.No.119 of 2006 ------------------------------------------- Dated, this the 27th day of August, 2008 ORDER H.L.Dattu,C.J. The facts leading to the filing of this revision petition are as under. (2) M/s.Keltron Component Complex Limited, Keltron Nagar, Kalliasserry is a Public Sector Undertaking, owned by the Government of Kerala. It is a dealer registered both under the provisions of the Kerala General Sales Tax Act and the Central Sales Tax Act. It is engaged in the manufacture of Capacitors. (3) The petitioner company has entered into an agreement dated 23.03.1988 with M/s.Kerala State Electronics Development Corporation Ltd. (“KSEDC” for short). Under the said agreement, KSEDC is appointed as the sole selling agent for the products of the petitioner. Apart from other covenants in the agreement, under the heading 'obligation by the seller' is stipulated. The same is as under:- “1. The seller shall meet the orders placed by KSEDC, or by customers as a result of the efforts of KSEDC, within the delivery periods stipulated by the customers, so long as such delivery periods are in accordance with the advance plan furnished to KSEDC. Despatches shall be made by the seller directly to the S.T.Rev.119/2006 - 2 - customer or to KSEDC or to any address as per the directions of the customer or KSEDC. 2. The seller shall indemnify KSEDC for any loss to be sustained by KSEDC on account of the liability of the seller to deliver the goods within the delivery periods agreed to by the seller or KSEDC provided that the seller shall not have any obligation in respect of any commitments regarding delivery made by KSEDC which does not fall within the advance plan furnished to KSEDC by the seller. 3. The seller shall also indemnify KSEDC against any loss sustained by KSEDC on account of bad workmanship, poor quality, etc. of the products, provided that the liability of the seller in this respect shall be confined to the published warranties of the seller and claims arising out the published specifications, technical literature etc. issued or authorised to be issued by the seller. 4. The seller shall provide KSEDC with enough technical literature, pamphlets and other documents that are required for canvassing orders”. (4) The Sales Tax Inspector, Sales Tax Check Post, New Mahe, had intercepted a vehicle, bearing registration No.KRC 7456 on 21.11.1991 and after checking the vehicle, he had found that the goods carried in the vehicle were being transported without proper documents as prescribed under Section 29(2) of the Act read with Rule 35(2) of the KGST Rules, 1963. Accordingly, had detained the vehicle and had issued a S.T.Rev.119/2006 - 3 - show cause notice dated 21.11.1991. The notice issued contains the following particulars: “Description of goods : Capacitors – 25 boxes Value : Rs.16,21,675.00 Consignor : M/s.Keltron Component Complex Ltd., Keltron Nagar, Kalliassery. Consignee : Keltron, Mahe. Defect noticed : The vehicle was transporting 25 boxes of capacitors valued to Rs.16,21,675/- from Keltron, Keltron Nagar, Kalliassery as per delivery challan No.556J to 568J dt.18.11.1991, 19.11.91 and 20.11.91. At the time of checking there was other documents in the vehicle, such as transit pass form, duly filled up, Delivery challan cum invoice No.318 to 328 dt.18.11.1991, 19.11.1991 and 20.11.91 and statement intended for the transport of the same goods to Ahmedabad, Bhavanagar and Bombay. The documents are seen as prepared from the branch office at Mahe of Keltron. The transport was originated from the Head Office at Keltron Nagar, Kalliassery to Ahamedabad, Bhavanagar and Bombay. They have adopted the method of showing the consignment sending to Mahe and from there sending to Ahamedabad, Bhavanagar and Bombay”. (5) After receipt of the notice, the petitioner had filed its reply on 22.11.1991. (6) Not being satisfied with the explanation offered, the Sales Tax Inspector, having suspected the genuineness of the documents S.T.Rev.119/2006 - 4 - produced, had issued a notice proposing to detain the goods and the vehicle. (7) After accepting the security deposit, in the form of Bank Guarantee, in a sum of Rs.1,62,168/-, had released the vehicle and the goods and, thereafter, had transmitted the documents collected by him and also the show cause notice issued and the reply furnished by the petitioner to the Sales Tax Officer (Enquiry), Kannur. (8) The Sales Tax Officer (Enquiry), after holding an enquiry as required under Section 29A(4) of the Act, has come to the conclusion that the petitioner, in the name of transporting the goods to its agent, is, in fact, carrying on inter-State sales by effecting inter-State sales transaction to dealers in Ahmedabad, Bhavanagar, Bombay, etc. It is his further thinking, that, in view of the documents recovered by the Sales Tax Inspector at the time of inspection of the vehicle, the petitioner himself had prepared the sale invoices, bearing Nos.318 to 328 dated 18.11.1991, 19.11.1991 and 20.11.1991, and the same would show that the transaction is not despatching the goods to its branch office at Mahe, but an inter-State sale with customers at the aforesaid places. Accordingly, has passed an order dated 3.3.1992, imposing a penalty of Rs.1,62,168/- on the ground that there is attempted evasion of tax by the dealer in the instant case. The findings and conclusions reached by the Sales Tax Officer (Enquiry) is as under: “An analysis of the above documents will throw light to the fact that how and why the attempt of evasion of tax is S.T.Rev.119/2006 - 5 - resorted to in the instant case. It is a matter of fact that challan cum invoice Nos.318 to 328 dt.18-11-91, 19-11-91 and 20-11-91 indicating the sale of capacitors to various customers at Ahemedabad, Bhavanagar, Bombay and Bangalore by the depot of Kerala State Electronics Development Corporation Ltd., Mahe was kept in the vehicle, even before the said vehicle had entered in Mahe, Pondicherry State. So as it is a fact to be taken note of that the quantity of goods transported as per delivery challan Nos.556 to 568 issued by Keltron Component Complex Ltd., Kalliassery and the challan cum invoices Nos.318 to 238 on 18-11-91, 19-11-91 and 20-11-91 being recovered from the vehicle before the goods had entered to Mahe indicating the alleged sales from Mahe Depot of Kerala State Electronics Development Corporation Ltd., Thiruvananthapuram to various dealers reveals that the goods transported from Keltron Component Complex Ltd., Kalliassery, and the goods alleged to be transported from Mahe depot of Kerala State Electronics Development Corporation Ltd.,Thiruvananthapuram are one and the same with very same quantity. In fact, the goods which has started moving from Keltron Component Complex Ltd., Kalliassery were being transmitted directly to various customers at Ahamedabad, Bombay, Bangalore, Bhavanagar etc. places as a result sale. So also the transit pass forms duly filled up being recovered from the vehicle by the Salestax Inspector of duty which were to been prepared by the Sales Tax Inspector, Salestax Check Post, S.T.Rev.119/2006 - 6 - of the first check post normally after the vehicle had crossed Pondicherry State, indicates that the vehicle intended to be used for onward transport of 459910 Nos. capacitors to various customers at different places from the alleged depot at Mahe was the very same vehicle which was used for the transport of capacitors from Keltron Component Complex Ltd., Kalliassery. In fact, the vehicle carrying capacitors started from Keltron Component Complex Ltd., Kalliassery was directed to move beyond Mahe, Pondicherry State, without having any intervene interception with a view to effect delivery of goods to various customers as a result of prior contract of sale. So also the consolidated statement dt.19-11-91 and 20-11-91 indicating the sale of capacitors from the alleged depot of Kerala State Electronics Development Corporation Ltd. Mahe to various customers at Ahemedabad, Bhavanagar, Bangalore and Bombay, the documents recovered from the carrier along with certain other documents, also go to show that the goods originally transported from Kalliassery were intended to be aimed at various customers of Ahamedabad, Bangalore, Bombay, Bhavanagar which were as a result of prior contract of sale. In fact, the total quantity of capacitors shown in the consolidated statement being recovered by the Salestax Inspector and that shown in the delivery challans issued by the Keltron Component Complex Ltd., Kalliassery represents the quantity of goods under transport as 459910 Nos. of capacitors. In short, the entire documents recovered from the vehicle, by the Salestax Inspector, Salestax Check Post, New Mahe, were S.T.Rev.119/2006 - 7 - prepared in such a way as to make it appear that the goods were being transferred from Mahe to various customers at Ahamedabad, Bhavanagar, Bombay and Bangalore with an intend to evade payment of tax legitimately due to Government. All the above facts go to show that the vehicle carrying capacitors which started moving from Keltron Components Complex Ltd., Kalliassery was with an intend to supply the goods to various customers at Ahamedabad, Bombay, Bangalore, Bhavanagar as a result of prior contract of sale. The transaction took the character of interstate sale as stipulated under Section 3(a) of CST Act, as the sale of goods occasions movement of goods started from Kalliassery in Kerala State to the various dealers in other States.”. (9) The first appellate authority and the Tribunal have rejected the appeals filed by the petitioner. Therefore, the assessee is before us in this tax revision case filed under Section 41 of the Act.. (10) The assessee has framed the following questions of law for our consideration and decision. They are as under: “I. Whether the order of the Sales Tax Appellate Tribunal confirming the imposition of penalty, is correct on law, facts and circumstances of the case? II. The goods intercepted on 21.11.1991 at the check post were goods that were dispatched by the petitioner as branch transfer to the Mahe Depot of their sole selling agent KSEDC. However the authorities below treated the S.T.Rev.119/2006 - 8 - transfer as an interstate transfer from Kalliasserry to customers in Ahmedabad, Bombay, Bhavnagar and Bangalore and it was concluded by the authorities below that an attempt had been made by the petitioner to show the interstate sale as a branch transfer to Mahe with intend to enjoy beneficial rate of tax allowed under PGST, and thereby evade payment of tax due on the interstate sale legitimately due to the State of Kerala. III. Admittedly the goods were accompanied by proper documents like F form declarations, Challans etc. The sole ground for suspecting the genuineness of the transport was that certain documents of Mahe Depot also accompanied the transport. The single fact that certain additional documents of Mahe depot accompanied the transport cannot lead to the conclusion that there was an attempted evasion of tax. The tribunal grossly erred in sustaining the penalty order of the Sales Tax Officer (Enquiry), Kannur. The tribunal failed to note that there was no case of suppression or omission. The transport was admittedly accompanied by all the necessary documents. The only irregularity noted by the officer was that it contained additional documents. There was no wilful suppression of any material evidence or documents. There was no 'mens rea' and wilful or deliberate attempt at evasion of tax as alleged. The imposition of maximum penalty on the petitioner is against the provisions of the Act and the Judgments of this Hon'ble Court and the Hon'ble Supreme Court. Thus has not the tribunal grossly erred in law in sustaining the imposition of the maximum penalty on the petitioner? S.T.Rev.119/2006 - 9 - IV. It is an admitted fact that KSEDC is the sole selling agent of the petitioner. It is also an admitted fact that KSEDC has a depot at Mahe. The goods were also admittedly accompanied by valid documents to show that the goods are dispatched from Kalliasserry to Mahe as branch transfer. Under the provisions of the Section 6A of the Central Sales Tax Act, a dealer is entitled to make branch transfer and prove the same by producing valid F form declarations. The transaction in question was made on the strength on valid F form declarations. The action of the petitioner is within the provisions of the Act. No illegal act had been done by the petitioner. Thus whether the order of the tribunal sustaining the penalty order is sustainable on law and on facts? V. The tribunal failed to properly appreciate the following circumstances which would establish that the levy of maximum penalty on the petitioner was ill founded and misconceived: (a) The existence of Sole selling agency agreement between the petitioner and Kerala State Electronic Development Corporation, another Public Sector Undertaking owned by the Government of Kerala, and the terms of the agreement. (b) The existence of a functional depot of KSEDC at Mahe and the fact that assessment orders has been passed against the Mahe Depot of KSEDC under the PGST Act and the tax due under the C.S.T.Act on the interstate sales made by Mahe depot has been assessed and paid. (c) The transport of the goods is not in pursuance to any purchase orders received by the petitioner from S.T.Rev.119/2006 - 10 - customers in Ahmedabad, Bombay, etc., but the transport of goods in question was in pursuance to the sole selling agency agreement. No purchase orders were received by the petitioner. (d) The transport to Mahe was supported by valid documents as contemplated under Section 29 of the K.G.S.T.Act. The claim for branch transfer is also supported by valid F form declarations as provided for under the C.S.T.Act. (e) The petitioner had not allocated the capacitors to various purchase orders received by the KSEDC. Orders received by KSEDC are not given to the petitioner. (f) The capacitors were dispatched in lots and they are allocated by the KSEDC at their depot at Mahe. The goods are appropriate to the contract at Mahe and not at Kalliasserry and till such appropriation KSEDC is free to reallocate the goods according to business exigencies. (g) There is no privity of contract between the petitioner and the alleged purchasers at Ahmedabad, Bhavnagar, Bombay and Bangalore. (h) The goods were transported to Mahe in a vehicle that has no national permit so as to proceed to various north Indian Cities as alleged. (i) Sale bills are issued by the Mahe depot at KSEDC. Thus in light of the above stated circumstances was the tribunal correct in law and on facts in upholding the finding of the lower authorities that the transaction in question was not a branch transfer but an inter-State sale by the petitioner S.T.Rev.119/2006 - 11 - to purchasers outside Kerala? VI. Irregularities if any are of only technical nature and do not warrant the imposition of maximum penalty. Has not the tribunal erred in law in sustaining the quantum of penalty imposed? VII. The Tribunal failed to consider that Section 29A (4) of the K.G.S.T.Act read with Rule 35A(3)(b) clearly lays down that the attempt at evasion should be of tax due under the K.G.S.T.Act to attract the provisions of Section 29A(4) of the K.G.S.T.Act. The imposition of penalty under Section 29A (4) of the K.G.S.T.Act by Annexure B order for the alleged evasion of tax under the Central Sales Tax Act is without jurisdiction and therefore void. Thus is not the levy of penalty under Section 29A(4) of the K.G.S.T.Act for attempted evasion of tax under C.S.T.Act without jurisdiction?” (11) We have heard the learned counsels appearing for the parties to the lis. (12) In our opinion, the one and only question that would arise for our consideration and decision is, whether the Sales Tax Enquiry Officer was justified in passing the impugned order dated 3.3.1992? (13) In order to resolve the controversy, in our opinion, the provisions of Section 29(2) of the Act read with Section 29A(4) of the Act requires to be noted. (14) Section 29(1) of the Act provides for establishment of Check Posts and inspection of goods in transit. Sub-section (2) of Section 29 S.T.Rev.119/2006 - 12 - of the Act mandates, that, no person shall transport within the State across or beyond the notified area any consignment of goods exceeding such quantity or value, as may be prescribed under the Rules, by any vehicle or vessel, unless he is in possession of, either a bill of sale or delivery note or way bill or certificate of ownership containing such particulars as may be prescribed and, secondly, a declaration in such form and containing such particulars as may be prescribed when the vehicle or vessel enters or leaves the State limits. (15) Section 29A of the Act prescribes the procedure for inspection of goods in transit through the notified area. (16) Sub-section (4) of Section 29A of the Act provides that the officer authorised under sub-section (3) of Section 29A of the Act shall conduct an enquiry and after such enquiry if he finds that there has been an attempt to evade the tax due under the Act, he shall pass an order imposing a penalty not exceeding twice the amount of tax attempted to be evaded. Before passing an order under Section 29A(4) of the Act, the officer authorised under sub-section (3), is expected to issue notice to the owner of the goods and afford him an opportunity of hearing. (17) In the instant case, the petitioner was transporting 25 boxes of Capacitors to its agent at Mahe, pursuant to an agreement entered into between the petitioner and KSEDC dated 23.3.1988. The person in S.T.Rev.119/2006 - 13 - charge of the Goods Vehicle, bearing registration No.KRC 7456, was carrying the delivery notes/challans, in No.556J to 568J, dated 18.11.1991, 19.11.1991 and 20.11.1991. During the search of the vehicle, the Sales Tax Inspector has also come across delivery challan-cum-invoice, bearing Nos.318 to 328 dated 18.11.1991, 19.11.1991 and 20.11.1991 and statement intended for the transport of the same goods to Ahmedabad, Bhavanagar and Bombay. The Sales Tax Inspector, being of the view that the documents carried in the vehicle by the person in charge of the vehicle are not valid documents, and accordingly had detained the vehicle and it is only after accepting the security deposit, had released the vehicle and also the goods contained in the vehicle. (18) The Enquiry Officer, after receipt of the information from the Sales Tax Inspector, was expected to look into only three aspects of the matter – firstly, whether the goods carried in the vehicle has valid documents; secondly, whether those documents are genuine and lastly, is there any attempt to evade payment of tax due under the Act by the owner of the goods. In the instant case, the facts would reveal that the petitioner is the manufacturer of Capacitors. It has entered into an agreement with KSEDC as its agent and that agent has its office/depot at Mahe. When the goods were transported, the person in charge of the Goods Vehicle was carrying delivery notes/challans. Those documents were produced before the S.T.Rev.119/2006 - 14 - Sales Tax Inspector. But, for reasons best known to him, had suspected the genuineness of the documents and, therefore, had detained the vehicle as well as the goods. He had released the lorry and the goods only after the person in charge of the goods vehicle had offered security towards the probable penalty that would be levied by the Sales Tax Officer (Enquiry). (19) The only question that falls for our consideration is, whether Sales Tax Officer (Enquiry) is vested with the jurisdiction of determining the nature of the sale involved in the transaction and on such determination of the nature of the sale as to whether intra-State or inter-State sale, impose a penalty under Section 29A(4) of the Act. (20) The Enquiry officer, while conducting the enquiry under Section 29A(4) of the Act, has literally assumed the role of an assessing officer to come to the conclusion that the transaction is in the nature of inter-State transaction and, therefore, there is an attempted evasion of tax, not under the provisions of the KGST Act, but under the provisions of the Central Sales Tax Act. (21) The intendment of Section 29(2) of the Act is to prevent the movement of the goods exigible to tax within or to outside the State with a view to avoid evasion of payment of tax due under the Act. It is, therefore, sub-section (2) of Section 29 says that the person in charge of the goods vehicle must have in his possession certain documents prescribed S.T.Rev.119/2006 - 15 - under sub-section (2) of Section 29 of the Act. If such documents are not carried, the power invested on the checkpost officer is to detain the vehicle and the goods and release only on cash security being furnished by the person concerned to the extent of penalty leviable. Under sub-section (3) of Section 29 of the Act, the legislature mandates that the Officer detaining the goods shall record the statements, if any, given by the owner of the goods or his representative or the driver or other person in charge of the goods vehicle and shall submit the proceedings along with the connected records to an officer authorised under this sub-section for fresh enquiry into the matter. (22) Sub-section (4) of Section 29A of the Act reads as under:- (4). The officer authorised under sub-section (3) shall, before conducting the inquiry, serve notice on the owner of the goods and give him an opportunity of being heard and if, after such enquiry, such officer finds that there has been an attempt to evade the tax due under this Act, he shall, by order, impose on the owner of the goods a penalty not exceeding twice the amount of tax attempted to be evaded, as may be estimated by such officer.”. (23). The jurisdiction of the Sales Tax Officer (Enquiry) is S.T.Rev.119/2006 - 16 - very much limited. If he, after enquiry, finds that there has been an attempt to evade the tax due under the KGST Act, he may pass an order after affording an opportunity of being heard to the owner of the goods impose on the owner of the goods a penalty not exceeding twice the amount of tax attempted to be evaded. (24) In our opinion, the plain language employed in Section 29A(4) of the Act, as well as its intendment does not clothe the Sales Tax Officer(Enquiry) to levy penalty as long as the documents carried in the vehicle satisfy the requirements of the conditions enumerated under Section 29(2) of the Act and the rules framed thereunder. (25) In the instant case, from the perusal of the show cause notice issued by the Check post authority, the person in charge of the goods vehicle had produced all the documents as required under Section 29(2) of the Act. The check post authority after searching the vehicle, has recovered certain documents, which in his opinion, would reflect the inter-State transaction and not delivery of the goods to its agent as claimed by the petitioner company and these documents are made used by the Sales Tax Officer (Enquiry) to determine the nature of the transaction and has come to the conclusion that the movement of the goods is for the purpose of inter-State transactions and not for delivery to its agent at Mahe. Whether carrying of such documents in the vehicle is a mistake or not, to our mind, S.T.Rev.119/2006 - 17 - it appears immaterial. We find from the order of the Sales Tax Officer (Enquiry)