IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN SATURDAY, THE 19TH NOVEMBER 2011 / 28TH KARTHIKA 1933 WP(C).No. 18391 of 2006(M) --------------------------------------- PETITIONER(S): ----------------------- K.A.RASSIA, HAKKIM TRADERS, KOTHAMANGALAM. BY ADVS. DR.K.B. MOHAMEDKUTTY (SR) SRI.K.M. FIROZ RESPONDENT(S): ------------------------- 1. THE INTELLIGENCE OFFICER, SQUAD NO.1, COMMERCIAL TAXES, ERNAKULAM. 2. THE COMMISSIONER OF COMMERCIAL TAXES, PUBLIC BUILDING, MUSEUM JUNCTION, THIRUVANANTHAPURAM-695 033. 3. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, MATTANCHERRY. BY GOVERNMENT PLEADER SMT. SHOBA ANNAMA EAPEN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 19/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: VPV WPCNO.18391/2006 APPENDIX PETITIONER'S EXHIBITS: EXT.P1: COPY OF THE PENALTY ORDER DATED 15.01.1996 PASSED BY THE FIRST RESPONDENT FOR THE YEAR 1993-1994. EXT.P2: COPY OF THE PENALTY ORDER DATED 30.01.1996 PASSED BY THE FIRST RESPONDENT FOR THE YEAR 1994-1995. EXT.P3: COPY OF THE PENALTY ORDER DATED 01.07.1996 PASSED BY THE FIRST RESPONDENT FOR THE YEAR 1994-1995. EXT.P4: COPY OF THE FIRST REVISION ORDER DATED 28.12.2000 FOR THE YEAR 1993-1994. EXT.P5: COPY OF THE FIRST REVISION ORDER DATED 08.01.2001 FOR THE YEAR 1994-1995. EXT.P6: COPY OF THE FIRST REVISION ORDER DATED 24.01.2001 FOR THE YEAR 1994-1995. EXT.P7: COPY OF THE SECOND REVISION ORDER DATED 4.3.2006 PASSED BY THE SECOND RESPONDENT FOR THE YEAR 1993-1994. EXT.P8: COPY OF THE SECOND REVISION ORDER DATED 4.3.2006 PASSED BY THE SECOND RESPONDENT FOR THE YEAR 1994-1995. EXT.P9: COPY OF THE SECOND REVISION ORDER DATED 4.3.2006 PASSED BY THE SECOND RESPONDENT FOR THE YEAR 1994-1995. RESPONDENT'S EXHIBITS: NIL /TRUE COPY/ P.A. TO JUDGE VPV S. SIRI JAGAN, J. ------------------------------------------- W.P.(C) No.18391 of 2006 ---------------------------------------------- Dated this the 19th day of November, 2011 JUDGMENT The petitioner is an assessee under the Kerala General Sales Tax Act. On allegation that the petitioner has not accounted in her books of accounts certain inter-state purchases allegedly made by her, which were covered by the declarations of the consignors made before the relevant check posts, penalty proceedings were initiated under Section 45A of the KGST Act. Three proceedings were initiated under Section 45A of the KGST Act. First one was for the year 1993-94 and the second and the third were for the year 1994-95, but in respect of different consignments. In respect of the first and the second proceedings, the petitioner filed replies to the show cause notices denying those purchases and seeking an opportunity to cross-examine the consignor to disprove the declarations made by him at the check posts, which declarations were relied upon by the assessing authority for imposing penalty in so far according to the petitioner, those purchases were not made by her. Photocopies of W.P.(C)No.18391/06 2 the documents relied upon were also asked for. In respect of the third case, the assessee did not file any objections. The authorised representative of the petitioner verified the records relied upon by the assessing authority. Despite an opportunity of being heard having been given, the petitioner did not take any steps to disprove the documents. In the other two cases, the assessing authority permitted the authorised representative to peruse the records relied upon by the assessing authority and to take out the information necessary in writing. But, without giving the assessee an opportunity to examine or cross-examine the consignors, to disprove their declarations relied upon by the assessing authority, penalty was imposed on the petitioner by Exts.P1, P2 and P3 orders. The petitioner challenged the three orders in revisions before the Deputy Commissioner of Commercial Taxes, who dismissed the revision petitions by Exts.P4, P5 and P6 orders. The petitioner filed second revisions before the Commissioner of Commercial Taxes, which were also rejected by Exts.P7, P8 and P9 orders. The petitioner is challenging Exts.P1 to P9 W.P.(C)No.18391/06 3 orders in this writ petition. 2. The petitioner's contention is that the only way the petitioner can disprove the documents of the consignors is by examining the consignors and confronting them with the documents to prove that those consignments did not actually reach the petitioner. The petitioner has no other way of proving her case. Therefore, insofar as the petitioner was not given an opportunity to cross-examine the consignors or examine them at least as witnesses of the petitioner, no penalty could have been imposed on the petitioner is the petitioner's contention. The petitioner would further contend that even otherwise, before accepting the declarations made by the consignors at the check posts as genuine, the assessing authority ought to have made a preliminary enquiry as to the genuineness of the declarations. In support of her contentions, the petitioner relies on Section 30B(4) of the KGST Act before and after its amendment by the Kerala Finance Act, 2005. According to her, the provisions of Section 30B(4) support the contention that only if, in a preliminary enquiry with the W.P.(C)No.18391/06 4 consignor, it is proved that the declarations of the consignor are prima facie genuine, proceedings can be initiated against the consignee in respect of the declarations either for assessment or for imposing penalty. The petitioner relies on the decision of this Court in M.K. Pushparanjini, Chiiku's Wood Crafts v. The Sales Tax Officer and others [(2003) 11 KTR 527 (Ker)], which was confirmed by a Division Bench of this Court in Vasulal International v. Additional Sales Tax Officer-II, Ist Circile, Kannur and another [(2007 )7 VST 283, Ker.] The petitioner further points out that reliance by the respondents on the decision of Jose Pellissery v. Additional Sales Tax Officer, [1993 KLJ 163] for the contention that the assessee cannot seek cross examination of third parties as a right, is misplaced insofar as actually the said decision upholds the right of the assessee for seeking cross examination of third parties, when the evidence of third parties is relied upon by the assessing officer. 3. A counter affidavit has been filed by the 1st respondent, wherein the respondents seek to support the W.P.(C)No.18391/06 5 impugned orders. According to them, in view of Explanation-I to Section 45A of the Act, the burden of proof is on the assessee to prove that the declarations of the consignors are not genuine and that the consignee has not received the consignment covered by the declarations of the consignors made at the check posts. They also heavily rely on Jose Pellissery's case (supra) in support of the contention that the petitioner cannot seek cross examination as of right. 4. I have considered the rival contentions in detail. At the outset I am inclined to repel the contentions of the petitioner in respect of the third case covered by Ext.P3 order of the assessing authority. In Ext.P3 order, the Intelligence Officer has specifically held thus: “xxx xxx xxx xxx Therefore a notice under sec. 45A of the K.G.S.T. Act 1963 was issued to you as per the reference 2nd cited proposing to impose a penalty of Rs.11,97,600/- for the violation of sec. 27 of the K.G.S.T. Act and invited objections if any. A personal hearing was also granted to the dealer. In response o the notice Sri. K.P. Madhavan Nair, authorised representative of Smt. K.A. Rasia propritrex of M/s. Hakkim Traders appeared before me on 16-10-1995. The declarations received from the Walayar Check post along with the books of accounts maintained by the dealer were shown to him for verification. After W.P.(C)No.18391/06 6 verification the authorised representative Sri. Mahdhavan Nair pointed out that he has nothing to stay about the unaccounted transactions and also agreed that the purchases mentioned above had not passed through any of the books of accounts. The dealer has not filed any objection and produced any evidence before me against the proposal. From this it clearly established that the dealer had not maintained correct and complete accounts for the year 94-95 and thus violated section 27 of the K.G.S.T. Act 63.” (underlining supplied) The petitioner does not dispute the above statement in Ext.P3. The petitioner has neither filed any reply to the show cause notice nor did she make any attempt to disprove the documents relied upon by the respondents for imposing penalty on the petitioner. Therefore, I am not inclined to interfere with Ext.P3 order and the orders rejecting the revisions filed by the petitioner against Ext.P3 order, namely Ext.P6 and P9 orders. 5. But, the situation is different when it comes to Exts.P1 and P2 orders. In Ext.P1 order, it is specifically stated thus: “xxx xxx xxx xxx The alleged purchases are not made by the dealer and that photocopies of the declarations relied upon must be furnished to the dealer and she also requested for an arrangement to cross examine the W.P.(C)No.18391/06 7 consignors so as to enable her to file a detailed reply. On the basis of the letter the dealer was given a chance to examine the records relied upon by the department on 2.6.95. As such the authorised representative of the dealer scrutinised the records and got necessary materials in writing. But as per the letter dt. 1.7.95 she still insisted for the photocopies of the records and a opportunity for cross examination of the consignors. The material relied upon by the department was recorded in the notice dt. 7.4.95, such as the bill No. date, name of consignor, name of commodity, quantity and value of the goods and it was also clearly mentioned that the details were gathered from the sales tax check post Walayar. She was also given ample chance to scrutinise the records. It is not known what the dealer is expecting by existing for photocopies after getting the entire details in the notice itself. I find no relevance for a cross examining of the consignors as the consignors in this case are regular suppliers of the dealer. The off hand denied of the transactions by the dealer is only an affort (sic) to escape from the penal actions contemplated under the law.” (underlining supplied) Therefore, it is undisputed that the petitioner had, in fact, requested for a chance to cross examine the consignors for disproving the documents relied upon by the 1st respondent for imposing penalty on the petitioner. Then the only other question is as to whether the 1st respondent was justified in denying that opportunity to the petitioner. Of course, W.P.(C)No.18391/06 8 Explanation-I to Section 45A of the Kerala General Sales Tax specifically casts the burden of proving that any person is not liable to penalty under this Section, on such person. Going by the said Explanation the burden of proving that the petitioner is not liable to the penalty, is on the petitioner. But, the same has to be read along with Section 30B (4). Section 30B (4) was introduced in the Act by Act 11 of 1989 with effect from 25.11.1988. Section 30B (4) reads thus: “(4) Where any person consigns any goods or transports any goods from another State into the State and where the particulars furnished in the declaration prescribed in clause (b) of sub-section (2) of section 29 are false or the consignor or purchaser stated therein is found to be bogus or non-existent or is not traceable or denies such purchase, it shall, unless the consignor or the owner of the vehicle or the person in charge of the vehicle proves to the satisfaction of the assessing authority that the particulars furnished in the declaration are true, be presumed that such goods which are liable to tax under this Act have been sold in the State by the consignor or the owner of the goods or the owner or driver or person in charge of the vehicle or the person in charge of the goods or all of them jointly and they shall be jointly or severally liable to pay tax on such sales which shall be assessed and recovered in the manner provided in sub-section (3).” (underlining supplied) Section 30B (4) was later amended by Act 10 of 2005 with retrospective effect from 25.11.1988. The amended Section W.P.(C)No.18391/06 9 30B (4) reads thus: “(4) Where any person consigns any goods or transports any goods liable to tax under this Act from another State into the State without any records as provided for under sub-section (2) of section 29 or where the particulars furnished in the documents accompanying the goods are false or the consignor or purchaser stated therein is found to be bogus or non-existent or is not traceable or where the transporter fails to prove the bonafides of the transport, it shall be presumed that such goods have been sold in the State by the consignor or the owner of the goods or the transporter or the owner or person in charge of the vehicle or the person in charge of the goods or all of them jointly and they shall be jointly and severally liable to pay tax on such sales which shall be assessed and recovered in the manner provided for in sub-section (3).” (underlining supplied) Going by the Section 30B (4), even as amended with retrospective effect, the presumption that such goods have been sold in the State is only when the transporter/consignor fails to prove the bonafides of the transport. Simply because the consignors are regular suppliers of the petitioner it cannot be presumed that all their transactions are honest. On the other hand the consignors may have used the name of the petitioner for illegal transactions, which is one of the possibilities. The petitioner is certainly entitled to disprove the bonafides of the declarations of the consignors, especially W.P.(C)No.18391/06 10 when the respondents are relying solely on the declarations of the consignors. Therefore, the minimum, the 1st respondent ought to have done is to address the transporter as to the bonafides of the transport covered by the declarations, which were relied upon by the 1st respondent. Section 30B (4) would show that the declaration filed by the consignor before the check post authorities is not the gospel of truth and the consignor is bound to prove bonafides of the transport. Therefore, I am of opinion that when the consignee denies having received the particular consignment covered by the declaration of the consignors at the check post authorities, and there is no other material to corroborate those declarations the assessing authority or the authority competent to impose penalty in respect thereof should have made a preliminary enquiry with the consignors regarding the bonafides of the transport. If the consignors have in fact sold the consignments to the petitioner, they would certainly have documents proving delivery of the consignment to the petitioner and receipt of payment thereof. In this case, the W.P.(C)No.18391/06 11 respondents have no case that they have addressed the consignors as to their views about the denial of the petitioner having received the consignments. It is not as if the consignors are not in a position to disprove the denial of the petitioner. The consignors would certainly have documents to prove the fact that the consignment has reached the consignee such as proof of payment for the consignment, acknowledgment of delivery of the goods etc. Of course, going by the Explanation- I to Section 45A the burden of proof is on the petitioner, but how does the petitioner discharge that burden? In this case, the petitioner can discharge that burden only by examining the consignors on the genuineness of the declarations submitted by the consignors before the check post authorities. That can be done only by examining the consignors as witnesses. Therefore, even assuming that the cross examination is not a right as such, when the petitioner seeks summoning of the consignors in the attempt of the petitioner to prove her case, I do not think that the 1st respondent could have denied that opportunity, insofar as that is the only way the petitioner could W.P.(C)No.18391/06 12 have discharged the burden cast on her under Explanation-I to Section 45A. If the consignors' declarations are not genuine certainly they would not turn up as witnesses at the request of the petitioner. On the other hand the assessing authority or the officer competent to impose penalty has been specifically conferred with all the powers conferred on a Court by the Code of Civil Procedure for summoning and enforcing attendance of any person and examining them on oath as also for compelling production of documents as per Section 81 of the Kerala Value Added Tax Act, which is available under Section 53 of the Kerala General Sales Tax Act also. Even apart from that, Jose Pellissery's case (supra) relied upon by the respondents is not an authority for the proposition that cross examination of third parties is not a right at all. Paragraphs 8, 12 and 13 of the said decision make it abundantly clear. The said paragraphs read as follows: “8. The provision contained in Section 45-A is a complete code in itself in as much as both substantive and procedural matters regarding the levy of penalty are inscribed therein. It being a penal provision, the proceedings are quasi-criminal in nature and hence strict adherence to the procedure is called for before W.P.(C)No.18391/06 13 imposing penalty. That necessarily invites the ascertainment of width and amplitude of 'opportunity of being heard' contained in sub- section (2). The issue of show cause notice and the call to file objections there to will not satisfy the aforesaid requirement. If it ends with that the provision will remain as an empty formality. The filing of the objections, the production documents, filing of the affidavits, examination of witnesses including the Cross- examination of third parties etc., will definitely come within the requirement. In the case of assessment under best of judgment, similar opportunity has been provided under sub- section (3) of Section 17. What is provided therein is that the dealer shall be given a reasonable 'opportunity of being heard' before taking action for assessment under best of judgment. The ambit and scope of 'opportunity of being heard' contained in both these provisions can be said to be similar. xxx xxx xxx xxx xxx xxx xxx xxx 12. The question regarding the cross- examination of third parties again come up for consideration before the Full Bench of this court in the case of M.K. Thomas v. State of Kerala (1977) 40 S.T.C. 278). After examining the facts of the case, the Full Bench came to the conclusion that the assessee was not entitled to demand right of cross-examination of a particular person as part of reasonable opportunity under section 17(3) or under rules of natural justice. The facts involved in the above case reveal that the best of judgment assessment was under Section 17(3) was passed on the basis of certain statements recorded from one Pappachan, when the officer issued two revised pre-assessment notice the assessee did not make any request to summon the notices. It was in that background that the Full Bench observed that the assessee was not entitled to an opportunity for cross- examination of Pappachan. That does not mean, the Full Bench had totally disapproved W.P.(C)No.18391/06 14 the right of cross-examination. Only that right is made depended on the terms of the statute, the nature of the proceedings or of the function exercised, the conduct of the party and the circumstances of the case. 13. The decision of the Supreme Court in State of Kerala v. K.T. Shaduli Yusuff (1977) 39 S.T.C. 478) as explained by the Full Bench of this court in M.K. Thomas v. State of Kerala (1977) 40 S.T.C 278) does not make the assessee disentitled to demand cross- examination of the witnesses of third parties whose account books, statements etc, are relied on for the purpose of assessment under Section 17 (3) or levy of penalty under Section 45-A. The consideration of such a request cannot be denied if it is not made in the reply to the pre-assessment notice or to the proposal to levy penalty. The assessee can demand such opportunity before the relevant enquiry is being completed by the authority concerned. As far as the present case is concerned, no request was made by the assessee in the reply to the notice proposing to levy penalty under Section 45 A for an opportunity to cross-examine the dealers whose names were specifically mentioned in Ext.P-1 notice. No such demand was made till the finalisation of the penalty proceedings as per Ext.P5. The first respondent has stated in Ext P5 that the assessee has not made any request for cross-examination of the seller of the goods. In that situation, the contention of the petitioner is only to be rejected. Of course that decision lays down that the declaration forms themselves are sufficient discharge of initial burden of the assessing authority and the burden is on the assessee to disprove the same. But that decision also lays down that the W.P.(C)No.18391/06 15 presumption as to the clandestine transactions on the basis of the declarations can be rebutted by the assessee if he is able to succeed in proving preponderance of probability. The only way the assessee can do that is by examining the consignor on oath, for which the petitioner is certainly entitled to invoke the power of the assessing officer for summoning the consignors and compelling production of documents. When the petitioner requests for the same the assessing authority is bound to exercise that power in favour of the petitioner. 6. In view of the above findings, I am of opinion that the refusal on the part of the 1st respondent in granting an opportunity to examine the consignors as witnesses is an abdication of his powers and patently violative of the principles of natural justice and unsustainable. For that reason Exts.P1, P2, P4, P5, P7 and P8 are liable to be quashed. In the above circumstances, this writ petition is disposed of as follows: Exts.P3, P6 and P9 orders are confirmed. Exts.P1, P2, P4, P5, P7 and P8 orders are quashed. The 1st respondent is directed to reconsider the cases covered by Exts.P1 and P2 as W.P.(C)No.18391/06 16 follows: i) The 1st respondent shall conduct a preliminary enquiry regarding genuineness of the declarations of the consignors relied upon by the 1st respondent by confronting the consignors with the denial of the petitioner, and calling for proof of delivery of the goods to the petitioner and receipt of payment of the goods from the petitioner which must be readily available with the consignors, if necessary with the help of the sales tax authorities having jurisdiction over the consignors. ii) If the consignors prima facie satisfy the 1st respondent about the bona fides of their declarations, the petitioner shall, thereafter, be given an opportunity to cross- examine the consignors. Thereafter, the matter shall be considered in accordance with law after hearing the petitioner and appropriate orders passed in respect thereof. S. SIRI JAGAN, JUDGE acd W.P.(C)No.18391/06 17 W.P.(C)No.18391/06 18