HIGH COURT OF ORISSA: CUTTACK W.P.(C) No.25628 of 2011 In the matter of an application under Articles 226 and 227 of the Constitution of India. -------- M/s. Vinayak Agro Industry, Ratakhanda, Bisra, Rourkela, Dist: Sundargarh, Represented by its Partner Sri Rajesh Kumar Rajuka … Petitioner -Versus- Commissioner of Commercial Taxes, Orissa, Cuttack and Others … Opp.Parties For Petitioner : Mr. Damodar Pati For Opp. Parties : Mr. R.P. Kar, Standing Counsel (Revenue) ---------- P R E S E N T: THE HONOURABLE THE CHIEF JUSTICE SHRI.V.GOPALA GOWDA AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Judgment : 24.10.2011 B.N. Mahapatra, J. This writ petition has been filed with a prayer for quashing the order dated 15.09.2011 (Annexure-1) passed by opposite party No.2- Additional Commissioner of Sales Tax (Appeals), Central Zone, Orissa, and order dated 27.08.2011 (Annexure-5) passed by Sales Tax Officer, Unified Check Gate, Jamsolaghat on the ground that the said orders are illegal, arbitrary and contrary to the provisions of the Orissa Value Added Tax Act, 2004 (for short, “OVAT Act”) and violative of Article 14 of the Constitution. 2. Petitioner’s case in a nutshell is that it is a registered dealer under the OVAT Act, Orissa Entry Tax Act and Central Sales Tax and has been allotted with tax identification No.2132007587. It carries on business in manufacturing automobiles spring leaf, tractor trolly etc. The petitioner purchased 16 ton scrap spring pati from one M/s. Lokenath Traders, 150/A, South Sinthee Road, Kolkata, who is a registered dealer under the VAT Act and CST Act in the State of West Bengal. The goods were booked through M/s. Gupta Roadways, Jakaria Street, Kolkata vide goods receipt No.GR/4224/11 dated 20.08.2011. The truck bearing Registration No.OR-14-U-8398 was carrying the goods supported with the required statutory documents namely, goods receipt note, tax invoice issued by Lokenath Traders, Challan of Lokenath Traders and statutory way bill No.AAA 3391612 along with manifest No.GR 4224/11 dated 20.08.2011 issued by Gupta Traders. When the truck carrying the goods accompanied by required documents reached Jamsolaghat Checkgate on 22.08.2011, Sales Tax Officer, Unified Checkgate, Jamsola (for short, “S.T.O.”) verified the goods along with the documents. Upon verification, he was of the opinion that the spring patti loaded in the vehicle were in good condition readily usable in heavy vehicles and it could not be treated as scrap materials (scrap spring patti). On the basis of said allegation, the S.T.O. issued show cause notice dated 24.08.2011 in terms of Section 74(5) of the OVAT Act asking the petitioner to explain the discrepancies. In the show cause notice, it was pointed out that the consignment is not scrap spring leaf but spring leaf set in good condition to be used in different heavy vehicles. The petitioner was required to show cause as to why penalty as provided under Section 74(5) of 2 the OVAT Act i.e. five times of the tax leviable on such goods or 20 per centum of the value of the goods whichever is higher shall not be realized. In response to the said show cause notice dated 24.08.2011, the petitioner by letter dated 25.08.2011 represented to the S.T.O. that it has complied with the provisions of Section 74(2) and Section 74(3) of the OVAT Act. All the required statutory documents were produced by the driver of the vehicle before the S.T.O. for verification and those were found to be in order. The materials carried in the truck were raw materials and after processing both mechanically and chemically, those would be sold in the market. The S.T.O. was intimated that the said goods were purchased by the selling dealer in auction sales of scrap, spring leaf in loose as well as assembled conditions. The petitioner has purchased the goods in course of inter-state sales and has paid the Central Sales Tax. Despite the above, the S.T.O. in an illegal manner without application of mind and without taking into consideration the submissions of the petitioner has passed the order dated 27.08.2011 (Annexure-5) under Section 74(5) of the OVAT Act demanding payment of Rs.11,76,000/- towards tax and penalty imposed both under the OVAT Act and Entry Tax Act. The petitioner being aggrieved by the order dated 27.08.2011 filed writ petition bearing W.P.(C) No.23516 of 2011 before this Court which was disposed of on 05.09.2011 with liberty to the petitioner to file revision petition before the Revisional Authority. It was further directed that if such a revision petition is filed within a period of one week from the date of the order, the same shall be disposed of within four days thereafter examining the goods that were alleged to be detained illegally to find out as to whether those goods were old 3 one or new by taking assistance of technical expert. Pursuant to the said direction, the petitioner filed a revision petition and opposite party No.2 constituted a technical committee as directed by this Court to ascertain the status of the goods i.e. whether the goods in question were old one or new. Basing on the facts and circumstances of the case and taking into account the report of the technical committee constituted by him, opposite party No.2 disposed of the revision petition vide order dated 15.09.2011 by deleting the demand levied under the OET Act and directing the S.T.O. to proceed further under the OET Act by issuing proper notice. However, the order dated 27.08.2011 passed by the S.T.O. levying tax and penalty under the OVAT Act was confirmed. 3. Being aggrieved by the said order of the revisional authority under Annexure-1, the petitioner has filed this writ petition. 4. Mr. D. Pati, learned counsel appearing for the petitioner submitted that on the oral direction of opposite party No.2, the petitioner along with his Advocate went to Jamasola Check Post and appeared before opposite party No.3 on 10.09.2011 for the purpose of joint verification of the goods. No joint verification was conducted in presence of the petitioner. The technical committee refused to allow joint verification of the goods. The petitioner reported this matter to opposite party No.3 by submitting a written explanation which was acknowledged by him on 10.09.2011. Mr. Pati, learned counsel, submitted that unless the goods are put to test through mechanical means, it is not possible to find out the status of the goods. The goods do not have the required strength and hardness which is essentially required for use in heavy 4 automobile vehicles. It was submitted that during the course of hearing of the revision petition on 08.09.2011, opposite party No.2 also wanted to know the source of purchase of the goods of the selling dealer. Accordingly, the petitioner put its best effort and on 12.09.2011 produced the documents in support of purchase made by the selling dealer from Four Star Alloys, Jamshedpur, vide tax invoice No.131/11-12 dated 14.08.2011. The said Four Star Alloys have also purchased spring leaf obsolete scraps in auction from Tata Motors Limited, Jamshedpur vide tax invoice No.2118800613 dated 21.06.2011. The technical committee constituted by opposite party No.2 did not allow the petitioner to have his say and inspection was done in absence of the petitioner violating the principles of natural justice. Opposite party No.2 in a perfunctory manner has confirmed the order dated 27.08.2011 and has not taken into consideration the documents establishing the purchase of obsolete spring leafs (scrap) starting from Tata Motors Limited, which were produced at the time of hearing of the revision petition on 12.09.2011. Opposite party No.2 has also not taken into consideration the representation dated 10.09.2011 of the petitioner submitted to opposite party No.3. The petitioner has also raised certain jurisdictional issue which has not been controverted by opposite party No.2. Opposite party No.3, who is the Check Post Officer has issued the non- statutory notice violating the mandatory procedure of law. He has determined the value of the goods at Rs.14,00,000/-and computed tax and penalty contrary to the documentary evidence available which reveals the actual value of the goods. Opposite party No.3 has not alleged undervaluation of the goods in the show cause notice. He lacks jurisdiction to make assessment unless, the 5 case falls under the scope of casual dealer. The documentary evidence establishes the name of the purchaser and seller, and the petitioner is a registered dealer and accordingly, opposite party No.3 is not vested with the jurisdiction to make assessment. In support of the contention, learned counsel for the petitioner has placed strong reliance on the judgment of this Court in the case of Sri Vinayak Store vs. Sales Tax Officer and others, 86 STC 423. Further, relying on the provisions of Section 74 of the OVAT Act and Rules 79 and 80 of the OVAT Rules, Mr. Pati, contended that the present demand has been raised illegally and initiation of the proceeding against the petitioner is also invalid, illegal, arbitrary and contrary to the aforesaid provisions. It is further stated that the observation of opposite party No.3 is without any basis and the imposition of tax and penalty is liable to be quashed. The entries made in the very documents produced before opposite party No.3 show that the goods carried were absolutely old goods. Opposite party No.3 is vested with jurisdiction to levy tax and penalty in the event he finds that the goods are not supported with the statutory documents required under Section 74(2) of the OVAT Act. The way bill was neither defective nor incomplete. Prerequisites for imposition of penalty under Section 74(5) read with Rule 80(12) of the OVAT Rules is that the way bill is defective or incomplete and the said postulation is absent in the case of the petitioner. In the event, the defect or omission is remedied, penalty under Section 74(5) is not imposable. The petitioner has not been served with any statutory notice in Form VAT-405 as prescribed in terms of Rule 80(12) of the OVAT Rules. Opposite party No.3 has imposed penalty on the petitioner without recording reasons and without coming to the conclusion 6 about the mala fide intention of the petitioner by bringing any materials on record. 5. Per contra, Mr. R.P.Kar, learned Standing Counsel appearing on behalf of the Revenue submitted that various contentions raised by the petitioner with regard to alleged procedural irregularities committed by the S.T.O. and not acting in accordance with Section 74 of the OVAT Act read with Rules 79 and 80 of the OVAT Rules were taken in the earlier writ petition bearing W.P.(C) No.23516 of 2011. This Court after hearing the learned counsel for the parties, disposed of the said writ petition, giving liberty to the petitioner to approach the revisional authority and the revisional authority was directed to find out the status of the goods i.e. as to whether those were old one or new by taking assistance of technical expert. In view of the same, the present writ petition raising similar grounds again is not maintainable as it is hit by the doctrine of res judicata. Apart from this, the contentions raised in this writ petition, were not raised before the revisional authority. Therefore, the petitioner is estopped from raising those points in the present writ petition. Further, pursuant to the order of this Court, the revisional authority constituted a technical committee, who are of the opinion that the goods carried in the vehicle in question are not obsolete/old materials but new materials and there is nothing on record to disbelieve the version of the Technical Committee. Concluding his argument, Mr. Kar, vehemently submitted that the revisional authority is justified in affirming the order passed by the S.T.O. so far as levy of tax and penalty under the OVAT Act is concerned. 7 6. On the rival contentions of the parties, the following questions fall for consideration by this Court: (i) Whether in the facts and the circumstances of the case, the S.T.O., Unified Checkgate, Jamsola is justified in taking action under Sub-Section (5) of Section 74 of the OVAT Act and in passing order dated 27.08.2011 under Annexure-5 ? (ii) Whether the opinion of the Technical Committee constituted pursuant to order of this Court in W.P.(C) No.23516 of 2011 is binding on the petitioner as well as opposite party-Commercial Tax Department Authorities in the facts and circumstances of the case ? (iiii) Whether the order dated 15.09.2011 (Annexure-1) passed by opposite party No.2-revisional authority is sustainable in law ? 7. Question No.(i) is as to whether the S.T.O. is justified in taking action under sub-section (5) of Section 74 of the OVAT Act and in passing the order dated 27.08.2011 under Annexure-5. 8. To deal with this question, it is necessary to know what is contemplated under sub-section (5) of Section 74 of the OVAT Act, which is extracted below: “74. Establishment of check-posts and inspection of goods while in transit. — xx xx xx (5) The officer-in-charge of the check-post or barrier or the officer authorized under sub-section (3), after giving the driver or person-in-charge of the goods a reasonable opportunity of being heard and holding such enquiry as he may deem fit, may impose, for possession or movement of goods (in transit), whether seized or not, in violation of the provisions of clause (a) of sub-section (2) or for submission 8 of false or forged documents or way bill either covering the entire goods or a part of the goods carried, a penalty equal to five times of the tax leviable on such goods, or twenty per centum of the value of the goods, whichever is higher, in such manner as may be prescribed”. (underlined for emphasis) 9. Section 74(5) of the OVAT Act prescribes that the officer-in-charge of the check-post or barrier or the officer authorized under sub-section (3), after giving the driver or person-in-charge of the goods, a reasonable opportunity of being heard and holding such enquiry as he may deem fit, may impose penalty, as prescribed under the said sub-section, for possession or movement of goods (in transit), whether seized or not upon fulfilment of any of the following conditions:- (i) in violation of the provisions of clause (a) of sub- section (2), or (ii) for submission of false or forged documents or way bills either covering the entire goods or part of the goods carried. 10. Thus, only after giving the driver or the person-in-charge of the goods, a reasonable opportunity of being heard and holding such enquiry as he may deem fit and further after being satisfied that any of the two conditions hereinbefore exists, the prescribed authority shall impose penalty. Imposition of penalty under this sub-section cannot be sustained unless it is clearly shown that any of the conditions prescribed in that sub-section is satisfied. In order to exercise jurisdiction under Section 74(5), the prescribed authority must be satisfied that either of the two conditions is fulfilled and such power cannot be exercised on some suspicion or doubt. 9 11. In the instant case, the S.T.O. after inspection of the goods in question and documents accompanied it, issued show cause notice dated 24.08.2011 (Annexure-3) to the petitioner –dealer intimating him that on inspection of goods, he noticed that the goods covered by waybill were found to be incorrect; those goods are found to be auto parts (spring) leaf in sets; but the way bill in support of the consignment discloses the goods to be scrap spring pati. In the said show-cause notice against column “scheduled goods inspected”, the following entries have been made: “Scheduled of goods inspection : 216 (two hundred sixteen) no. of spring leafs sets are found loaded in the truck bearing no.— OR-14-U-8393 in good condition and each set is consisting of different no. of leafs. The consignment is not scrap spring leafs but spring leafs set in good conditions to be used in different heavy vehicles.” 12. In the order dated 27.08.2011 (Annexure-5), the S.T.O. observed/held as follows: “The waybill and the invoice in support of the consignment discloses the goods to be 16 MT of scrap spring patti purchased from M/s. Lokenath Traders, 150A, South Sinthee Road, Kolkata vide tax invoice No.05/AUG/2011-12 dated 20.08.2011 and the value of the goods disclosed amounting to Rs.3,26,400/-. The ASTO on duty verified the documents produced by the driver and referred to the STO on duty for unloading and thorough checking of the instant vehicle. As directed by the STO on duty the said vehicle was unloaded and thoroughly checked on dated 23.8.11 by the ASTO in charge of unloading with the active cooperation of the driver. On such verification it is revealed that the instant vehicle is loaded with 216 nos of spring leaf sets which are auto parts and are in good condition. Further all the 216 sets of spring leafs which are found to be unused and can be used in different heavy vehicles in its present form. It is also examined by a competent person who happens to be auto mechanic and revealed that all spring leafs loaded in the instant vehicle are of good condition and can be readily used in heavy vehicles. No trace of scrap 10 material (scrap spring patti) is found loaded in the instant vehicle. Since the goods are found to be auto parts, but the invoice and way bill in support of the consignment discloses the goods to be scrap spring patti. Hence, systematic arrangements of documents have been done by the dealer to evade tax. Responding the show cause notice issued under section 74(5) of the OVAT Act 2004, the dealer partner Sri Rajesh Rajuka filed the compliance on dated 26.8.11. As stated in his written submission, the goods in question is a raw material for the dealer firm and the documents carried by the driver of the vehicle are genuine. The dealer has neither denied the fact that the said goods are auto parts i.e. spring leafs in sets. Explanation as offered by the dealer is far from satisfactory and not at all convincing. The selling dealer deals in automobile spare parts along with machinery parts and heavy earth moving equipments and is not a trader of scrap goods. The systematic arrangement of document done by the dealer is intentional and deliberate one.” 13. From the noting made in the show cause notice and observations/findings of the S.T.O., in his order dated 27.08.2011 (Annexure- 5) quoted above, it can be safely said that the driver of the vehicle submitted false/forged documents/waybills covering the entire goods carried in the vehicle. It is certainly a case of fraud. 14. Law is well settled that fraud vitiates everything. The Hon’ble Supreme Court in the case of Commissioner of Customs (Preventive) vs. Aafloat Textiles (I) P. Ltd. and others, (2010) 1 GSTR 453 (SC), held that fraud vitiates every solemn act. It is fraud in law if a party makes a representation which he knows to be false and injury ensures therefrom although the motive from which the representation proceeded might not have been bad. 11 15. The Hon’ble Supreme Court in Shrisht Dhawan (Smt) vs. Shaw Bros., (1992) 1 SCC 534), held as under:- “Fraud and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. It is a concept descriptive of human conduct. Michael Levi likens a fraudster to Milton’s sorcerer, Comus, who exulted in his ability to, ‘wing me into the easy-hearted man and trap him into snares’. It has been defined as an act of trickery or deceit. In Webster’s Third New International Dictionary fraud in equity has been defined as an act or omission to act or concealment by which one person obtains an advantage against conscience over another or which equity or pubic policy forbids as being prejudicial to another. In Black’s Legal Dictionary, ‘fraud’ is defined as an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or surrender a legal right; a false representation of a matter of fact whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. In Concise Oxford Dictionary, it has been defined as criminal deception, use of false representation to gain unjust advantage; dishonest artifice or trick. According to Halsbury’s Laws of England, a representation is deemed to have been false, and therefore a misrepresentation, if it was at the material date false in substance and in fact. Section 17 of the Contract Act defines ‘fraud’ as act committed by a party to a contract with intent to deceive another. From dictionary meaning or even otherwise fraud arises out of deliberate active role of representator about a fact which he knows to be untrue yet he succeeds in misleading the representee by making him believe it to be true. The representation to become fraudulent must be of fact with knowledge that it was false.” 16. The contention of Mr. Pati that since the driver has produced various documents covered under clause (a) of sub-section (2) of Section 74 and thereby has not violated the said provision, the S.T.O. is not justified in taking action under Section 74(5) of the OVAT Act and passing the order under Annexure-5 is not sustainable in law for the reasons stated above. 12 Further, since the case of opposite parties is not that the goods carried in the vehicle are not fully covered by way-bills or that the way-bill is defective or incomplete there is no need to issue notice in Form VAT 405 as contemplated in Rule 80(12) of the OVAT Rules. The specific case of opposite parties is that the goods carried in the vehicle are found to be 216 sets of spring leafs to be used and can be used in its present form but the invoice and waybill in support of the consignment disclose those goods to be scrap spring patti. Hence, the petitioner’s contention in this regard is not sustainable in law. Similarly, the petitioner’s further contention that the S.T.O. has no jurisdiction to assess the petitioner as he is not a casual dealer is not sustainable in law because, the S.T.O. has not made any assessment in the instant case. The S.T.O. exercising his power vested in sub-section (5) of Section 74 has imposed penalty and the petitioner is required to pay penalty imposed under Section 74(5) in addition to tax as contemplated in sub-section (7) of Section 74 of the OVAT Act. 17. In view of the above, the S.T.O., Unified Checkgate, Jamsola is justified in taking action under Section 74 (5) of the OVAT Act and in passing order dated 27.08.2011 under Annexure-5. 18. Question No.(ii) is as to whether the opinion of the Technical Committee constituted pursuant to order of this Court in W.P.(C) No.23516 of 2011 is binding on the petitioner as well as opposite party-Commercial Tax Department Authorities in the facts and circumstances of the case. 19. As stated above, the order under Annexure-5 passed by opposite party No.3 was challenged in W.P.(C) No.23516 of 2011. After considering the 13 rival legal contentions of the parties, the said writ petition was disposed of with liberty to the petitioner to approach the revisional authority and the revisional authority was also directed to constitute a Technical Committee to find out the status of the goods i.e. whether the goods in question are old one or new. Such an order was passed as the S.T.O. detained the vehicle of the petitioner bearing Registration No.OR-14-U-8398 at Unified Checkgate, Jamsolaghat on the ground of furnishing false declaration of the description of goods loaded in the vehicle in question in the way bill and invoice. According to the S.T.O., the documents produced by the driver of the vehicle at the Check-gate, such as, way-bill, invoice, in support of consignment disclose the goods to be 16 MT of scrap spring patti purchased from M/s. Lokenath Traders, South Sinthee Road, Kolkata and the value