IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON TUESDAY, THE 28TH SEPTEMBER 2010 / 6TH ASWINA 1932 WP(C).No. 20125 of 2010(M) -------------------------- PETITIONER: ------------------- M/S.MARDEC.R.K, LATEX PRIVATE LIMITED, ANAMALLAIS HOUSE ANNEXE,THRISSUR-680 020, REPRESENTED BY ITS COMPANY SECRETARY-MR.THOMAS.K. BY ADVS. SRI.ARSHAD HIDAYATULLAH , SENIOR ADVOCATE SRI.JOSEPH KODIANTHARA, SENIOR ADVOCATE SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.B.J.JOHN PRAKASH SRI.V.ABRAHAM MARKOS RESPONDENTS: ---------------------- 1. THE ASSISTANT COMMISSIONER(ASSESSMENT), COMMERCIAL TAXES,SPECIAL CIRCLE,THRISSUR-680004. 2. THE STATE OF KERALA,TAXES(B)DEPARTMENT, REPRESENTED BY THE SECRETARY(TAXES),SECRETARAIT, THIRUVANANTHAPURAM. R1 & R2 BY SPECIAL GOVERNMENT PLEADER, SRI.VINOD K. CHANDRAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 12. 8. 2010, THE COURT ON 28.9.2010 DELIVERED THE FOLLOWING: VK P.R. RAMACHANDRA MENON, J. .............................................................................. W.P.(C) No. 20125 OF 2010 ............................................................................... Dated this the 28th September , 2010 J U D G M E N T Whether the challenge raised by the petitioner, against Ext.P2 and P3 notices issued by the first respondent under Section 25(1) of the VAT Act, contending that the issue is squarely covered by Ext.P1 judgment rendered by this Court and that the petitioner is constrained to approach this Court to have a 'more authoritative judgment' to have the issue settled is correct, sustainable and liable to be entertained, is the point involved. 2. The petitioner company is mainly engaged in the manufacture of 'Centrifuged Latex' in its various factories in Kerala and is a registered dealer on the rolls of the first respondent. The petitioner purchases raw 'Latex' from various dealers in Kerala, paying VAT at the rate of 4% which is stated as eligible to have Input Tax Credit under Section 11 of the VAT Act. The raw latex purchased is stated as used by the petitioner for the manufacture of Centrifuged Latex, which is sold in the State, Inter-State and also exported. 3. The subject matter for consideration in the present W.P.(C) No. 20125 OF 2010 2 case, is confined only with respect to Inter-State sale of Centrifuged Latex. In respect of the transactions for the assessment years 2008-09 and 2009-10, the petitioner filed returns under the VAT Act. After considering the same, the first respondent proposed to reject the same and issued Exts. P2 and P3 notices under Section 25(1) of the VAT Act to have the assessment finalised. On receipt of the said notices, the petitioner preferred Ext. P4 reply. Apprehending adverse consequences, the petitioner has approached this Court by filing this Writ Petition, stating that the course being pursued by the first respondent is quite a mechanical and arbitrary one, not liable to be pursued any further in view of the law declared as per Ext.P1(a) judgment and also in view of the specific items covered by Ext.P1 notification with regard to the question of exemption. 4. The crux of the contentions raised in the Writ Petition is that the 'Centrifuged Latex' manufactured by the petitioner making use of the natural rubber/Latex purchased in the local market involves a 'manufacturing process' and the commodity W.P.(C) No. 20125 OF 2010 3 by name ' Centrifuged Latex' is actually not dealt with in Ext. P1 notification to attract any exemption from payment of CST. The petitioner used to effect Inter-State sale of Centrifuged latex, collecting/ effecting CST at the prescribed rate, which originally was 4% in the year 2005 and subsequently got reduced to 3% and 2% respectively. Since the petitioner has already effected VAT at the rate of 4% in respect of the raw material/latex purchased from the local dealers in Kerala, the petitioner is eligible to have the Input Tax Credit in respect of the CST paid and thus to have refund of the excess payment to the said extent. But the respondents have sought to deny the benefit, pointing out that such Input Tax Credit is available only in respect of the tax liability 'in excess of 4%', if paid by the petitioner. In the instant case, since the particular commodity ('Centrifuged Latex') is not mentioned in Ext.P1 notification, the course attempted to be pursued by the respondents proposing to treat Centrifuged latex and Natural rubber as one and the same commodity is stated as not correct or sustainable. It is specifically contended that Ext.P1 notification provides W.P.(C) No. 20125 OF 2010 4 exemption only in respect of natural rubber, compound rubber and tread rubber falling under Entry 134 of List A of the Third Schedule of KVAT Act in the course of inter-state trade or commerce, subject to condition that natural rubber including compound rubber and natural rubber used in the production of tread rubber have suffered tax under the KVAT Act . This being the position, it is contended that 'Centrifuged latex' sold by the petitioner, by way of inter-state sale cannot be said as exempted as per Ext. P1 notification and as such, the Input Tax Credit cannot be denied to the petitioner. Reference is also made to various decisions rendered by the Apex Court and by this Court . 5. The respondents have filed a statement contending that Ext.P1(a) judgment is not at all applicable to the case in hand and that the idea and understanding of the petitioner to the contrary is quite wrong and misconceived. The chronology of dates and events; the circumstances necessitating issuance of various notifications at different points of time under different enactments, Ext.P1(a) verdict passed by this Court referring to W.P.(C) No. 20125 OF 2010 5 SRO 695 /03, the position as it existed earlier under the KGST Act etc. have been explained in the said statement. It is also asserted that the petitioner is not at all justified in challenging the 'notices', instead of substantiating the position before the statutory authority who issued Exts. P2 and P3 notices. 6. The petitioner has filed a reply affidavit contending that the statement filed by the respondents does not speak about the applicability of Ext.P1 notification and further that the issue is squarely covered by Ext.P1(a) judgment. 7. Mr. Arshad Hidayathullah , learned Sr. Counsel who appeared for the petitioner submitted that the matter required to be considered by this Court in view of the arbitrary stand being pursued by the first respondent without any regard to the law declared by this Court as per Ext. P1(a) judgment. The learned Sr. Counsel also submitted that the alternate remedy is not at all a bar for exercising the jurisdiction under Article 226 of the Constitution of India and further that there is no point in relegating the petitioner to pursue the matter before the statutory authority when the respondents have already made W.P.(C) No. 20125 OF 2010 6 their stand clear by filing the counter affidavit/statement and that no meaningful result can be achieved by pursuing such exercise. Reliance is sought to be placed on the decision in Siemen's Limited vs. State of Maharashtra (2007(1) KLT 88). 8. Mr. Vinod Chandran, the learned Special Government Pleader (Taxes) sought to rebut the version of the petitioner stating that the alleged cause of action was quite premature and that the attempt of the petitioner was only to bye-pass the course and procedure prescribed by the Statute . It was also contended that Ext.P1(a) judgment was not attracted to the case in hand and that the proposal made by the first respondent to reject the return and to proceed with the assessment as proposed, in view of the materials projected in Exts.P2 and P3, was perfectly within the four walls of law and not assailable. 9. Obviously, the challenge raised in the Writ petition is against Exts. P2 and P3 notices under Sections 25(1) of the VAT Act, in respect of which, the petitioner has submitted Ext. P4 statement of objections. The circumstances under which the W.P.(C) No. 20125 OF 2010 7 return and audit report could not be accepted as 'true and complete' for the purpose of assessment, is given in Ext.P2 notice as follows: “1. The interstate sale of rubber is exempted from payment of tax from 01.08.2008 provided the same had suffered tax under VAT. You have conceded the interstate sale of rubber latex @ 2% for a turnover of Rs. 50,96,06,974.00 and collected Rs.1,01,92,139.00 towards tax @ 2%. The sales turnover for the month of June 2008 & July 2008 were taxable @2% if the sale is supported by valid declaration in Form C. The excess tax collected irregularly will be forfeited to Government account. 2. You have claimed an input tax for Rs.1,85,28,565.00. The input tax can be availed against output tax due. The claim of input tax will be disallowed to the extent proportionate to the turnover exempted from levy of tax, i.e., 33% of the input tax claim will be disallowed as the interstate sale is exempted from tax comes to 33% of the total sales turnover. . 3. The exports sale has not been W.P.(C) No. 20125 OF 2010 8 proved with documents and hence cannot be exempted from levy of tax. “ In Ext. P3 notice, it is stated that the claim for input tax credit on local purchase will be limited to the percentage of the local sales and exports, out of the sales effected by the assessee and that the balance claim of input tax is proposed to be disallowed. The different aspects pointed out as above have been sought to be explained by the petitioner in Ext.P4 reply. Though both the notices have been sought to be quashed, the contentions are confined with reference to the contents of Ext. P1 notification and also as to the law stated as declared by this Court as per Ext.P1 (a) judgment. 10. With regard to applicability of Ext. P1(a) judgment, it is very much relevant to note that the issue was in relation to the provisions of the KGST Act; particularly the notice under Section 35 as to the escaped turnover. After discussing the facts and figures and the relevant provisions of law, it was observed by this Court that the impugned notices were issued on the basis that the Apex Court had already held that there was no manufacturing process in producing Centrifuged Latex, W.P.(C) No. 20125 OF 2010 9 making use of field latex. This Court observed that no such observation has been made by the Apex Court in the concerned decision and hence that the notices issued with such a misconception were not legally sustainable and accordingly, the notices were quashed. It was also made clear in the 'last paragraph' that, it was without prejudice to the rights of the respondents to take steps under Section 35, in accordance with law, if they were so advised . As rightly put forth by the first respondent in the statement filed before this Court, the issue considered in Ext.P1(a) judgment was whether the stand of the assessing officer taken in the notice that there was no manufacturing process involved in the production of Centrifuged Latex was correct or not. The assessing officer has observed that “since the Apex Court has held that there is no manufacture involved in the conversion of field latex into Centrifuged Latex”, the assessee is not entitled to get exemption granted by the notification. After referring to the verdict rendered by the Apex Court in M/s Kurian Abraham vs. State of Kerala [2004 (1) KLT 498 (FB)] and also after considering the W.P.(C) No. 20125 OF 2010 10 contents of the notification SRO.695/03, it was held in Ext.P1(a) judgment that, no such observation was ever made by the Apex Court and hence that the notice issued by the assessing officer, on a misconception as above, required to be quashed, which is not the position involved in the present case . As such, it is not correct or proper for the petitioner to contend that Ext.P1(a) judgment squarely covers the issue. Even otherwise, it is for the petitioner to contend and substantiate the position before the first respondent, if the said contention is legally sustainable. 11. True, alternate remedy is not a bar for entertaining the Writ Petition under Article 226, but the question is whether it should be entertained by this Court at this stage. Admittedly, the issue is only at the 'notice stage' inviting objections from the petitioner. The petitioner wants to cross the hurdle even before the same is set on the track, which is not liable to be entertained for more than one reason. There is no denial of any opportunity to the petitioner, either under the statute or in respect of principles of natural justice and the petitioner is given an W.P.(C) No. 20125 OF 2010 11 opportunity to submit the statement of objections, which in turn has been submitted as well. It is for the assessing authority to analyse the factual and legal position and to pass appropriate orders and if aggrieved, the petitioner is vested with the remedy by way of appeal/second appeal, as the case may be. The apprehension expressed by the petitioner in paragraph 7 of the writ petition that the first respondent will simply/mechanically confirm the proposal and if subjected to appeal, it will entail deposits, for conditional stay, is rather premature, in respect of some anticipatory cause of action. 12. The learned Sr. Counsel made a submission that the respondents having filed a statement, which reflects their mind, no meaningful purpose will be served by approaching the statutory authority/appellate authority. Reliance was sought to be placed on the decision rendered by the Apex Court in Siemens Ltd. vs. State of Maharashtra [2007 (1) KLT 88 (SC)]. It is relevant to note that the situation as prevailed in the above case is not like the one as available in the instant case . 13. No statement or counter affidavit has been filed by W.P.(C) No. 20125 OF 2010 12 the respondents herein as to the 'actual position', so as to have the mind of the assessing authority reflected, but for stating that Ext.P1(a) judgment is not applicable to the case in hand. This is a matter which is even otherwise borne out from the records and this Court has already observed in the previous paragraph that, it cannot be said that the issue is squarely covered by Ext.P1(a) judgment . That apart, the petitioner has admitted in paragraph 2 of the reply affidavit as follows: “ Suffice to state that in the entirety of the Statement there is no averment that the centrifuged latex is covered by Exhibit P1 or that centrifuged latex and field latex (Natural Rubber) are the same.” In other words, the petitioner admits that the applicability of Ext.P1 notification or otherwise has not been discussed or dealt with by the first respondent in the statement. This being the position, the decision rendered by the Apex Court sought to be relied on by the petitioner in [2007(1) KLT 88(SC)] is not at all attracted to the case in hand. It is for the petitioner to pursue the matter before the first respondent in accordance with W.P.(C) No. 20125 OF 2010 13 the relevant provisions of law . 14. However, it cannot but be observed that, by virtue of the stipulation under Section 25(1) of the KVAT Act, a pre- assessment notice is necessary; which stands satisfied by virtue of issuance of Exts. P2 and P3 notices. But, the 'first proviso' to the said provision further stipulates that no assessment shall be finalised until the party is given an 'opportunity of hearing'. 15. True, in the instant case, it is stated in the impugned notices that the assessee is at liberty to file objections within seven days and is also at liberty to have an opportunity of personal hearing . This Court had occasion to consider the scope of such 'composite notice' in another case and has held that such 'composite notice' is not enough, making it clear that if the objection submitted by the assessee is found as not acceptable, a further opportunity of hearing shall be given to the assessee, specifying the date and time of hearing. In the instant case also, such a course has to be pursued by the first respondent before the proceedings are finalised. W.P.(C) No. 20125 OF 2010 14 In the above facts and circumstances, this Court finds that absolutely no tenable grounds have been raised to call for interference at this stage. The Writ Petition fails and it is dismissed accordingly; however without prejudice to the rights and liberties of the petitioner to pursue the matter before the first respondent . The proceedings pursuant to Exts.P2 and P3 shall be finalised by the first respondent as expeditiously as possible, at any rate, within one month from the date of receipt of a copy of the judgment. P.R. RAMACHANDRA MENON, JUDGE. lk