IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM FRIDAY, THE 11TH DAY OF NOVEMBER 2011/20TH KARTHIKA 1933 WP(C).No. 919 of 2010 (L) ------------------------- PETITIONER(S): ------------------------ VINTO SOMY, M/S.VELLUKUNNEL TRADERS, CHULLIKKARA P.O., PADIMARUTHU, RAJAPURAM,KASARAGODE DIST. BY ADVS.SRI.N.MURALEEDHARAN NAIR SMT.K.HYMAVATHY SRI.T.G.ABHILASH RESPONDENT(S): --------------------------- 1. THE INTELLIGENCE OFFICER, SQUAD NO.II, COMMERCIAL TAXES, KASARAGOD. 2. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, KANNUR. 3. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM. 4. DISTRICT COLLECTOR, COLLECTORATE, KASARAGOD. R1 TO R4 BY SPL.GOVERNMENT PLEADER (TAXES) SRI. SOJAN JAMES THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11-11-2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss WPC.NO.919/2010 L APPENDIX PETITIONER'S EXHIBITS: P1: COPY OF THE ORDER PASSED BY 2ND RESPONDENT FOR THE YEAR 1996-97 DATED 10/07/2008. P2: COPY OF THE ORDER PASSEDBY 3RD RESPONDENT FOR THE YEAR 1996-97 DATED 13/2/2009. P3: COPY OF THE ORDER PASSED BY 1ST RESPONDENT FOR THE YEAR 1996-97 DATED 12/03/2009. P4: COPY OF THE NOTICE UNDER SECTION 65 OF THE KGST ACT ISSUED BY 4TH RESPONDENT DATED 26/12/2009. P5: COPY OF THE OBJECTION FILED BY THE PETITIONER BEFORE THE 4TH RESPONDENT DATED 5/01/2010. RESPONDENT'S EXHIBIT: R1(A): COPY OF THE PENALTY ORDER NO.IS(K)II/IB/82/96-97 DATED 02/01/1998. /TRUE COPY/ P.A.TO JUDGE Kss C.K.ABDUL REHIM, J. ------------------------------------------- W.P.(C) No.919 of 2010 ------------------------------------------- Dated this the 11th day of November, 2011 J U D G M E N T ---------------------- Challenge in this writ petition is against Ext.P2 order passed by the 3rd respondent in exercise of the power of suo moto revision and also against Ext.P3 consequential order passed by the 1st respondent. Inter alia the petitioner is challenging the proceedings initiated under Section 65 of the Kerala Revenue Recovery Act, 1963 pursuant to Ext.P4 notice. 2. Brief fact of the case is that, the 1st respondent, while conducting routine vehicle checking had recovered duplicate copies of two delivery notes issued by the petitioner, used for transport of raw Rubber from the place of purchase to the place of business of the petitioner. On comparing the recovered duplicate copies of delivery notes with their originals which were available with the assessing W.P.(C).919/2010 -2- authority, it was revealed that they are not the true carbon copies prepared as required under sub Rule 17 of Rule 32 of the Kerala General Sales Tax Rules. It was found that the originals of those delivery notes were written subsequently, after filling up of the carbon copies by using inkless dot pen, manipulating figures contained therein. The petitioner was directed to produce duplicate copies of all delivery notes used during the year 1996-97, which the petitioner is bound to preserve, as per sub rule 21 of Rule 32. Since the petitioner failed to produce the copies, a penalty proposal was issued alleging suspected evasion of tax. The penalty was worked out at double the amount of tax due computed on the basis of amounts covered under the two duplicate copies of recovered Delivery notes, at the rate of 10%. Petitioner objected the proposal mainly contending that under Rule 32(18) and 32(21) the purchasing dealer is not at an obligation to keep or to produce duplicate copies of Delivery notes after the goods reaching the destination. According to them the transport copies of the delivery notes W.P.(C).919/2010 -3- will be handed over to the driver and it will be destroyed by the transporter after effecting delivery. It was also contended that under Rule 32(18) there is no obligation to prepare the 3 copies of delivery note using carbon papers simultaneously. It was also contended that there was no discrepancies with respect to contents of the two delivery notes recovered on comparison with its originals. It is further contended that the turnover covered by those delivery notes were duly accounted and there was no tax liability on the turnover because the petitioner was the last purchaser within the State. 3. After considering the objections to the proposal the 1st respondent imposed penalty on the petitioner to the tune of Rs.1 lakh under Section 45A(1) B & G of the KGST Act, finding that there existed rampant smuggling of raw rubber from the border areas of Kasargod district to the State of Karnataka and considering the place of business of the petitioner and also considering the fact that the petitioner is the owner of 3 vehicles, there is every W.P.(C).919/2010 -4- likelihood of the petitioner engaged in smuggling activities. It was held that the non production of duplicate copies of the delivery note used for the relevant year will violate Rule 32(18) read with Section 28 (c) of the KGST Act. The contention that there was no tax liability involved in the transaction and that the petitioner is not the last purchaser was also repelled on the finding that if the goods were smuggled on an unaccounted basis there is no justification in contending that the transaction does not involve tax liability. 4. The petitioner had challenged the order imposing penalty in revision before the 2nd respondent. Through Ext.P1 the revision petition was allowed holding that the Intelligence Officer was not justified in anticipating tax evasion and in initiating penal action on mere suspicion without establishing that any delivery note was used for tax evasion. The revisional authority found that the production of duplicate copy of delivery note cannot be insisted upon. It was further held that since the transaction relating to the W.P.(C).919/2010 -5- delivery notes have been accepted by the authority, no penalty is warranted. 5. But the 3rd respondent had initiated proceedings for revising Ext.P1 and restored the order of penalty, through Ext.P2 order. Findings of the 3rd respondent are that the failure on the part of the petitioner in producing duplicate copies of the delivery note will offend provisions of Rule 32(18), especially because both the consignor and the consignee are one and the same person in the case at hand. Further it was held that the Intelligence Officer had established tax evasion on the part of the dealer. Being aggrieved by the order passed by the 3rd respondent which was given effect by 1st respondent through Ext.P3 this writ petition is filed. 6. Heard; learned counsel for petitioner as well as Special Government Pleader (Taxes) appearing for the respondents. From the facts and circumstances as well as the rival contentions it is revealed that there was no discrepancy detected with respect to contents and value of W.P.(C).919/2010 -6- the delivery notes recovered, when compared with its originals. Further the respondents have no case that any tax evasion was established with respect to goods covered under those delivery notes, which were transported to the place of business of the petitioner. But on the other hand penalty was imposed on the allegation that there was violation on the part of the petitioner in not producing duplicate copies of Delivery notes, in spite of specific demand made on that behalf. Contention of the petitioner is that under Rule 32(18) he is not liable to retain duplicate copies of the delivery notes. The mandate of sub rule 18 is that the original of the delivery note shall be furnished to the assessing authority concerned and the duplicate copy shall be retained by a purchasing dealer or the person to whom the goods are delivered for transporting and the triplicate copy shall be retained by the consignee dealer. In the case at hand both consignor and consignee are one and the same. But still whether there is any strict obligation on the part of the petitioner to retain the duplicate copy, is the W.P.(C).919/2010 -7- question. Since the wordings of the relevant sub rule is to the effect that the duplicate shall be retained either by the purchasing dealer or by the person to whom the goods are delivered for transporting, it cannot be said that the petitioner is at an obligation to keep duplicate copies or to produce it for verification. However, the 1st respondent could not establish any specific instance of tax evasion by the petitioner using any of the delivery notes for the relevant periods. But the 1st respondent had relied on various extraneous factors like modus operandi practiced by similar dealers and the history of smuggling activities in the area in question etc., I am of the view that those factors which were relied on by the 1st respondent are not sufficient to establish any tax evasion for the purpose of imposing penalty under Section 45A. But with respect to turnover covered under the recovered delivery notes there is absolutely no case that any tax evasion has been established. Once the Books of Accounts is accepted by the assessing authority it is evident that the case of the W.P.(C).919/2010 -8- petitioner that those goods were sold to local dealers need be accepted, unless otherwise proved. Since there is no case that he is not the last purchaser with respect to those goods, tax evasion cannot be attributed. Therefore I am of the view that the penalty imposed at double the amount of tax due on the turnover covered by the recovered delivery note is totally unsustainable. 7. However, I notice that there was an allegation raised by the 1st respondent that the petitioner had not prepared all the copies of the delivery note simultaneously using carbon copies. In effect the petitioner had admitted such an allegation. But contention is that he is not at an obligation to prepare all the copies of the delivery note at a stretch using carbon. I think such an interpretation cannot be allowed going by the wordings of sub rule 32(17). Hence it is evident that the petitioner is liable to be penalized for not complying with procedure contemplated under Rule 32 (17). But the maximum penalty which can be imposed on the basis of such an allegation is an amount of Rs.10,000/-. W.P.(C).919/2010 -9- 8. Therefore the writ petition is disposed of quashing Ext.P2 and P3 orders. The 1st respondent is directed to issue fresh orders imposing penalty to the tune of Rs.10,000/- against the petitioner with respect to violation of procedure contemplated under Rule 32(17) in the matter of preparation of two delivery notes issued by the petitioner, which were recovered. 9. Since Ext.P2 and P3 orders are already quashed, recovery steps initiated under Ext.P4 is unsustainable. Therefore I direct the respondents to refrain from any further steps pursuant to Ext.P4. (Sd/-) C.K.ABDUL REHIM, JUDGE. okb True copy P.A to Judge