IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN FRIDAY, THE 30TH SEPTEMBER 2011 / 8TH ASWINA 1933 WP(C).No. 29734 of 2006(M) -------------------------- PETITIONER(S): ------------------------ M/S. P.H. MOHAMED KUNJU & BROTHER, DEALERS IN IRON & STEEL, MARKET ROAD, ERNAKULAM, COCHIN-35, REPRESENTED BY ITS PARTNER, P.H. MOHAMED KUNJU. BY ADV. DR.K.B.MUHAMED KUTTY, SENIOR ADVOCATE SRI.K.M.FIROZ SRI.MOHAMMED RAFIQ RESPONDENT(S): ------------------------- 1. THE COMMISSIONER, COMMERCIAL TAXES, TRIVANDRUM. 2. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, ERNAKULAM. 3. THE INTELLIGENCE OFFICER (INVESTIGATION BRANCH), COMMERCIAL TAXES, PALARIVATTOM, ERNAKULAM. 4. THE STATE OF KERALA, REPRESENTED BY CHIEF SECRETARY, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADER, SRI.SHAMSUDHEEN V.K. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 30/09/ 2011 , THE COURT ON 30/09/2011 DELIVERED THE FOLLOWING: MM WP(C).No. 29734 of 2006(M) APPENDIX PETITIONER'S EXHIBITS: P1 COPY OF THE NOTICE IN FORM 51 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER P2 COPY OF THE NOTICE DATED 17-06-2004 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 1998-1999 P3 COPY OF THE NOTICE DATED 17-06-2004 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 1999-2000 P4 COPY OF THE NOTICE DATED 17-06-2004 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 2000-2001 P5 COPY OF THE NOTICE DATED 17-06-2004 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 2001-2002 P6 COPY OF THE OBJECTIONS DATED 27-07-2004 SUBMITTED BY THE PETITIONER BEFORE THE THIRD RESPONDENT AGAINST THE NOTICE UNDER SECTION 45A OF THE KGST ACT RELATING TO THE ASSESSMENT YEAR 1998-1999 P7 COPY OF THE OBJECTIONS DATED 27-07-2004 SUBMITTED BY THE PETITIONER BEFORE THE FIRST RESPONDENT AGAINST THE NOTICE UNDER SECTION 45A OF THE KGST ACT RELATING TO THE ASSESSMENT YEAR 1999-2000 P8 COPY OF THE OBJECTIONS DATED 27-07-2004 SUBMITTED BY THE PETITIONER BEFORE THE THIRD RESPONDENT AGAINST THE NOTICE UNDER SECTION 45A OF THE KGST ACT RELATING TO THE ASSESSMENT YEAR 2000-2001 P9 COPY OF THE OBJECTIONS DATED 20-07-2004 SUBMITTED BY THE PETITIONER BEFORE THE THIRD RESPONDENT AGAINST THE NOTICE UNDER SECTION 45A OF THE KGST ACT RELATING TO THE ASSESSMENT YEAR 2001-2002 WP(C).No. 29734 of 2006(M) --2-- P10 COPY OF THE AFFIDAVIT DATED 20-08-2004 PRODUCED BY THE PETITIONER BEFORE THE THIRD RESPONDENT P11 COPY OF THE NOTICE DATED 25-08-2004 IN FORM 51 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER P12 COPY OF THE REPLY DATED 03-09-2004 FILED BY THE PETITIONER BEFORE THE THIRD RESPONDENT'S P13 COPY OF THE ORDER DATED 30-09-2004 PASSED BY THE THIRD RESPONDENT UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 1998-1999 P14 COPY OF THE ORDER DATED 30-09-2004 PASSED BY THE THIRD RESPONDENT UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 1999-2000 P15 COPY OF THE ORDER DATED 30-09-2004 PASSED BY THE THIRD RESPONDENT UNDER SECTIO 45 OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 2000-2001 P16 COPY OF THE ORDER DATED 30-09-2004 PASSED BY THE THIRD RESPONDENT UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 2001-2002 P17 COPY OF THE JUDGMENT DATED 02-02-2005 OF THE HON'BLE HIGH COURT OF KERALA IN WP(C )3796 OF 2005 P18 COPY OF THE COMMON ORDER DATED 03-04-2006 PASSED BY THE SECOND RESPONDENT IN REVISION APPLICATIONS FILED BY THE PETITIONER FOR THE YEARS FROM 1998-99 TO 2001-02 P19 COPY OF THE REVISION APPLICATION DATED 18-04-2006 SUBMITTED BY THE PETITIONER BEFORE THE FIRST RESPONDENT IN RESPECT OF THE ASSESSMENT YEAR 1998-1999 MM WP(C).No. 29734 of 2006(M) -3- P20 COPY OF THE REVISION APPLICATION DATED 18-04-2006 SUBMITTED BY THE PETITIONER BEFORE THE FIRST RESPONDENT IN RESPECT OF THE ASSESSMENT YEAR 1999-2000 P21 COPY OF THE REVISION APPLICATION DATED 20-12-2004 SUBMITTED BY THE PETITIONER BEFORE THE SECOND RESPONDENT AGAINST THE ORDER PASSED BY THE FIRST RESPONDENT UNDER SECTION 45A OF THE KGST ACT IN RESPECT OF THE ASSESSMENT YEAR 2000-2001 P22 COPY OF THE REVISION APPLICATION DATED 18-04-2006 SUBMITTED BY THE PETITIONER BEFORE THE FIRST RESPONDENT IN RESPECT OF THE ASSESSMENT YEAR 2001-2002 P23 COPY OF THE COMMON ORDER DATED 10-07-2006 PASSED BY THE FIRST RESPONDENT IN THE EXTRA P19 TO P22 REVISION APPLICATIONS FILED BY THE PETITIONER FOR THE YEARS FROM 1998-99 TO 2001-02 RESPONDENT'S EXHIBITS: NIL TRUE COPY P.A. TO JUDGEMENT MM S.SIRI JAGAN, J. ================== W.P.(C).No. 29734 of 2006 ================== Dated this the 30th day of September, 2011 J U D G M E N T The petitioner is an assessee under the Kerala General Sales Tax Act. For the assessment years 2001-2002, the petitioner produced books of accounts, which were verified and assessment was completed. Later on, the assessment authority had certain doubts regarding the accounts of the petitioner. He suspected that in the accounts of the petitioner, the petitioner has been wrongly classifying taxable goods as non taxable goods in order to evade tax, not only for 2001-02, but for previous years also. Therefore, proceedings under Section 45A of the KGST Act were initiated against the petitioner not only for the year 2001-02, but also for three previous years , viz, 1998-99, 1999-2000 and 2000-01. In the course of the proceedings, the petitioner was directed to produce the petitioner's books of accounts for all these assessment years. The petitioner did not produce the same. The petitioner took the stand that there is no wrong classification as suggested. The assessing authority considered the matter and found that in the case of taxable commodities the petitioner has been constantly, for every assessment year, showing considerable loss, whereas for non taxable goods consistently he was returning profit. The assessing authority compared the records of other assessees doing identical business for the same assessment years and found that they were declaring profits of more than 5% for taxable w.p.c.29734/06 2 goods, which is more than the profit they were earning for non taxable goods. Ultimately, by Exts.P13 to P16 orders, the assessing authority imposed penalty on the petitioner at twice the tax alleged to be attempted to be evaded. The petitioner challenged the same before the appellate authority and revisional authority. The appellate authority, while confirming the penalty, reduced the quantum to 1.5 times the tax evaded. The revisional authority confirmed the orders of the appellate authority. It is under the above circumstances, the petitioner has filed this writ petition seeking the following reliefs: “a) to issue a writ of certiorari or other appropriate writ direction or order calling for the records relating to the Exts.P13 to P16 orders passed by the third respondent imposing penalty the (sic) under Section 45A of the KGST Act and quashing them. b) to issue a writ of certiorari or other appropriate writ direction or order calling for the records relating to the Exts.P18 & P23 orders passed by the second and first respondents; c) to issue a writ of mandamus or other appropriate writ direction or order directing the third respondent not (sic) take step for realisation of the balance penalty payable according to the Ext.P13 to P16 orders as modified by the Ext.P18 order passed by the Second respondent.” 2. The contention of the petitioner is that the degree of proof required to impose penalty is more than the degree of proof required for best judgment assessment. According to the learned counsel for the petitioner, if at all, the assessing authority could have made best judgment assessment by reopening the assessment and could not have imposed penalty as done by the impugned orders. The petitioner contends that there was no reliable evidence before the lower w.p.c.29734/06 3 authorities to enter a specific finding as to whether the petitioner has misclassified any goods as non-taxable goods, although the same were taxable goods. The petitioner, therefore, submits that orders of the lower authorities have been passed on mere conjunctors and surmises, which cannot be done in a proceeding for implosion of penalty under Section 45A of the Act. 3. The learned Government Pleader on the other hand would argue that there was sufficient material on record to prove that the petitioner has classified taxable goods as non taxable goods, which is evident form the profit and loss figures of the petitioner for the assessment years. He points out that the petitioner has steadfastly refused to produce the account books when directed to do so, which itself is an offence attracting penalty. He points out that the assessment authority has demonstrated in his order as to how the inference of wrong classification has been arrived at, which is sufficient for proceeding under Section 45A of the KGST Act. 4. I have considered the rival contentions in detail. 5. In Ext.P13 order, the assessment authority has concluded thus: 'As the assessee failed to adduce any evidence an opportunity to produce all books of accounts for the year 1998-99 was given as per summons dated 25.8.04 so as to verify the veracity of the contention raised. By letter dated 3.9.04 the assessee virtually refused to produce the records. In the letter the assessee has extracted a portion from the reply filed and stated that since they have challenged penalty proceedings on the ground that it was initiated without even verifying w.p.c.29734/06 4 the books of accounts and since no final orders are passed so far under section 45A of the Act, production of books of accounts at this stage would seriously prejudice their defence and requested for time to produce the accounts till final orders are passed in the proceedings initiated under section 45A. The statement of the dealer in the letter dated 3.9.04 that “production of books of accounts at this stage would seriously prejudice our defence” would clearly establish the guilty of the dealer. If the books of accounts maintained by the dealer were proper its production would not have prejudiced the case of the dealer. The books of accounts were called for to verify the veracity of the contentions raised by the dealer in the reply filed. Verification of the accounts would reveal the hollowness of the contention raised and in order to avoid such consequence the dealer intentionally avoids production of the same. While verifying the books of accounts of the assessee with regard to certain interstate purchases relating to the year 2001-02 it has come to notice of the verifying Officer that there is considerable disparity in the trade results under taxable and non taxable goods. Hence assessment records for the year 2001-02 and for the previous years 98-98 to 2000-01 were scrutinised which disclosed the same pattern of disparity in the trade results. During the year 98-98 non taxable goods procured a profit margin of 8.83% as against gross loss of 12.93% under taxable goods. Having dealt with in the same class of goods i.e. Iron and steel both under non taxable and taxable goods such a loss under taxable goods alone is clear pointer to the suppression of taxable turnover practiced by the assessee. The notice was issued on the basis of the above details gathered from the assessment records of the assessee and not out of vacuum as alleged in the reply. The contention of the assessee that the assessing authority while passing the assessment order for 98-99 accepted claim of exemption and allowed the same and in the light of the above assessment order the Intelligence Officer had no jurisdiction or authority to declare the return and books of accounts as untrue and incorrect by imputing a different interpretation to the very same assessment records seem to be made under a wrong notion that the proceeding under section 45A is subject to the assessment proceeding under section 17. Section 17 and section 45A are independent sections and the proceedings under these sections are independent of each other. The Honorable High Court of Kerala in the case of Intelligence Officer Vs. Hotel Ambassador reported in (1980) 45 STC 425 held that section 45A is separate and independent section and irrespective of whether the assessment have been completed or not it is open to the requisite authority to take action under that section provided the condition for action are satisfied. In the case of Jyothy Laboratory V. IAC & others reported in (1994 ) 94 STC 199 the Honorable High Court held that proceeding under section 45A are not depended on a finding made in the course of w.p.c.29734/06 5 assessment on the other hand it postulates an independent proceeding either by the assessing authority or any officer not below the rank of sales tax Officer with separate hierarchy of remedies for getting redress under sub section 5 and 3 thereof. The above decision would clearly repudiate the contentions raised by the dealer with regard to jurisdiction. As stated in Paragraph J of the reply the Intelligence Officer gathered the materials for the case from the statements and documents filed by the assessee for completion of the assessment and the assessee has not been able to produce any evidence to prove the correctness of the statements filed. Attempt to verify the book of accounts was defeated by the assessee by not producing the same before this Office. In para M of the reply the assessee put forth certain general aspects which may tell upon the gross profit or loss ie., supply on the basis of contracts, wide price fluctuations etc. But the assess (sic) has not produced even a single case of supply on contract basis where he has suffered loss due to price fluctuation or any instane of wide downward trend in prices of iron and steel during the year so as to cause such a huge loss in taxable iron and steel alone. The assessee is dealing in iron and steel goods both under taxable and non taxable heads and if there is such huge loss under taxable items alone it is his duty to prove the same with concreate evidences. Instead of producing any such evidence the dealer is intentionally avoiding production of even the books of accounts so as to avoid detection of any further evidences in this regard against him. The verification of purchases and sales bills for the year 2001-02 revealed actual profit margin of goods sold under taxable and non taxable goods. The profit margin of individual items under taxable goods ranged from 7% to 24.7% compared to 3% to 5% for non taxable goods. This fact would clearly prove that taxable items fetch a higher profit compared to non taxable items. In order to avoid the detection of such clinging evidences the dealer intentionally refused to produce the books of accounts. Enquiry has also been conducted in respect of trade results conceded by dealers in iron and steel which revealed higher profit the sales of taxable goods. Eg:- Gross profit declared by M/s.S.N.Vadyar, Ernakulam is 5.51% for taxable goods as against 3.73% for non taxable goods for the year 1998-99. The proceedings under section 45(A) cannot be construed as an action to supercede the assessments passed under section 17(2), as alleged by the assessee. The two are independent provision and independent proceedings taken under those sections would proceed on parallel lines. Proceeding under section 45A is not an action to unsettle an assessment and the Intelligence Officer is not assuming the powers conferred under section 35 as alleged section 45A give clear mandate to the Intelligence Officer to proceed independent of the proceeding under section 17(2) and the decisions of the Honorable High Court of Kerala cited supra is authority on the point. Instead of adducing evidences and producing records to prove his case the assessee willfully avoid production of records and putforth unsustainable technical objections so as to concede the real facts. It is all the more w.p.c.29734/06 6 evident from the letter dated 3.9.2004 of the assessee refusing to produce the books of accounts in compliance of this Office summons stating that production of books of accounts would seriously prejudice their defence. The assessee is afraid his own books of accounts. It is clear from the above discussion that the assessee with the intention of evading tax misclassified taxable sales under non taxable sales and thereby evaded payment of tax. The assessee has thus failed to fulfill his statutory obligations of maintenance of correct and complete accounts, filing of true and complete accounts, filing of true and complete return and payment of tax due thereon and thereby committed offences liable to penal action under section 45A(1)(b), (d) & (g) of the KGST Act. This contumacious, fraudulent, blameworthy and objectionable conduct of the assessee deserves maximum punishment provided under the Act. For the reasons stated above penalty of Rs. 2,00,000/- (Rupees Two Lakhs only) is imposed on Sri.P.H.Mohammed Kunju & Brother, Market Road, Ernakulam under section 45(A) (1) (b), (d) & (g) of the KGST Act 1963 for the offence committed for the year 1998-99. This will be paid as specified in the demand notice enclosed.' From the same, I am satisfied that the assessment authority has come to the conclusion of misclassification on reliable materials, which are sufficient for coming to the conclusion that the petitioner is guilty of wrong classification of taxable goods as non taxable goods. In this connection, it should be particularly noted that despite direction to that effect, the petitioner has steadfastly refused to produce the account books of the petitioner. As rightly pointed out by the learned Government Pleader, that itself is an offence inviting penally. On consideration of the impugned orders, I do not find any infirmity in those orders. Accordingly, the writ petition is dismissed. Sd/- sdk+ S.SIRI JAGAN, JUDGE ///True copy/// P.A. to Judge w.p.c.29734/06 7