NEW KURUVATTOOR JEWELLERY Vs. INTELLIGENCE OFFICER

JUDGEMENT

(1.) The petitioner has approached this Court aggrieved by Ext.P3 order of penalty, passed against him, under Section 67(1) of the Kerala Value Added Tax Act. By the said order, the Intelligence Officer has imposed a penalty of Rs.50,93,312/- on the petitioner, which represents the maximum penalty of twice the tax sought to be evaded by the petitioner for the assessment year 2013-14. The facts in the writ petition would indicate that the petitioner, who is doing business in Jewellery at Kozhikode, and is a registered dealer under the KVAT Act, had opted to pay tax on compounded basis in terms of Section 8(f) of the Act, for the assessment year 2013-14, as in the previous years . As per the provisions of Section 8(f) of the Kerala Value Added Tax Act, as it then stood, the petitioner was obliged to pay tax at the rate of 115% of the annual turnover of the goods, for the preceding year. The petitioner had declared the turnover for the immediately preceding year(2012-13) as Rs.28,72,843/- and paid tax at the compounded rate, for the year 2013-14 on that basis. Subsequently, the respondents came to know of proceedings initiated by the Income Tax authorities, pursuant to a search conducted in the premises of the petitioner, and it was found that the petitioner had voluntarily declared an income of Rs.56,80,000/- for the financial year 2012-13, before the Income Tax authorities, as part of a scheme of settlement. The enquiries made by the respondents with the Income Tax Officer revealed that, as per the computer data that was seized by the Income Tax authorities, the actual sales effected by the petitioner for the financial year 2012-13, up to 11.12.2013 was in an amount of Rs.23,36,57,238/-. The intelligence officer, therefore, issued Ext.P1 notice dated 23.08.2014 to the petitioner, asking him to show cause as to why a penalty should not be imposed on him, for suppressing the real turn over for the year 2012-13, which formed the basis for the payment of taxes at compounded rate, for the year 2013-14. In Ext.P1 notice, that was issued under Section 67(1)(b) and (c) of the KVAT Act, reference was made to the proceedings before the Income Tax authorities and it was demonstrated that, based on the reported profits of Rs.56,80,000/- before the income tax department, the corresponding sales turn over for the year 2012-13 would be in an amount of Rs.23,42,36,210/- and consequently the differential compounding tax, that had to be paid for the assessment year 2013-14 was Rs.26,93,716/- as against Rs.1,47,060/-, that was actually paid by the petitioner, pursuant to the order accepting his application for payment of tax on compounded basis.

(2.) In reply to Ext.P1 notice, the petitioner, through Ext.P2 communication, took a stand that the income shown in the return filed with the income tax authorities (Rs.56,80,000/-) represented not only the income from business, but also the income from allied transactions carried out by the firm, as also personal transactions conducted by the partners of the firm in their individual capacity, including the commission and brokerage received and also the labour charges received on making gold ornaments, which was reflected in their individual income tax returns. It is significant to note that, apart from making a bland statement, that the income that was declared in the return represented not only come from the sales turn over but also income from other allied transactions, there was no material or accounts, that were produced by the petitioner to give the breakup of the said income that was declared voluntarily before the income tax department. The petitioner did not furnish any material, even at the time of hearing before the intelligence officer, although ample opportunity was given to the petitioner to produce such documents before the said officer. In adjudication proceedings, the intelligence officer proceeded to confirm the proposal in Ext.P1 notice, and taking note of the suppression, that was found in the case, decided to impose the maximum penalty of twice the tax sought to be evaded. In the writ petition, the petitioner impugns Ext.P3, on various grounds.

(3.) Firstly, it is contended that, since the petitioner had opted to pay tax on compounded basis in terms of Section 8(f) of the KVAT Act, the provisions of Section 67 of the KVAT Act would not be attracted so as to justify the imposition of the penalty on the petitioner. It is further contended that inasmuch as the returns submitted by the petitioner to the Income Tax authorities was pursuant to a negotiation with the said department, and the declaration was made, and payments of tax effected, in order to purchase peace with the said department, the declaration of income before the said authorities could not automatically have been the basis for the computation of the sales turn over for the purposes of levy of penalty under the KVAT Act. The learned Senior counsel would also contend that in the matter of imposition of penalty under Section 67, it is not open to the Intelligence Officer to embark upon a process of estimation of turn over, since the process of estimation is more appropriately done by an assessing officer, at the time of completion of an assessment under the Act. Reliance is placed on the decision of a Division Bench of this Court in M/s. U.K.Monu Timbers v. State of Kerala,2012 3 KHC 111. Relying on the decisions of Supreme Court in Girdhari Lal Nannelal v. The Sales Tax Commissioner, 1977 39 STC 30, P.C. Itty Mathew & Sons v. DC of Sales Tax(Law), 2001 121 STC 1, the learned Senior Counsel would contend that, merely because an assessment has been done under the Income Tax Act, and certain income found to exist in the hands of the assessee, the Sales Tax authorities could not, without adducing independent evidence to show that the income represented the sales turn over, proceed to infer that the entire amount assessed by the Income Tax authorities, represented the profit from sales for the purposes of assessment under the KVAT Act or imposition of penalty under the said Act. The decision of the Supreme Court in Haleema Zubair, Tropical Traders v. State of Kerala, 2009 19 VST 142 is also relied upon to contend that, whereas income tax is levied on income under the Income Tax Act, irrespective of the sources from which such an income had been derived, sales tax is levied only on the quantum of sales and, therefore, the element of a transaction of sale is a pre-requisite for levy of sales tax. The decision is relied upon to contend that, in the instant case, the Intelligence Officer had not independently arrived at a finding that the profit amount declared by the petitioner before the income tax authorities for the financial year in question, was entirely attributable to sales transactions that had been effected by the petitioner during the assessment year in question.