THAVOO K. I. Vs. INSPECTING ASST. COMMISSIONER

JUDGEMENT

(1.) These connected cases are filed challenging penalty levied under Section 45A of the Kerala General Sales Tax Act, 1963 for evasion of tax by the petitioners for the assessment years 1993-94 to 1996-97. The nature of transactions and the findings based on which penalty is levied on all the petitioners are the same and therefore, there is no need to go to the separate orders challenged in each of the original petitions. Exhibit P3 challenged in O. P. No. 23869 of 1999 is the very same order under challenge in O.P. No. 24838 of 1999 because the said order is common for both the petitioners. Since the findings in exhibit P3 are illustrative of the case pertaining to all the petitioners and orders passed in the other cases are on same lines, I proceed to dispose of the cases by considering the challenge against exhibit P3.

(2.) Counsel appearing for all the petitioners in the connected cases, counsel appearing for the society involved and the Government Pleader are heard. The substance of the allegation by the Intelligence Wing of the Sales Tax Department which investigated and issued penalty orders is as follows. During the relevant years co-operative societies enjoyed sales tax exemption on sale of note books under SRO. No. 1727 of 1993. In order to get the benefit of sales tax exemption on the manufacture and sale of note books, the petitioners who were engaged in the manufacture and sale of note books, camouflaged their transactions of purchase, manufacture and sale of note books as done by Kunnamkulam Book Binding Co-operative Society Ltd. which was a registered dealer under the KGST Act. However, the Intelligence Wing of Sales Tax Department collected details of demand drafts (DDs) taken by the said society in the name of the suppliers who sold paper for the manufacture of note books. When society was requested to furnish details of source of funds for the purchase, it was revealed that society never had the funds to make the purchases and the secretary lave statement that it is the petitioners who really purchased paper for making note books by taking DD in the name of the society thereby accounting purchase by the society. In fact the society has not accounted any sale of note books. On the other hand, the actual purchasers of paper, namely, the petitioners, manufactured note books and sold the same by accounting the transaction in the name of the society. This led to evasion of sales tax on the entire turnover. The secretary of the society gave statement to the Intelligence Officer that society has not carried on business, though purchase of paper is accounted in the name of the society. It is conceded by the secretary of the society that all what the society got was one and a half per cent commission from the petitioners for the transactions done by them in the name of the society. Even though the Department established clear case of evasion of tax by the petitioners by using the name of the society and by accounting transactions in the name of the society, some of the petitioners chose to deny the transactions and insisted that the statement of the secretary of the society was inconsistent and not trustworthy. Therefore, after hearing the cases in part, this Court by order dated June 29, 2004 directed the present secretary of the society to file a detailed affidavit confirming whether the society had funds for making purchases and if so, to furnish details of the bank account maintained by the society. However, the President of the society has filed an affidavit virtually accepting the correctness of the statement made by the former secretary to the Intelligence Wing. It is to be noted from the affidavit filed by the society that in spite of specific direction by this Court, the society could not produce details of any bank account or source of funds for the alleged purchases made. Further, the society admittedly has not made any sale of note books and no turnover is returned before Sales Tax Department. Even during hearing, this Court gave an opportunity to the petitioners to file detailed affidavit denying the transactions, but with consequence that if affidavits are found to be false after enquiry through police, those who file false affidavit will face prosecution, no petitioner has come forward with any affidavit denying the transaction. Further it is seen from the adjudication order that many of the petitioners simply sought time for filing objection, but did not choose to file any objection. Another important matter to be noticed is that most of the petitioners were not even members of the said society and counsel appearing for the society also had conceded the same. The Cooperative Societies Act does not authorise outsiders to deal with the society and without membership in the society, the petitioners cannot utilise the service of the society. Therefore, the payment of one-and-a-half per cent commission by the petitioners to the society was only to use the name of the society by which the society permitted to evade payment of sales tax. Obviously the society which is no longer in existence was formed for the fraudulent purpose of evasion of tax and even petitioners have no case that society was engaged in any real business. Therefore, I am of the view that the principle laid down by the Supreme Court in McDowell s case, 1985 59 STC 277 is squarely applicable to the facts of this case and there is no scope for showing any leniency to the petitioners who evaded tax by camouflaging the transactions under cover of the society. The petitioners have, therefore, no escape from liability for penalty under Section 45A of the KGST Act and penalty in principle is rightly levied on the petitioners.

(3.) The petitioners have also raised a contention that since in individual cases of the petitioners the turnover of business done in the name of the society was below the non-taxable limit, penalty could not be levied for evasion of tax. I am unable to accept this contention because penalty is levied under Section 45A by the Intelligence Officer with reference to petitioner s liability under Section 19C of the KGST Act which is as follows: