SAJEEV Vs. INTELIGENCE OFFICER

JUDGEMENT

(1.) Appellants are registered dealers under the Kerala Value Added Tax Act, 2003 (hereinafter called 'the Act') engaged in stocking and sale of various goods in the State. As required under the provisions of the Act and the KVAT Rules, they have declared godowns, the details of which are incorporated in the certificates of registration issued in Form No. 4. When inspections were carried out by the departmental officers of the Taxes Department, they noticed stocking of goods by all the appellants in undeclared godowns. Based on the fiction introduced under S.44(10) of the Act by Finance Act, 2008 with effect from 01/04/2008, the goods found in the undeclared godowns were treated as stock outside the regular books of accounts and penalty was levied at 50% of the value of such goods under S.44(8) of the Act. The appellants challenged the constitutional validity of S.44(10) and the validity of follow up penalty orders issued under S.44(8) of the Act before the learned Single Judge, who upheld the validity of the Section but without going into the merits of the penalty orders, gave freedom to the appellants to file statutory appeal against penalty orders. It is against this common judgment of the learned Single Judge the connected appeals are filed before us. We have heard counsel appearing for the appellants and the Government Pleader appearing for the respondents.

(2.) The provision under challenge namely, S.44(10) and the provision under which penalty is levied namely, S.44(8) are extracted hereunder for easy reference.

(3.) The first contention raised by counsel for the appellants is that S.44(10) is illegal and unconstitutional as it violates Art.19(1)(g) and Art.14 of the Constitution of India inasmuch as the provision authorises treatment of accounted goods also as unaccounted goods by virtue of the fiction provided therein. There is also an alternate contention raised by the appellants that since no separate penal provision is introduced by way of amendment or addition to the existing provision, S.44(8) has no application and levy of penalty through the impugned orders is therefore without jurisdiction. Even though S.44(8) corresponds to S.28(8) of the KGST Act, 1963 the validity of which was upheld by Division Bench of this Court in Kunhi Ahammed Haji v. Intelligence Officer, 1985 (60) STC 359 , there was no provision corresponding to S.44(10) of the KVAT Act in the KGST Act. The Government Pleader produced the Budget Speech of the Minister introducing Finance Bill, 2008, wherein it is stated that it came to the notice of the Government that dealers are keeping goods in undeclared godowns and unaccounted business is carried on leading to evasion of tax. The purpose of introduction of sub-s.(10) of S.44 is therefore, to provide for a deterrent penalty against dealers keeping goods in undeclared godowns, and selling the same, thereby evading payment of tax. The validity of the provision has to be necessarily considered with reference to the object with which it is introduced and the other provisions of the Act relating to the discipline required to be maintained by registered dealers under the Act engaged in trade. We notice that a dealer applying for registration should provide in clause (6) of Form 1, the address of all the godowns in which he proposes to store goods for sale, which is expressly provided in R.17(28) of the KVAT Rules. The certificate of registration issued to the dealer contains the address of the approved godowns where dealer is permitted to keep the goods. From these it is very clear that it is mandatory for a dealer to store the goods only in declared godowns. Until the introduction of sub-s.(10) of S.44 it was open to the dealer who is found to have stored goods in undeclared godowns to prove before the authorities that such goods are also accounted by him in the books of accounts maintained by him under S.40 of the Act. The effect of sub-s.(10) of S.44 is such that goods seen in undeclared godown shall be treated as stock outside the regular books of accounts of the dealer. In fact, the Section introduced an irrebuttable presumption to the effect that any goods stored in undeclared godown shall be treated as goods not accounted by the dealer. In other words, even if the goods so stored was accounted by the dealer in the books of accounts, the same has to be treated as unaccounted by virtue of the deeming provision contained in the Section. Though this provision is very harsh, we notice in the proviso that a dealer can avoid this harsh consequence if he has given prior written intimation about storing of goods in such undeclared godown to the registering authority at any time prior to storage of goods in any undeclared godown. In other words, even without observing the required procedure of getting an amendment to the certificate of registration, the dealer can avoid the drastic consequence of accounted goods being treated as unaccounted under sub-s.(10) of S.44, if at any time prior to such storage in undeclared godown, he informs the matter in writing to the registering authority. Counsel for the appellants submitted that there may be case of emergency for shifting goods from declared godowns to undeclared godowns on account of fire, damage and other contingencies which may not give an opportunity to the dealer to give written advance intimation to the registering authority about storage of goods in the undeclared godown. However, we do not think the validity of the statutory provision should be considered based on such rare and extreme situations which may arise in rare cases. Further, we feel even in such cases, the dealer could make some effort to give a written communication to the registering authority intimating the immediate shifting done by him. We are of the view that going by the Rule abovestated that a dealer is required to comply with in regard to storage of goods in declared godowns, the fact of storage of goods in undeclared godowns even without reliance on S.44(10) will give rise to a presumption that such goods may not be recorded in the books of accounts because there is no reason why a dealer should not store goods in the declared godown only. Therefore, in effect the statutory presumption is by way of deterrence against dealers trying to keep goods outside the godown not known to the department. Further, we notice that even though the presumption available under S.44(10) is irrebuttable, there is no provision providing for absolute penalty for the violation. On the other hand, existing provision available namely, S.44(8) gives discretion to the officer to limit the penalty upto 50% of the value of goods. In other words, quantum of penalty is a matter of discretion to the officer and it is for the dealer to explain the circumstances that led to storage of goods in the undeclared godown if the goods were accounted, with the proof of the same, so that he does not suffer maximum penalty. The discretion in regard to penalty in the context of S.28(8) of the KGST Act was explained by this Court in the decision in St. Michael's Oil Mills v. State of Kerala, 1987 KHC 539 : (68) STC 360 : 1987 (2) KLT 610 : 1987 KLJ 1223 . As already found by us, the proviso to S.44(10) gives permission to the dealer to store goods in undeclared godowns with prior intimation to the officer and the discretion in regard to penalty contained in S.44(8) of the Act, mitigates much of the rigour of the main clause. We, therefore, hold that the provision is not intended to harass any dealer engaged in bona fide business, but is intended to act as a deterrent against tendency in dealers to store goods in undeclared godowns. The Supreme Court has in Ashok Leyland Limited v. State of Tamil Nadu and Another, 2004 KHC 463 : 2004 (3) SCC 1 : AIR 2004 SC 2836 : 2004 (134) STC 473 held that a legal fiction created by statute should be given it's full effect. We are not able to understand how S.44(10) stands in the way of the right of a dealer in carrying on bona fide business when the statute says that registered dealers are entitled to store goods in the declared godowns and by virtue of the proviso to S.44(10), they are permitted to store goods even in undeclared godowns without getting amendment to the certificate of registration, but by giving just prior intimation in writing to the registering authority. The provision provides sufficient safeguards to the dealers and to our mind, it does not stand in the way of any bona fide dealer carrying on business under the Act. We do not find any violation of Art.14 because dealers engaged in storing goods in undeclared godowns without giving prior intimation to the registering authority are a class different from the other class of dealers who store the goods in declared godowns and in undeclared godowns after prior intimation in writing to the registering authority in terms of the Rules. So much so, we are of the view that there is no violation of Art.14 as well. Therefore, the challenge against constitutional validity of S.44(10) was rightly turned down by the learned Single Judge and we uphold the judgment in this regard.