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Metro Metal Industries, Represented by Its Partner, Laila Makkar v/s State of Kerala, Represented by The Deputy Commissioner (Law), Department of Commercial Taxes, Ernakulam

    OT. Rev. No. 95 of 2015 in TAVAT. No. 941 of 2011

    Decided On, 03 August 2018

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE K. VINOD CHANDRAN & THE HONOURABLE MRS. JUSTICE MARY JOSEPH

    For the Petitioner: R. Muralidharan (Aroor), Advocate. For the Respondent: Mohammed Rafiq, Govt. Pleader.



Judgment Text

Mary Joseph, J

1. This Original Tax Revision Petition is filed against the order dated 13.10.2014 of the Kerala Value Added Tax Appellate Tribunal (for short 'The Tribunal'), Additional Bench, Ernakulam in T.A(VAT) No.941/2011. The revision petitioner was the respondent and the respondent herein was the petitioner before the Tribunal. The impugned order was passed by the Tribunal in appeal against the order dated 24.5.2011 of the Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam in Sales Tax Appeal No.KVATA No.1284/2011 preferred by the respondent therein. Sales Tax Appeal No.KVATA No.1284/2011 was the appeal preferred by the State of Kerala before the Commercial Tax Officer-III, Angamaly against the proceedings No.321508888032/2007-08 dated 25.2.2011. For the sake of convenience, the parties to this revision are referred to as the petitioner and the respondent.

2. The petitioner is a metal crusher unit engaged in production and sale of granite metals and crusher dust at Mattoor in Ernakualm District. In the assessment year 2007-08, the petitioner had only one secondary crusher in the unit for their use. Therefore, they opted for payment of tax at compounded rate as provided under Section 8(b) of the Kerala Value Added Tax Act, 2003 (for short 'the KVAT Act). Sanction was accorded by the assessing authority as per Annexure A and the petitioner was directed to pay a sum of Rs.1,80,000/- as total tax in four quarterly instalments. In view of the amendment brought in the Finance Act, 2007, the amount payable was re-fixed as Rs.1,50,000/-. In the meantime on 5.7.2007, the petitioner installed a primary crusher in the unit making them liable for a further tax of Rs.56,250/-. They failed to intimate the factum to the assessing authority within the statutory time frame of 15 days from the date of installation. The Intelligence Squad No.1, Mattancherry at Aluva, inspected the business premises on 16.10.2007 and called for accounts pertaining to the period 2007-08 from the dealer. The dealer failed to produce the same. Thereupon the Squad was convinced that true and complete accounts of the business transaction for the year 2008 was not maintained by the dealer and thereby he has violated Section 40 of the KVAT Act. Accordingly, a case was booked against the petitioner for non intimation of the installation of the primary crusher in the unit. The offence was conceded by the petitioner and applied for permission to compound the same. Permission was granted and he was directed to pay Rs.67,500/- as compounding fee. Pursuant to that the then assessing authority allowed the revision petitioner to revise the quarterly returns already submitted by him and to continue the payment of tax at the compounded rate for the whole year.

3. A new Commercial Tax Officer assumed charge of the office after a lapse of 3 years and served the dealer with a notice afresh proposing revocation of the permission granted for the period 2007-08 for the reason that Section 40 of the Act has been violated by the assessee and a primary crusher has been installed in his unit without the factum of installation and usage being intimated to the assessing authority, within the statutorily permitted time of 15 days.

4. Following the issuance of Notice as above, the assessing authority concerned had passed an order whereby Annexure A sanction granted to the dealer to pay tax at the compounded rate was revoked. The revision petitioner preferred a statutory appeal against the said order before the First Appellate Authority, which reversed the same. Second Appeal was preferred before the Tribunal against the order of the First Appellate Authority whereby, the order was reversed and the order of the Assessing Authority was restored. Aggrieved thereby, the respondent before the Tribunal, who is the assessee, has approached this Court in the captioned revision enumerating grounds as herein below mentioned;-

(i) The Tribunal is totally unjustified in upholding the order of the new assessing officer revoking the permission already granted to the dealer/assessee by his predecessor assessing authority for payment of tax at compounded rate, after a lapse of 3 years, especially in a circumstance, when the dealer was also permitted by the then assessing authority to revise the return incorporating the use of the primary crusher after admitting and compounding the offence by him before that authority.

(ii) The Tribunal is totally unjustified in overlooking the factum that the dealer was allowed by the assessing authority to revise the quarterly returns filed for the second quarter and he was allowed to remit tax at compounded rate for the remaining two quarters also incorporating the use of the additional primary crusher in his metal crusher unit.

(iii) The Tribunal is highly unjustified in endorsing the view of the successor assessing officer, who proceeded against the petitioner after a long period of 3 years with the harsh method of best judgment assessment on the allegation that books of accounts were not maintained by the assessee in the ordinary course of business and in revoking the permission already granted by his predecessor officer to continue to pay tax at the compounded rate without maintaining books of accounts for sale of granite metal.

(iv) The Tribunal is highly unjustified in overlooking the factum that the scheme for payment of tax at compounded rate is an amnesty extended by the Legislature to metal crusher units from the complicated system of maintenance of books of accounts and payment of tax at different rate for sale of granite metal and crusher sand.

6. Sri.R.Muraleedharan, the learned counsel advanced arguments on behalf of the dealer/assessee based on the grounds as aforestated. The learned Government Pleader advanced arguments clearly supportive of the order of the Tribunal under challenge.

7. Bearing the rival contentions in mind, we ventured to analyse the correctness of the order of the Tribunal under challenge. As already stated the impugned order was passed by the Tribunal in an appeal preferred by the Revenue against the Sales Tax Appeal No.KVATA No.1284/2011 of the Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam. The assessment year dealt with therein was 2007- 08.

8. The installation of the primary Crusher in the Unit was noticed by the intelligence squad No.1 Mattancherry on 16.10.2007. The intimation regarding the installation of the same in the unit within 15 days, though a mandatory requirement as per Rule 11(7) of the KVAT Rules, 2005,(for shot 'the KVAT Rules') the assessee failed to do so. Thus, there was evasion of tax payable. The intelligence Squad had also noted at the time of inspection that books of accounts were not maintained by the assessee. The assessee then compounded the offence and remitted Rs.67,000/-, the compounding fee also. An application was filed before the Assessing Officer to continue paying tax under the compounding scheme, which was permitted. Thereafter, the then assessing authority was transferred.

9. The successor assessing authority when assumed charge of the office at a later point of time, was put to notice of the file relating to the assessee. He found the assessment proceedings to be not finalised and accordingly issued notice No.32150888032/2007-08 dated 16.12.2010 under Rule 11(2) of the KVAT Rules, with proposal to revoke the permission granted for the year 2007-08 for the reason that the assessee failed to keep true and complete books of accounts at the time of inspection and used a jaw crusher unit with size 20x12 in addition to the one already there in usage, without the factum being intimated to the assessing authority within 15 days.

10. The assessee sent reply dated 27.12.2010 to the authority concerned raising contentions to resist the proposal to revoke the permission already granted to compound the offence. But, the assessing authority found the assessee having violated Section 40 and 40A of the KVAT Act, 2003 and Rule 58(3) of the KVAT Rules, 2005 for non-maintenance of accounts. The authority also found the assessee having violated Rule 11(7) of the KVAT Rules, 2005 for failure to intimate about the installation of the primary crusher in the unit. Accordingly, the notice dated 16.12.2010 issued to the assessee was found to be in order and thereby revoked the permission granted to compound the offence and to pay tax at the rate, vide order No.32150888032/2007-08 dated 16.07.2007.

11. The order was taken up in challenge before the Deputy Commissioner (Appeals) (on deputation) Commercial Taxes, Ernakulam in KVATA 1284/2011 and the first appellate authority by order dated 24.05.2011 found the revocation of permission granted to him by the assessing authority to be wrong in the eye of law and accordingly, ordered to cancel the same. The reasoning of the first appellate authority contained in the last paragraph of the order dated 24.05.2011 is extracted hereunder:

'The appellant has remitted the entire tax and filed quarterly returns. The appellant has not collected tax for claimed input tax credit. Thus the appellant has not violated the conditions specified in the compounding order. The offence of violation of Section 40 of the KVAT Act committed by the appellant was compounded departmentally on payment of Rs.67,000/-. In the circumstances one officer granting permission opted for compounding during 7/2007 and another officer canceling that permission after 3 years i.e. during 2/2011 is arbitrary and excessive and the action of the present officer is wrong in the eye of law; especially when the appellant has compounded the offence paying compounding fee. I therefore cancel the present order and upheld the compounding order given during 7/2007. In this connection I may like to point out that the option for compounding is an amnesty provision given to dealers by the Government and revoking the order issued by an officer by his successor is wrong in the eye of law and is ordered accordingly.'

12. The order of the first appellate authority was taken in challenge by the Revenue before the Kerala Value Added Tax Appellate Tribunal, Additional Bench, Ernakulam (2nd appellate authority) as T.A. (VAT) No.941/2011 and by order dated 31.10.2014 the Tribunal set aside the order and restored the original order of the assessing authority revoking the permission granted to the assessee. The said order is now under challenge before us.

13. The reasoning of the 2nd appellate authority is contained in paragraph 5 of the order under challenge and is extracted hereunder :

'5. We find force in the contentions raised by the revenue. The assessee has violated Section 40 and 40A of the KVAT Act, 2003 and Rule 58(3) and 11(7) of the KVAT Rules, 2005. Further the assessee has disclosed the installation of the second unit only after the inspection conducted by the Intelligence Officer from which it is clear that there was intention to evade payment of tax based on the second machinery. The assessee has admitted the offence and compounded the same on payment of Rs.67,000/-. As the assessee has violated Section 40 and 40A of the KVAT Act, 2003 and Rule 58 (3) and 11(7) of KVAT Rules, 2005, we are of the view that the order of the first appellate authority to set aside the order of the assessing officer is not justifiable. We, therefore, set aside the order of the first appellate authority and restore the order of the assessing officer.'

14. Admittedly the installation of the additional primary crusher in the Unit of the assessee was detected by the intelligence squad in the year 2007. Rule 11(7) requires the assessee, who has installed and used any additional machinery in his Unit to intimate the factum to the assessing authority within 15 days. The said intimation was found as not furnished in accordance with the mandate of the Statute. Accounts of the assessee were also called for during inspection, which it failed to furnish and thereby violation of Sections 40 and 40A was also noticed. Those were made known to the assessee through notice and the assessee was booked for the offences. He admitted those and applied to compound the offences. His application was allowed and as per the permission granted, the assessee remitted Rs. 67,000/- as compounding fee. He was also permitted to revise the quarterly returns filed for the 2nd quarter and allowed to remit tax at compounded rate for the remaining two quarters. The permission to do so having been

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accorded by the predecessor of the assessing officer, the successor officer is not justified to revoke the same. Absolutely no materials are available to show that, the assessee had violated any conditions imposed on him while granting permission to pay tax under the compounding Scheme. The assessee has also remitted the entire tax and filed quarterly returns as permitted by the authority. Therefore, once permission is granted to pay tax at the compounded rate as opted by the assessee and the latter has transacted in obedience, it is highly illegal and improper for a successor assessing officer to reopen the proceedings again. The assessing officer by issuing notice to the assessee and revoking the order, has acted in a manner, totally unjustifiable and unreasonable. The said order though set aside by the 1st appellate authority has now been restored by the 2nd appellate authority by the impugned order. The impugned order is only to be set aside for the foregoing reasons and the order of the first appellate authority, to be restored. Accordingly, we do so. The questions of law raised are answered in favour of the assessee and against the revenue. In the result, this O.T. Revision stands allowed. The order of the 2nd appellate authority dated 31.10.2014 is set aside and the order dated 24.05.2011 of the 1st appellate authority is restored. Parties shall bear respective costs.
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