Vinod Chandran, J.
1. Both these revisions by the State raise a common question of law, though the facts slightly differ. The respondents in both the revisions are Metal Crusher Units, in whose premises an inspection was conducted and turnover estimated on the basis of power consumption.
2. In O.T Revision No.124/2014 the Intelligence Officer inspected the place of business of the respondent assessee and called for the books of accounts. The assessee sought adjournment and though it was granted, eventually no books of accounts were produced. The Intelligence Officer, even as per the order at Annexure A 'proposed to estimate the sales turnover for the year 2007-08 on the basis of the actual power consumption of the Crusher unit during the year 2007-08 as obtained from the Assistant Engineer, KSEB, Electrical Section, Thuravoor'(sic). The estimation was made on the basis of the details of the electricity consumed and taxable turnover determined; by estimating the turnover probable on consumption of the units of power metered. In first appeal, the First Appellate Authority deleted the estimation made finding that penalty has been imposed merely on technical reason of non-production of books of accounts. A penalty of Rs.10,000/- was imposed which was confirmed by the Tribunal. The State is in revision from the above order.
3. In O.T. Revision No. 206/2014 the Intelligence Officer inspected the premises of the respondent assessee on 22.10.2007. The business carried on in the premises was not registered and hence an enquiry was made as to the proprietor of the Unit. Based on the information supplied by the employees, notice was issued to one Sulaiman. The said Sulaiman appeared before the Assessing Officer and filed a reply stating that he had not done any business during the year 2007-08. According to him, the business was conducted by M.K. Marakkar. The Intelligence Officer carried out enquiries on his own and found that the Panchayat licence was issued in the name of M.K. Marakkar, the respondent herein. A notice was hence issued and again estimating the turnover on the basis of the power consumption, taxable turnover was determined for the year 2007-08. The First Appellate Authority set aside the penalty, finding that the Intelligence Officer had not verified whatever books produced by the assessee in a proper manner. An appeal was filed in which the Tribunal agreed with the finding of the First Appellate Authority that there was no proper verification of the books of accounts and also found that there could be no estimation under Section 67 of the Kerala Value Added Tax Act, 2003 ( for brevity ' the KVAT Act' only).
4. The learned Special Government Pleader(Taxes) appearing in O.T.Rev. No.206/2014 and the learned Senior Government Pleader appearing in O.T.Rev. No. 124/2014 essentially submit that the facts herein would not indicate an estimation at all and that the determination of turnover based on Electricity consumption is an accepted mode of finding out actual turnover, especially in cases where no books of accounts are produced. The State hence contended that the decision of a Division Bench of this Court in 2012(3) KHC 111( U.K Monu Timbers v. State of Kerala) (authored by one of us); would not be applicable. On facts, a number of other decisions of this Court were produced before us, which we will deal with immediately; since if there is a contrary view expressed we will have to refer the matter to a larger bench.
5. There was no appearance for the respondent in OT.Revision No.124/2014. The respondent in O.T Revision 206/2014 was represented by the Learned Senior Counsel Sri. Muhammed Kutty. The learned Senior Counsel at first submits that there is unreasonable delay in finalisation of the proceedings. The inspection was conducted on 22.10.2007. First notice in the name of one Sulaiman was issued on 15.03.2009, after two years. A reply was filed by 20.03.2009 contending that he had not done any business. He had also disclosed the name of the respondent assessee. Again the Intelligence Officer sat on the crime file and issued a notice only on 01.12.2010. The learned Senior Counsel would contend that there could be no estimation made based on the electricity consumption as has been held by the Division Bench of this Court in Khadeeja Makkar v. State of Kerala [2014(22) KTR 558 (Ker)]. It is also submitted that there could not be any estimation under Section 67 going by the binding precedent in U.K Monu Timbers.
6. The learned Special Government Pleader (Taxes) would submit that the Division Bench decision in Khadeeja Makkar goes against the accepted principle of estimation being made of turnover on the basis of electrical consumption. It is also pointed out that in the aforesaid case there was a remand made to the Assessing Officer to take proceedings afresh.
7. U.K Monu Timbers decided on 15.06.2012 categorically held so in Paragraph 10,11, and 12:-
10. In penalty proceedings the offences indicated under S.67 should be evidenced by the materials recovered on inspection or otherwise and the enquiry is pointedly against any actual suppression or omission in the course of the business transactions, which would lead to the definite conclusion of evasion or attempt to evade. On detection of such offences; in the event of the tax evaded or sought to be evaded being determinable, the officer initiating penalty proceedings is perfectly justified in imposing penalty at the maximum rate of twice the rate of tax actually evaded or sought to be evaded. Such officer conducting penalty proceedings cannot exceed his jurisdiction by finding out as to whether the evasion detected would in fact lead to an inference of earlier or subsequent evasion. Nor can such inferences regarding the earlier or subsequent conduct be reflected in the penalty proceedings by way of estimation of turnover based on such inferences. This, going by the clear words employed in the statute, is within the realm of the assessment proceedings.
11. The principles to be followed in best judgment assessments have been succinctly stated in the oft quoted and followed judgment of the Supreme Court in Commissioner of Sales Tax, M.P. v. H.M. Esufali ((1973) 2 SCC 137). While accepting the position that estimation necessarily involved an amount of guess work the court cautioned the authority from being vindictive and capricious. The availability of material to prove the exact turnover was held to be unnecessary and the only requirement was that the estimate should be on a rational basis having reasonable nexus with the allegations; which necessarily should be something more than a mere suspicion. The Court also distinguished an assessment made on the basis of accounts and on 'best judgment'. While the former is on the basis of the facts and figures disclosed in the books of accounts, the latter rejects the books of accounts and makes a reasonable estimation on the basis of the facts disclosed and detected. This distinction is equally applicable in penalty proceedings too.
12. Section 67 does not confer power to make a reasonable estimate. The suppression or omission must be clearly disclosed from the materials available and there should be evidence of the amounts sought to be suppressed from the turnover. In cases where the same is not discernible, the only option is to ma.0ke an order of imposition of fine not exceeding Rs.10,000/-. Any suppression detected or rather any file generated on a crime so detected and penalised necessarily gives the assessing authority the power to make estimations to compensate the State against probable omissions and suppressions. Such exercise, as is mandated by the statute, has to be regulated by the best judgment of the individual officer which definitely is subject to the principles of reasonableness, proportionality and of course natural justice. Such estimation on best judgment would definitely have to be done with due notice and after affording a personal hearing. Such estimation should be reasonable and should have a nexus with the gravity and frequency of the commission of offences as also the quantum of loss suffered by the State. This exercise, in our opinion, cannot be undertaken by the officer empowered with the power to impose penalty under S.67 of the Act. S.67 contemplates imposition of penalty on proof of commission of offences as a measure of deterrence; best judgment assessments are made to compensate the loss caused to the State. The first question hence is answered against the Revenue and in favour of the assessee.
What we have to see is whether there is a different principle laid down by the Division Benches in the various decisions placed before us.
8. Hotel President v. State of Kerala [2012(48) VST 511] was concerned with the penalty imposed under Section 45A of the KGST Act, 1963. On an inspection conducted in a Bar Hotel it was found from the recovered sale bills that the Gross Profit disclosed in the monthly return was very low. Hence adopting 77.78% Gross Profit, penalty was imposed which was reduced to 50% by the first appellate authority. The Tribunal restored the order of the Intelligence Officer. The estimation made on the basis of the recovered sale bills was found to be proper. But, however, penalty was reduced to 1 times the tax sought to evaded. M.K. Jibin Sha v. State of Kerala (O.TRev.81, 82/10 dated 04.10.2011) was a case in which estimation was made of the turnover in a resturant on the basis of the LPG consumption. The specific questions dealt with by the Court was whether (i) the finding of the appellate tribunal that the assessee was a benami of two others was correct, (ii) estimated turnover on the basis of information gathered from the gas agency was valid and (iii) whether it was proper to estimate the turnover based on the data gathered from the Indian Coffee Workers Co-operative Society. The estimation was upheld. We have to observe that both these dicisions did not consider the aspect of whether there was power conferred on the Intelligence Officer under Section 45A of the KGST Act or Section 67 of the KVAT Act; to make estimation which essentially is an assessment on best judgment. It was later to these decisions that the specific question was considered and answered against the revenue in U.K Monu Timbers.
9. U.K Monu Timbers was referred to specifically in 2013 LAWS(Ker)-2013-12-33 [Gajanana Agencies v. Intelligence Officer]. Therein penalty was imposed under Section 45A of the Act based on the discrepancy found in 16 delivery notes. Based on recovery of a delivery note issued for transport of 10 tonnes of rubber, the books of accounts were verified and 16 instances were detected where the transport of less than one tonne of raw rubber was seen made in vehicles having capacity of six to ten tonnes. The assessee was directed to produce the duplicate copies of delivery notes; which they were liable to maintain, statutorily. The assesee failed to produce the same in which context, evaded tax was determined based on the capacity of the vehicles used in the respective transports. The Division Bench found that the assessee could have proved actual quantity transported by producing the duplicate copies of delivery notes, which were not produced and that the burden so to do was squarely on the assessee in penalty proceedings. The Division Bench, in that circumstance also specifically found that U.K Monu Timbers was not applicable. The decision turns on its own facts and has not taken a different view in law, from that taken in U.K Monu Timbers.
10. Hotel Surya v. State of Kerala-S.T.Rev. No.9/2013 dated 30.05.2016 is again a Gross Profit addition made in a Bar Hotel, on the basis of an inspection carried out by the Intelligence Officer. The learned Senior Government Pleader specifically points out the contention raised by the assessee and the manner in which it is negatived which is as follows:---
4. The first contention raised by the learned Senior Counsel for the petitioner is that in a proceedings under Section 45A of the Act, the Officer did not have any power to fix taxable turnover. Though this contention, in principle, seems to be supported by the provisions of the Act and the decisions cited, on facts what we find is that the provisions or the judgments relied on have no relevance......
5. Further if the contention now raised by the learned Senior Counsel is accepted, that would render Section 45A itself otiose and ineffective. Therefore, we reject the first contention raised by the learned counsel.
11. The contention raised therein was that the Intelligence Officer did not have any power to fix the taxable turnover which was held to be not sustainable since in that event, Section 45A itself would be rendered otoise and ineffective. We agree with the said principle. Definitely on the basis of the materials recovered, the Intelligence Officer could fix the taxable turnover and from that determine the quantum of evasion attempted by the assessee. Again we have to notice that there is no decision on whether estimation could be carried out by the Intelligence Officer in a penalty proceeding. We see that the Division Bench had not noticed the judgment in U.K Monu Timbers and had not spoken on the law against that declared by the earlier Bench of co-ordinate jurisdiction. The learned Government Pleader points out that the decision refers to many decisions having been cited. None however have been specifically referred to and even if we assume that U.K. Monu Timbers was shown to the learned Judges and they harboured a different opinion, we are sure that in judicial propriety they would have referred it to a larger bench.
12. We cannot, but hold ourselves obliged to follow U.K. Monu Timbers and set aside the estimation of turnover made herein. We take note of the submission of the learned Special Government Pleader (Taxes) that in the event of non-production of books of accounts, the Intelligence Officer could only find out the evaded turnover on the basis of other materials available like electricity consumption use of LPG and so on and so forth. We perfectly agree with the learned Special Government Pleader (Taxes) that when books of accounts are not produced and even when they are produced, there could be estimation made based on the various factors like consumption of electricity which was used for the manufacturing process or consumption of LPG in cooking; two activities arising in the cited decisions. But the essential question is as to who has the power to carry out such estimation.
13. An Intelligence Officer invoking his power under Section 45 A of the KGST Act or Section 67 of the KVAT Act (in pari materia provisions) has been held to have no power to carry out an estimation. Estimation is a reasonable and rational reckoning of taxable turnover; which necessarily is a guess work based on various factors, aspects and activity of the concerned dealer, arriving at a probabilistic approximate determination of the taxable turnover; on the best of judgment of the taxation officer, as has been found in Commissioner of Sales Tax, M.P Vs. H.M. Eusafali 1973 (2) SCC 137; by the Hon'ble Supreme Court. There could be no estimation carried out in penalty proceedings and the evasion attempted has to be based on the clear materials or particulars, revealed at an inspection or offence detected otherwise. If the taxable turnover sought to be evaded cannot be clearly determined and quantified going by the provision, there can be only an imposition of penalty of Rs.10,000/-. However, that would not preclude the Assessing Officer from proceeding for best judgment assessment based on any of these factors relevant to the activity of the dealer; on there being no production of books of accounts or even when there is production; by rejection of the same. In that event, the Assessing Officer could make an estimation which is the power and authority conferred by the statute for best judgment.
14. Before leaving the matter, we cannot but observe that we come across a number of cases, where the Intelligence Officer's invoking the provision for penalty, attempts to quantify the taxable turnover likely to have been evaded by making estimation, thus in fact usurping the powers of the Assessing Officer, which they are not conferred with, by or under the statute. On detection of an offence or any other defect on inspection or otherwise where the tax or other amounts sought to be evaded is not practicable of quantification; the Inte
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lligence Officers should immediately transfer the files to the Assessing Officer after imposing a penalty not exceeding Rs. 10,000/-. When that is not done it is a clear reflection of the lack of team work insofar as the functioning of the Department. The Intelligence Officer on inspection of the premises, as in one of the above cases, finding no registration having been taken out and proper books of account not maintained; definitely ought to have intimated the Assessing Officer who could have taken up appropriate proceedings and also made best judgment assessment of the taxable turnover sought to be evaded by the assessee. We cannot but also observe that such team work is not facilitated more because of the target imposed on individual officers by the Department, which prompts them to look out for personal aggrandizement. The Intelligence Officer faced with the prospect of achieving his target, sacrifices the interest of the State, to achieve the same; by acting beyond the powers conferred on him and in that process lets limitation set in as far as the assessment proceedings are concerned. If such individual gratification is avoided and the interest of the State is considered as paramount, necessarily there would be team work and the Assessing Officer would be facilitated to carry out proper proceedings for estimation of the taxable turnover on best of judgment. 15. We hence in the above revisions answer the questions of law framed In favour of the assessees and against the revenue. On our agreeing with the principles stated in U.K. Monu Timbers we do not think it imperative that we consider the other contentions raised by the learned Senior Counsel on behalf of the assessee. Revisions would stand dismissed. No costs. We direct the Registry to send a copy of the judgment to the Commissioner of State Taxes.