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U. Manikandan, Mani Poultry Farm, Annamooli, Palakkad v/s The Assistant Commissioner of State Tax, State GST Department, Special Circle, Palakkad & Another


    WA. No. 2634 of 2017

    Decided On, 26 June 2020

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE K. VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE T.R. RAVI

    For the Appellant: Harisankar V. Menon, Meera V. Menon, Advocates. For the Respondents: R1-R2, Mohammed Rafiq B/O, Senior Govt. Pleader.



Judgment Text


Vinod Chandran, J.

1. The appeal is from the judgment of a learned Single Judge relegating the petitioner-appellant to the appellate remedy as available under the Kerala Value Added Tax Act, 2003 (for brevity “KVAT Act”).

2. The question raised against the consideration of the issue on merits, by the learned Senior Government Pleader is the advisability of this Court's interference in the assessment proceedings under Article 226 of the Constitution of India, especially when the learned Single Judge has refused to exercise jurisdiction. This Court, will not, in appeal supplant a reasonable order of the learned Single Judge, merely for reason of it being more reasonable. The learned Senior Government Pleader would strenuously urge on the basis of the decision reported in Titaghur Paper Mills Co.Limited v.State of Orissa and others [(1983) 2 SCC 433] that as long as the assessment is properly made, the nitty-gritty of what has been taxed has to be properly relegated to the statutory authorities who are the fact finding authorities. There is no question of invocation of Article 226 unless the provision under which the proceedings are taken is challenged as ultra vires.

3. The learned Government Pleader fairly pointed out that Titaghur Paper Mills (supra) is a decision of a three Judge Bench of the Hon'ble Supreme Court and a co-ordinate Bench in (2005) 6 SCC 499 [State of H.P v. Gujarat Ambuja Cement Ltd.] formulated certain principles permitting invocation of Article 226 even in instances where the proceedings itself are an abuse of process of law. According to the learned Government Pleader, when there are two co-ordinate Benches on the same issue, the decision first in time has to be followed by the High Court as has been held in National Insurance Co. Ltd. v. Pranay Sethi [(2017) 16 SCC 680]. The learned Government Pleader also relied on the decisions of the Hon'ble Supreme Court in Thansingh Nathmal v. Superintendent of Taxes [AIR 1964 SC 1419] and Commissioner of Income Tax v. Chhabil Dass Agarwal [(2014) 1 SCC 603] to restrain this Court from interfering with the assessment order.

4. The learned Government Pleader has a further contention that but for the aspect of limitation there is no other ground raised by the appellant, in the writ petition as to the assessment orders being palpably wrong. We cannot countenance the said contention of the State, especially looking at the memorandum of writ petition. In challenging the assessment, the appellant has listed out four grounds, of which the second one is that there is no basis for the allegation levelled of undervaluation against the assessee. It is contended that the Assessing Officer was bound to prove that the appellant had actually received more consideration than that indicated in the invoices. We do not think that the ground raised was only on limitation.

5. Pranay Sethi elaborately considered the concept of binding precedents, especially in the context of co-ordinate Benches having spoken in different voices about an earlier judgment of the Supreme Court itself. The issue arose in the context of just compensation for a claimant under the Motor Vehicles Act, 1988. A Division Bench of the Hon'ble Supreme Court referred the question, as to whether the multiplier specified in the Second Schedule should be taken to be a guide for calculation of amount of compensation payable, to a Larger Bench. The three-Judge Bench which considered the reference in Reshma Kumari v. Madan Mohan [(2013) 9 SCC 65] approved the earlier Division Bench decision in Sarla Verma v. DTC [(2009) 6 SCC 121], wherein noticing discrepancies in the Second Schedule, a different table was provided, with guidelines laid down for using the multiplier. The three-Judge Bench in Reshma Kumari approved the table as also the guidelines laid down in Sarla Verma. Later, yet another three-Judge Bench in Rajesh v. Rajbir Singh [(2013) 9 SCC 54] explained and modified Sarla Verma. The Larger Bench considering the issue in Pranay Sethi, found that “the dicta laid down in Reshma Kumari being earlier in point of time would be a binding precedent and not the decision in Rajesh” (sic para 27). Rajesh followed Santosh Devi v. National Insurance Co. Ltd. [(2012) 6 SCC 421], a two-Judge Bench decision, to make the modifications in Sarla Verma. We have to notice that the decision in Reshma Kumari was dated 02.04.2013 and that in Rajesh was on 12.04.2013. Rajesh obviously did not notice Reshma Kumari. It is in this context that the Constitution Bench in Pranay Sethi held that Rajesh was not a binding precedent. The Hon'ble Supreme Court held that Reshma Kumari being a three-Judge Bench, a co-equal Bench in Rajesh ought not to have followed Santosh Devi, which was a Division Bench decision. We do not think that the dictum has any application in the present case, since we do not find any divergence of opinion in Thansingh Nathmal, Titaghur Paper Mills Co. Ltd., Gujarat Ambuja Cement Ltd. and Chhabil Dass Agarwal.

6. We have gone through the decisions placed on record in its chronological order. A Constitution Bench in Thansingh Nathmal declared that ordinarily a petition under Article 226 will not be entertained when there is an alternate remedy which is not unduly onerous and is equally efficacious. It was held that the jurisdiction of the High Court under Article 226 is couched in wide terms and the exercise thereof is not subject to any restrictions except territorial restrictions. However, noticing that the exercise of such jurisdiction is discretionary, it was held “it is not exercised merely because it is lawful to do so” (sic para 7). The High Court does not act as a Court of appeal and would not embark upon a determination of questions which demand elaborate examination of evidence to establish the right to enforce which, the writ is claimed.

7. Titaghur Paper Mills Co.Ltd. (supra) was a case in which intra-State and inter-State assessments were carried out under the Orissa Sales Tax Act, 1947 as also the Central Sales Tax Act, 1956. The Assessing Officer proposed assessment of the gross turnover as returned by the assessee. Repeated opportunities were given to the assessee to produce the records and other documents which were not availed. Eventually assessment was completed against which proceedings were taken under Article 226 impugning the assessment orders as a nullity; which was dismissed by the High Court. Before the Hon'ble Supreme Court very many contentions were raised including lack of jurisdiction of the Sales Tax Officer to assess gross turnover as taxable turnover, dis-allowance of claims for deduction, denial of concessional rate of taxes and flagrant violation of rules of natural justice. The learned Judges rejected the contentions of the assessee on the ground that there is an equally efficacious alternate remedy; finding that it provides a complete machinery for an assessee to effectively raise all questions regarding the validity of assessment. The decision of a five Bench Judge in K.S Venkataram and Co. Vs State of Madras [AIR 1966 SC 1089] was noticed wherein the Hon'ble Supreme Court had held that in instances where the assessment itself is made under an allegedly ultra vires provision, the statutory authorities cannot decide upon whether the provisions of the statute were intra vires or not; when such forums were also created under that statute. Having noticed the said decision, it was held in Paragraph 8 that no such question arises in the present one. It was also held “investment of authority to tax involves authority to tax transactions which in exercise of his authority the Taxing Officer regards as taxable, and not merely authority to tax only those transactions which are, on a true view of the facts and the law, taxable”.

8. In our humble opinion Titaghur Paper Mills Co.Ltd (Supra) is not an authority for the proposition that unless the provision under which an assessment is challenged as ultra vires, there can be no proceedings taken under Article 226. The dictum of the decision revolves on the facts of the said case, wherein even a question of flagrant violation of natural justice could not have been urged especially when the assessee had been given many opportunities by the STO, which were not availed off.

9. Gujarat Ambuja Cement Ltd.(supra) referred to Titaghur Paper Mills Co.Ltd. and elaborated on the jurisdiction under Article 226 after considering a host of other decisions of the Hon'ble Supreme Court on the aspect of the self imposed restrain, in ordinarily not invoking the extra ordinary power under Article 226, especially when there is an efficacious alternative statutory remedy provided. We extract hereunder the relevant portions from para 22 & para 23:

"22. ... There are two well-recognised exceptions to the doctrine of exhaustion of statutory remedies. First is when the proceedings are taken before the forum under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move the High Court for quashing the proceedings on the ground that they are incompetent without a party being obliged to wait until those proceedings run their full course. Secondly, the doctrine has no application when the impugned order has been made in violation of the principles of natural justice. We may add that where the proceedings itself are an abuse of process of law the High Court in an appropriate case can entertain a writ petition.

23. Where under a statute there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess can be the grounds on which the writ petitions can be entertained. But normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute. ...".

10. The three Judge Bench in Gujarat Ambuja Cement Ltd.(supra) did not depart from the declaration made in Titaghur Paper Mills Co.Ltd., and only elaborated further on the jurisdiction available under Article 226 when there is an alternate statutory remedy. Chhabil Dass Agarwal also noticed the recognized exceptions to the rule of alternate remedy, viz., (i) where remedy available under statute is not effective but only mere formality with no substantial relief, (ii) where statutory authority not acted in accordance with provisions of enactment in question, or (iii) where statutory authority acted in defiance of fundamental principles of judicial procedure, or (iv) where statutory authority resorted to invoke provisions which are repealed, or (v) where statutory authority passed an order in total violation of principles of natural justice. This is in consonance with Gujarat Ambuja Cement Ltd. and the distinction if at all is not in the essence but only in the form; ie: the structure and use of words.

11. Gujarat Ambuja Cement Ltd. spoke of discretion being exercised in cases of abuse of process of law and palpable injustice meted out on the writ petitioner. This is in terms and essence, what has been contemplated in Chhabil Dass Agarwal, of a statutory authority acting in violation of the provisions of the enactment or in defiance of fundamental principles of judicial procedure. Acting against the statute and in defiance of principles of judicial procedure, results in abuse of process of law and visits the citizen with palpable injustice.

12. With these principles in mind we look at the assessment order challenged before the learned Single Judge. The assessment is one made on best judgment, estimating the turnover of the assessee on the basis of the sale made of a purportedly similar product, by the Kerala State Poultry Development Corporation (KEPCO); the product being day-old chicks. In fact the rejection of the return filed is on the basis of the Audit conducted by the Accountant General's Office and the data collected from KEPCO, a Public Sector Undertaking. The assessee imports day-old chicks and sells it to various persons within the State who rear them for the purpose of sale as meat. The Assessing Officer on the report of the Audit Team, initiated proceedings and found that KEPCO also deals with day-old chicks and they sell at a higher rate. This is the sole basis on which the assessment is made.

13. The assessee had raised very many contentions regarding the manner in which the PSU carries out its operations which caters to a totally different type of customers as clearly distinguishable from that of the assessee. Without examination as to from where the dealer makes the purchases, the quality of the chicks sold by both the assessee and the PSU, the nature and status of their customers as also the purposes for which the purchases were made, the Assessing Officer mechanically adopted the price of day-old chicks of the PSU to estimate the turnover of the assessee on best judgment.

14. The grounds raised against rejection of returns and consequential best judgment, were rejected by the Assessing Officer on the finding that the assessee had not proved the same, ie: the distinctive nature of the same goods based on the source, the quality, the expense incurred on procurement or production, the end consumer and so on and so forth. In this context we have to emphasize that the assessee's books of accounts were not found to be doctored in any manner. The sale price as asserted by the assessee was available from their invoices and there was no material detected that the assessee had in fact made sales for higher prices than that disclosed in the invoices. It was the Assessing Officer on the basis of the Audit Report and the details of the sale price available from KEPCO, who sought to reject the returns and the books of accounts. The assessee has the initial burden to prove that the returns filed are in accordance with the provisions of the tax enactment and the books of accounts kept truly and correctly in the course of business. The Assessing Officer having not found anything to discredit the returns filed by the assessee or the books of accounts maintained, and relied on the turnover of another dealer that too a PSU, who incidentally also has the same business, to resort to a best judgment assessment. The onus shifts to the Assessing Officer, to prove that the operations carried on by the two dealers are similar and identical. The mere fact that both are dealing in the same product cannot lead to any irrefutable conclusion that the sale price would be the same.

15. In the present case, but for the fact that both deal in day-old chicks there is no similarity between the two dealers. The assessee sources its day-old chicks from outside the State, from small poultry farmers and brings it into the State for distributing to marginal farmers, who rear them for the purpose of sale as meat. KEPCO a PSU by its very nature and constitution projects an assurance of quality which the assessee obviously lacks. The Assessing Officer having adopted the sale price of a PSU cannot require another dealer who sources their products from outside the State to prove that his product is inferior in quality to that of the PSU. We find from the assessment order that while the dealer sold day-old chicks for prices between Rs.12.24 to Rs.17.23, KEPCO sold day-old chicks for Rs.19.82 to Rs.23.22. The assessee had also claimed that the average sale price worked out from KEPCO itself would be Rs.19.64 for the year 2011-12 and Rs.20.07 for the year 2012-13. The said contentions was also supported by a letter obtained from the Manager (Personnel) of KEPCO. On the ground that the Annexure to the letter produced was not signed or sealed by KEPCO, the document was rejected. When the proposal to adopt the sale price of KEPCO itself was on the basis of the details collected from KEPCO by the Audit team, we fail to understand why the Assessing Officer did not take steps to get the details of the average sale price from KEPCO as disclosed from the documents produced by the assessee or verify the genuineness of the document from the PSU.

16. In this context, we have to pertinently observe that when best judgment is resorted to as has been held in (1973

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) 2 SCC 137 [The Commissioner of Sales Tax, Madhya Pradesh v. M/S. H.M.Esufali], the Courts will have to first see whether the accounts maintained by the assessee was rightly rejected as unreliable and then as to whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made. We are quite conscious of the fact that H.M Esufali was a case in which the statutory remedies were exhausted and what was impugned before the Supreme Court, was the judgment of the High Court in a statutory revision. We are in Article 226 and if there were any adjudication of facts required we would have definitely restrained ourselves from interfering with the assessment. We also agree with the learned Senior Government Pleader that there is no question urged of the provision of law, under which the assessment was made, being ultra vires. Nor is there any allegation of violation of principles of natural justice. We garner support from Gujarat Ambuja Cements Ltd to find that the proceedings itself is an abuse of process of law for reason of the Assessing Officer having rejected the books of accounts merely on the ground that a PSU sells day-old chicks at a price higher than that of the assessee. The estimation made is on the basis of the books of accounts of the PSU and there was no defect, omission or suppression detected from the books of accounts maintained by the assessee. We find that the rejection of books of accounts of the assessee was not justified and the basis adopted, being the sale price of another dealer, that too a PSU, has no reasonable nexus with the estimation made. We hence set aside the assessment only to the extent the additions were made based on the sale price of day-old chicks of KEPCO, on the particular facts of this case. Writ appeal is allowed. No order as to costs.
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