2025 (6) TMI 678 - HC - VAT / Sales Tax

Levy of penalty u/s 47(6) of the Kerala Value Added Tax Act (KVAT Act) - penalty levied on the allegation that the said consignment of gold had not been taken back outside the State - HELD THAT - While there is material to show that the inward movement of the consignment from Coimbatore to Palakkad via the Valayar Check Post was covered by an e-sugam form (Annexure C) the same cannot be said of the alleged return journey from Palakkad to Coimbatore via Walayar Check Post. In this connection while the learned counsel for the petitioner would rely on Annexure E produced along with the revision memorandum which is a copy of the e-sugam form allegedly used for transportation of the aforementioned consignment back to Bangalore a perusal of the said form would clearly reveal the ambiguity in its contents. There is no certainty as to where the consignment was sent from since in the column corresponding to the place of origin the description given is Coimbatore Erode Tirupur Palakkad Thrissur etc. and the destination is shown as Bangalore. Conclusion - Since the only document relied upon by the assessee is the one produced as Annexure E which does not give a clear indication of the facts that are required to be declared so as to render it a valid document for the purposes of the KVAT Act there are no reason to interfere with the impugned order of the Tribunal. The revision petition therefore fails and is accordingly dismissed by answering the questions of law raised against the assessee and in favour the revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

i. Whether the Appellate Tribunal was correct in upholding the decision of the first appellate authority imposing penalty under Section 47(6) of the Kerala Value Added Tax Act (KVAT Act) on the petitioner for alleged tax evasion related to transportation of gold ornaments.

ii. Whether the Tribunal erred in not relying on Circular No. 10/10/2017 GST dated 18/10/2017 issued by the Government of India, which permits transportation of jewellery on approval basis without the support of a delivery challan.

iii. Whether the Tribunal was justified in insisting on a delivery note for the consignment of jewellery, notwithstanding Circular No.39/2006 dated 18/11/2006.

iv. Whether the Tribunal's finding that the jewellery was not taken back outside the State after paying security deposit under Section 47(6) of the KVAT Act was correct.

2. ISSUE-WISE DETAILED ANALYSIS

Issue i: Validity of penalty imposed under Section 47(6) of the KVAT Act for non-disclosure and tax evasion

The legal framework involves Section 47(6) of the KVAT Act, which empowers authorities to impose penalty for evasion of tax, particularly when goods are brought into the State without proper declaration and documentation, and are not returned outside the State as claimed.

The Court examined the facts that a consignment of 8516.960 grams of gold ornaments was found in possession of two passengers on a bus from Coimbatore to Palakkad. The consignment was seized near Walayar, Palakkad, and a penalty of Rs.24,79,883/- was imposed for non-disclosure at the Commercial Tax Check Post and failure to prove return of goods outside the State.

The petitioner challenged the penalty, contending that the goods were returned outside the State, supported by an 'e-sugam' form (Annexure E) allegedly evidencing the return journey.

The Court scrutinized the 'e-sugam' form and found it ambiguous and inadequate. The place of origin was vaguely described as "Coimbatore, Erode, Tirupur, Palakkad, Thrissur, etc." and the mode of transport was simply "by bus" without vehicle registration or owner details. This lack of specificity rendered the document insufficient to establish that the consignment was indeed returned outside the State.

The Court agreed with the Tribunal's reasoning that in absence of reliable documentary evidence proving the return of the goods, the penalty imposition was justified. The authorities' concern about rampant tax evasion in transportation of large quantities of gold without proper documents was held to be a valid ground for strict enforcement.

The Court also noted that the petitioner failed to produce any other documents evidencing actual transportation of the consignment through various check posts on the return journey, undermining the claim of return.

Issue ii: Reliance on Circular No. 10/10/2017 GST permitting transport without delivery challan

The petitioner argued that Circular No. 10/10/2017 GST (dated 18/10/2017) allowed transportation of jewellery on approval basis without the requirement of a delivery challan, and thus the penalty for non-production of such documents was unwarranted.

The Court observed that this circular was issued subsequent to the date of the offence and was not in operation at the time when the consignment was seized. Therefore, the circular could not be applied retrospectively to absolve the petitioner of liability.

Furthermore, the petitioner had failed to ensure accompaniment of even the sales invoice or delivery challan as prescribed under the then existing law. The Court held that the Tribunal was correct in overruling this contention.

Issue iii: Necessity of delivery note despite Circular No. 39/2006 dated 18/11/2006

The petitioner contended that Circular No. 39/2006 dispensed with the requirement of insisting on a delivery note for transportation of jewellery.

The Court, however, noted that the mandatory requirement under the KVAT Act to declare goods at the entry point and produce relevant documents was not negated by the circular. The circular did not override statutory provisions or the necessity of proper documentation to prevent tax evasion.

The Tribunal's insistence on delivery note or equivalent documents was held to be consistent with the objective of the Act to ensure transparency and prevent revenue loss.

Issue iv: Correctness of Tribunal's finding that jewellery was not taken back outside the State after paying security deposit

The petitioner claimed that the jewellery was returned to Bangalore immediately after release on furnishing security deposit under Section 47(6) of the KVAT Act.

The Court analyzed the evidence and found that the petitioner failed to produce credible documents to prove actual transportation of the consignment back outside the State. The ambiguous 'e-sugam' form did not establish the return journey conclusively.

The Tribunal's conclusion that the petitioner did not discharge the burden of proof to show that the goods were taken back outside the State was found to be justified.

The Court concurred with the Tribunal's rejection of the petitioner's claim based on stock register entries and the unsubstantiated assertion of return.

3. SIGNIFICANT HOLDINGS

The Court upheld the imposition of penalty under Section 47(6) of the KVAT Act for non-disclosure and failure to prove return of goods outside the State, emphasizing the following principles:

"We find much force in the contentions raised by the State that tax evasion attempt is rampant in the case of import and transportation of huge quantity of gold ornaments without proper documents and without declaring the same at the time of entry into the state and the same had to be viewed seriously."

"Had the gold ornaments been actually returned, the appellant would have been in a position to prove the same by producing documents evidencing actual transportation of the same through various check posts."

"Taking note of the fact that huge quantity of gold ornaments were brought without ensuring accompaniment of documents prescribed under the Act and flouting the mandatory requirement of declaring the same before the authorities at the entry point, we hold that the imposition of penalty by the enquiry officer and dismissal of appeal by the appellate authority are fully justified."

"The act of the appellant cannot be viewed otherwise than for defrauding revenue and for the same reason, the claim of the appellant that the impugned orders do not establish conclusive finding contemplated under Section 47(6) of the Act can't be accepted."

On the issue of reliance on Circular No. 10/10/2017 GST and Circular No. 39/2006, the Court held that these circulars could not be applied retrospectively or override statutory mandates for documentation and declaration of goods at the time of entry.

Accordingly, the Court dismissed the revision petition, affirming the Tribunal's order and the penalty imposed, thereby ruling in favour of the revenue on all issues raised.