TMI Blog2009 (8) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable for the penalty also cannot be forgotten. In this factual situation, contention is only to be rejected. In this case, it is the mere commission of an offence that has been committed by the petitioner. Penalty confirmed. Appeal dismissed. - W.P. (C) No. 7803 of 2007 & 5702 of 2008 - - - Dated:- 19-8-2009 - ANTONY DOMINIC , J. ANTONY DOMINIC J. The prayer in this writ petition is to quash exhibit P13 order levying penalty on the petitioner under section 45A of the Kerala General Sales Tax Act, 1963 as confirmed by exhibits P14 and P15 orders. Facts of the case are that the petitioner is a company incorporated under the Companies Act, 1956 and is a registered dealer under the provisions of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as, the Act for short), dealing in petroleum products including high speed diesel. In so far as this writ petition is concerned, it is relevant to note that by exhibit P1, S.R.O. 1091/1999, issued under section 10 of the Act, the Government of Kerala, ordered to; I. Make a reduction in the rate of tax payable under the said Act, (1) on the turnover of sale or purchase, as the case may be, of goods s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of goods) 3. I/We undertake to pay over to the Government the amount of tax concession I/We received if I/We fail to make use of the said goods for the manufacture of . . . . . . . . . (here enter the name of goods intended to be manufactured), within the State. 4. I/We are Registered dealer on the rolls of the Sales Tax Office . . . . . . /my/our registration certificate No. is . . . . . . . . . 5. I/We claim the reduction in rate of tax under item . . . . . . . . . . . . . . of Schedule . . . . . . . . . to Notification S.R.O. No. 1091/99. DESCRIPTION OF GOODS Sl. No. Name of goods No. and date of the sale bill/invoice/voucher Quantity Value (1) (2) (3) (4) (5) Place: Signature Date: (Seal) (1) Name of the person authorised to sign: (2) Name and address of the purchaser: (Strikeout whichever is not applicable). In the writ petition, it is averred that the petitioner appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as provided in clause 8 of exhibit P4. According to the petitioner before effecting sales, to confirm the genuineness of the dealers, they had obtained the following documents: 1.. Exhibits P2 and P2(a) certificates dated October 23, 1999 and October 12, 2004 issued by the seventh respondent that respondents 5 and 6 are considered as recognised dealers. (It is to be noticed that exhibit P2 issued in favour of the fifth respondent is not with reference to exhibit P1, S.R.O. No. 1091/1999 while the validity period of exhibit P2(a) is only 6 months from October 12, 2004.) 2.. Exhibits P6 and P7 dated June 18, 2004 and October 15, 1999, respectively and which were renewed periodically, are the permits issued by the seventh respondent authorising respondents 5 and 6, to do business as dealers of the articles mentioned therein which includes petroleum products also. 3. Exhibits P8 and P8(a) dated November 5, 2004 and March 13, 2001, permissions issued by the Department of Explosives for transportation of HSD, subject to the conditions mentioned therein. (It is to be noticed that one of the conditions required that the dealer shall make adequate arrangement for storage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 5904 126197911.20 5047916.44 Commercial Taxes, Special Circle II, Ernakulam where you had filed certificates stipulated under S.R.O. No. 1091/99 in annexure I in support of the claim of concessional rate of four per cent. As further evidence to prove movement of goods from Kerala to Lakshadweep, you had furnished copies of 'export bills' filed at Beypore Port, Kozhikode and Mangalore Port. In order to verify bona fides of the export of goods to Lakshadweep and the authenticity of the export documents filed, the Investigation Branch attached to the office of the Deputy Commissioner (Intelligence), Ernakulam visited the ports of Beypore and Mangalore, perused the copies of export bills filed with the port authorities and obtained copies of export bills. On cross verification of the export documents filed with the port authorities and that filed at the office of the Assistant Commissioner (Assmt.), Commercial Taxes, Special Circle II, Ernakulam, it was noticed that the export bills filed with the Assistant Commissioner are fabricated and fake. The commodities transporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished copies of the documents relied upon, to scrutinize the documents and file its reply; (3) that before effecting sale, all precautions were taken by obtaining exhibits P2, P6 and P8 referred to above and that they were satisfied themselves about the genuineness and eligibility of the dealers; (4) that the purchase indents and orders were placed by the dealers and the dealers have undertaken that goods so purchased shall not be diverted to any other party; (5) it is stated that sales were effected at their terminals at Cochin and dealers arranged tankers for transportation and took delivery which was duly acknowledged by the drivers; (6) that certificates as per annexure I to exhibit P1 have been obtained and the dealers have undertaken to pay to the Government amount of tax concession received, if they fail to use the product in Lakshadweep; (7) to prove that transactions have been carried out and that materials have been sold and physically delivered, copy of the party ledger where the demand drafts issued by the dealers have been accounted and stock registers, were also relied on; (8) that once product is delivered from the terminal to the transporters authorised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting payment by demand drafts from one Sri. P.V. Babu, S/o. P.K. Velayudhan, operating a bank account at IndusInd Bank, with fictitious business address at BNV Trade Links, Tharakkandom Estate, Ravipuram, Ernakulam. This order contains details of five demand drafts and it is stated that Sri. P.V. Babu had no authority to pay for the HSD purchased and that local enquiry at his business premises revealed that the business was bogus. Yet another factor pointed out in exhibit P13 order is that the entire payment was made by demand drafts and that despite the running accounts maintained in respect of regular customers, the oil company did not accept cheque payments and that by adopting this process, the company was only ruling out the risk of the purchaser dishonouring the cheques. It is stated that there was no evidence at all to show that the petitioner received any consideration from respondents 5 and 6 in respect of HSD allegedly sold to them and that all payments were made by strangers who are not parties to the contract of sale. It is stated in exhibit P13 order that the applications for export filed by respondents 5 and 6 at the ports and authenticated by the port office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that the undertaking in the notification is intended to apply only to manufacturers who fail to make use of the goods for the declared purpose. There is no appearance on behalf of the fifth respondent. However the proprietor of the sixth respondent has filed a counter-affidavit. In the affidavit, he has stated that he was a primary school headmaster and that since his retirement on November 30, 2003, he is leading a retired life. Dealing with the transaction in question, the averments in paragraphs 2 to 7 in the counter-affidavit, being of relevance, are extracted below for reference: I desired to start a stationary shop in Agathi and had applied for a permit before the Agathi, Sub-Divisional Officer in the April 2004. Thereafter I had to shift my residence to Kozhikode, since my daughter secured admission for B. Ed course in Salafi College, Meppayoor, Kozhikode. My daughter at that time was having a breast feeding one year old child hence could not be accommodated in the hostel. Therefore the following one year period (May 16, 2004 to May 5, 2005) I was residing at Meppayoor, Calicut. Because of the above reason I could not collect the permit from Agathi Additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made from fictitious accounts. The only contract entered for the business is between the oil-company and Nizy Enterprises appointing the latter as their Business Development Agency. All the documents submitted for this respondent, Ifan Enterprises were forged/fabricated documents bearing signature of strange persons. The petitioner-company instead of verifying any of the documents made sales worth crores of rupees on the strength of the order placed by Nizy enterprises. The oil-company had not even bothered as to who made the payments. The oil-company should be put to strict proof evidencing payment from this respondent in order to make the alleged transaction 'sales as alleged by the company to this respondent in order to fasten any sort of liability. The declarations submitted by some strange persons cannot conclusively claim that they have effected factual sales of HSD to any persons for actual use in Lakshadweep save paper transactions. This defendant living on pension cannot do such business in crores of rupees. Sale whether under the Sale of Goods Act or the Kerala General Sales Tax Act, 1963 necessarily postulates transfer of goods from the seller to the buyer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment of tax due, levy of penalty is premature especially in a case where the quantum of tax payable is also under dispute. 2.. That the show-cause notice did not specify the provision of section 45A of the KGST Act that is allegedly violated by the petitioner. 3.. The report of the investigation conducted by the Department and the export bill obtained from the port authorities, which were relied on in exhibit P13 order were not furnished to the petitioner. 4.. That the alleged six forged documents (annexure D mentioned in exhibit P13 order), pertain only to 250 kilo litres of HSD and if that be so, the first respondent could not have levied penalty on the entire 5,904 kilo litres sold to respondents 5 and 6 during 2004-05. 5.. That the petitioner having complied with all the requirements of exhibit P1 notification, if at all any subsequent misdeeds have been committed by the purchaser, over which the petitioner has no control, it could not have been penalised and that it is the purchaser who alone is liable for penalty. 6.. That the respondents have while issuing exhibits P13 to P15 travelled beyond the scope of exhibit P10 show-cause notice and have arrived at con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner had produced 137 export bills and that its correctness was verified with the corresponding export bills at the Ports at Beypore and Mangalore and that it was found that as against petroleum products, the goods actually shipped were rice, provisions, etc., and also that the signature of the port officer contained in the export bills produced by the petitioner were forged and that these facts were confirmed by the concerned port officers. Regarding the alleged non-supply of the documents relied on in the enquiry, learned Government Pleader referred to exhibit P13 order itself and submitted that all documents were perused by the authorised representative of the petitioner and that exhibit P12 supplementary reply was filed only thereafter. It was contended that there was no provision in the Act and the Rules requiring that in a case of this nature penalty under section 45A of the Act could not have been imposed unless the assessment proceedings are completed. Referring to the contention of the learned counsel that the six forged documents relied in exhibit P13 order covers only 250 KL HSD and therefore penalty could not have been imposed on the entire quantity sold, le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n State of Madras v. Radio and Electricals Ltd. [1966] 18 STC 222 (SC), Polestar Electronic (Pvt.) Ltd. v. Addl. Commissioner, Sales Tax [1978] 41 STC 409 (SC) and State of Tamil Nadu v. Madras Petro Chem Ltd. [1993] 89 STC 438 (Mad). Relying on the law laid down in the above judgments the learned senior counsel for the petitioner contended that once sale has been concluded, adopting all reasonable precautions, if at all the purchaser has misconducted themselves subsequently, the seller cannot be made liable for the tax or penalty. Though this contention would sound attractive, the answer to the question will certainly depend upon the nature and genuineness of the transaction between the seller and the purchaser. As already noticed, in this case, it is the genuineness of the sale, which is under dispute and the authorities have concluded that against the professed intention of the buyer to utilise the HSD in Lakshadweep no part of the HSD sold has been shipped to the island. The question is whether in such a situation, there is anything illegal in making the seller liable. Admittedly the liability of tax is at the first sale on the State and is on the seller. Exhibit P1 notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is MRPL Mangalore. While so, it is surprising that the buyers have taken delivery from Cochin, transported the same by trucks to Mangalore and then shipped the HSD to Lakshadweep, when HSD was very much available in Mangalore itself. 5.. Even going by the documents produced by the petitioner, respondents 5 and 6 are dealers of petroleum products and the huge quantity allegedly purchased by them was admittedly in that capacity only. While the petitioner was thus entering into such huge transactions canvassed by its BDA, exhibit P4 appointment order itself provided that the BDA shall canvass business from customers for their consumption only. 6.. Further while exhibit P4 requires customers to place their intents, even going by the pleadings in this writ petition, intents were placed by the BDA only. This read with the averments in the counter-affidavit filed by the sixth respondent, speaks volumes about the bona fides of the petitioner and the genuineness of the sales. 7. The corresponding 137 export bills verified with the ports, showed that the goods shipped were actually rice, provisions, etc., which means the goods sold by the petitioner were not shipped at all. 8.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U.P. [2005] 190 ELT 433 and B. Lakshmichand v. Government of India [1983] 12 ELT 322 (Mad). In these judgments, courts have invalidated penalty proceedings due to the defects in the show-cause notice. A closer reading of these judgments would show that it was held that the showcause notices did not contain the exact nature of the contravention for which the assessees were liable for penalty and that the essential ingredients of the offence which would expose the assessee to penalty, enabling them to give a proper answer or to adequately defend themselves were not given the show-cause notices. Therefore, to appreciate the contention raised, reference to exhibit P10 show-cause notice is necessary. Reading of the show-cause notice shows that the export bills produced by the petitioner were verified with the port authorities and it was confirmed that these documents were fabricated. On that basis, it is alleged that the petitioner had wrongfully availed of the concessional rate of four per cent. It is further alleged that as the petitioner had irregularly availed of the concessional rate, there was evasion of tax to the tune of Rs. 2,52,39,582.22 and therefore it was proposed to im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on either. It was contended that the six allegedly fabricated documents mentioned in exhibit P13 order, cover only 250 kilo litres of HSD and therefore at any rate, penalty could not have been imposed on the entire quantity sold. In support of this contention learned senior counsel for the petitioner relied on the apex court judgments in Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes [1970] 26 STC 354; AIR 1970 SC 1281 and Rukmanand Bairoliya v. State of Bihar AIR 1971 SC 746. In these judgments, it has been held that each transaction has to be verified and that assessment cannot be completed by adopting a sampling method. However, I do not find any substance in this contention also. A reading of exhibit P13 order itself shows that the aforesaid six documents, both original and forged, have been attached as annexure D only as samples of such originals as well as forged export documents as specimens testifying the fraud . If these documents are only specimens and samples, the petitioner cannot contend that the respondents have completed the penalty proceedings adopting sampling method. In fact, during the hearing of the case, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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