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2015 (11) TMI 159 - KERALA HIGH COURT

2015 (11) TMI 159 - KERALA HIGH COURT - [2016] 87 VST 103 (Ker) - Demand of VAT and levy of Penalty u/s 67 of KVAT - E-commerce transactions - virtual shop - facility for providing online sale or purchase of goods - breach of the provisions of Sections 20 and 40 of the KVAT Act - Registeration not obtained under KVAT - Non filing of returns and non maintenance of true and correct accounts - The petitioner contends that it has absolutely no role to play in the transaction of sale and purchase and .....

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the transactions in question had to be treated as local sales as against inter-state sales. The notice adopts the figure furnished by the petitioner, representing the total turnover in respect of sale transactions completed through its online portal to customers in Kerala during the relevant period, as the total sales turnover of the petitioner for the purposes of quantifying the tax liability and penalty against the petitioner.

The impugned orders only find that there were transact .....

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in my view, was necessary to clothe the authority concerned with the jurisdiction to proceed against the petitioner under the penal provisions of the KVAT Act, and the absence of a finding on these issues, denudes the authority concerned of such a jurisdiction.

The most perplexing aspect of the instant case, however, is that WS Retail, the seller responsible for effecting majority of the sales to customers in Kerala, through the online portal of the petitioner, is registered as a dea .....

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pose penalty, on the petitioner in respect of the same turnover. The findings in the impugned orders reflect a patent non-application of mind by the authority concerned and also smack of arbitrariness. - Demand and penalty set aside. - W.P. (C) NOS. 5348 AND 6916 OF 2015 - Dated:- 20-10-2015 - A.K. JAYASANKARAN NAMBIAR, J. For The Petitioner : Joseph Vellappally, Senior Advocate, V. Abraham Markos, Binu Mathew, Tom Thomas (Kakkuzhiyil), Abraham Joseph Markos, Isaac Thomas and Noby Thomas Cyriac .....

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he Kerala Value Added Tax Act [hereinafter referred to as the 'KVAT Act']. The said orders have been passed under Section 67 of the KVAT Act, inter alia on the finding that the petitioner has breached the provisions of Sections 20 and 40 of the KVAT Act in not getting itself registered as a dealer under the KVAT Act and further, not filing returns and maintaining true and correct accounts as mandated under the said Act. 3. The main contention of the petitioner in the writ petition is tha .....

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the sale transaction, whether intra-state or inter-state, the seller of the product pays tax either under the local VAT Act or under the CST Act, and the fact of payment of tax is indicated in the invoice issued to the customer. The petitioner contends that it has absolutely no role to play in the transaction of sale and purchase and hence it could not have been proceeded against under the penal provisions of the KVAT Act. It is its further contention that even if the respondent authorities wer .....

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and other sellers, who were registered sellers on its web site. According to the petitioner, the said sales were all inter-state sales as the sale transactions occasioned a movement of the respective goods from outside the State to various locations within the State of Kerala. 4. As far as the petitioner in W.P.(C).No.6916/2015 is concerned, while the orders imposing penalty, impugned in its writ petition, proceed on similar lines as the orders impugned in W.P. (C).No.5348/2015, the only differ .....

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les effected to its customers in Kerala are local sales and it is on the said premise that the petitioner has been proceeded against under the penal provisions of the KVAT Act and Rules. 5. I have heard Sri. Joseph Vellapally and Sri. Joseph Kodianthara, the learned Senior Counsel appearing for the petitioners in both the writ petitions and Sri Liju V Stephen, the learned Government Pleader appearing for the respondents in both the writ petitions. 6. On a consideration of the facts and circumsta .....

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ue and correct accounts. 7. In the notices issued to the petitioners, proposing the imposition of a penalty, the stand of the respondents briefly stated is as follows: ■ Through the action of a customer in Kerala choosing a product of his choice on the online portal of the petitioners herein, an agreement for sale came into existence whereby the petitioners agreed to sell the product in question to the customer in Kerala for a consideration. ■ The sale in question was a local sale in .....

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p and the situs of the sale would be in Kerala where the agreement to sell was made. ■ As the petitioners were liable to pay tax under the KVAT Act, and they had not complied with the provisions of sub-sections 20 and 40 of the KVAT by filing the necessary returns and maintaining true and correct accounts, they were liable to pay penalty quantified at twice the amount of tax that was payable. 8. It is relevant to note that, on receipt of the notice proposing penalty, the petitioner in W.P. .....

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sequently raised an invoice on the customer and paid the applicable tax, under the CST Act, in the State where it had its place of business, and from where the movement of the goods originated for delivery to the customer in Kerala. ■ Although there was a transaction of sale involved, the said sale was an inter-state sale effected by a seller located outside the State to a buyer located within the State of Kerala. The sale occasioned a movement of goods from outside the State to the custom .....

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r the purposes of the KVAT Act, there is no statutory obligation to file returns or maintain records or accounts and hence, the penal provisions under the Act could not have been invoked against the petitioner. 9. It is in the backdrop of the aforesaid stand adopted by the revenue authorities in the notices issued to the petitioner, and the explanation given in the reply submitted by the petitioner to the said notice, that I have to now consider the legality of the penalty orders that have been .....

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n the notice as to why the revenue authorities considered the petitioner a dealer, or why the transactions in question had to be treated as local sales as against inter-state sales. The notice adopts the figure furnished by the petitioner, representing the total turnover in respect of sale transactions completed through its online portal to customers in Kerala during the relevant period, as the total sales turnover of the petitioner for the purposes of quantifying the tax liability and penalty a .....

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when they propose the imposition of penalty on an assessee, cannot pre-determine the guilt of an assessee. The notices issued cannot confront an assessee with definite conclusions as regards the commission of an offence by him as, otherwise, it would make a mockery of the process of quasi-judicial adjudication. In Oryx Fisheries Private Limited v. Union of India [(2010) 13 SCC 427], the Supreme Court found that a show-cause notice that was served on the appellant in that case was one that confr .....

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, the entire proceeding initiated by the show-cause notice gets vitiated by unfairness and bias and the subsequent proceedings become an idle ceremony. 28. Justice is rooted in confidence and justice is the goal of the quasi-judicial proceeding also. If the functioning of a quasi-judicial authority has to inspire confidence in the minds of those subjected to its jurisdiction, such authority must act with utmost fairness. Its fairness is obviously to be manifested by the language in which charges .....

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a reasonable reading of a show-cause notice a person of ordinary prudence gets the feeling that his reply to the show-cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show-cause notice does not commence a fair procedure especially when it is issued in a quasi-judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence. 32. Therefore, whil .....

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nce in the mind of those who are subject to it." 10. Turning now to the orders impugned in the writ petitions, I find that the said orders are more or less verbatim reproductions of the notices issued to the petitioner. While this would fortify my observations as regards the manner in which the notices themselves were issued, I find that in the impugned orders, the authority concerned does not enter a specific finding, supported by reasons, as to whether there was any sale effected by the p .....

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plicable tax under the CST Act. A specific finding on the above issues, in my view, was necessary to clothe the authority concerned with the jurisdiction to proceed against the petitioner under the penal provisions of the KVAT Act, and the absence of a finding on these issues, denudes the authority concerned of such a jurisdiction. Although the learned Government Pleader sought to justify the orders impugned on various other grounds, I do not propose to deal with those grounds in this judgment s .....

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igh Court in Antrix Corporation Limited v. Assistant Commissioner of Commercial Taxes and Ors - [2011 (19) KTR 182 (Kar)], the said finding is legally flawed because, it is well settled that the situs of a sale is wholly , irrelevant to a determination of the issue of whether a sale is an inter-state sale or not [See: Union of India v. K.G. KhosIa & Co. Ltd. - [(1979) 2 SCC 242]; Oil India limited v. Superintendent of Taxes & Ors -[1975] 1 SCC 733; English Electic Company of India Ltd. v .....

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effected by them. Under the said circumstances and, in the absence of any material to suggest that the returns filed by the said seller were rejected by the revenue authorities, one fails to understand how the revenue authorities could proceed to levy tax, or impose penalty, on the petitioner in respect of the same turnover. The findings in the impugned orders reflect a patent non-application of mind by the authority concerned and also smack of arbitrariness. I therefore quash Exts. P11 and P12 .....

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e and purchase through an online portal - myntra.com. The petitioner, however, was a registered dealer under the Karnataka Value Added Tax Act during the relevant period, and was paying tax in respect of the local sales and inter-state sales effected from its business premises in the State of Karnataka. There is no material relied upon by the respondents to suggest that the petitioner had effected local sales in Kerala for which he was to register himself as a dealer under the KVAT Act and compl .....

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ithout first having ascertained whether they would come under the coverage of the Act in respect of the activities carried on by them, it would be relevant to remind the authorities of the dictum laid down in a Division Bench judgment of this Court in U.K. Monu Timbers (M/s.) v. State of Kerala [2012 (3) KHC 111], wherein, it was observed as follows as paras 10 & 12: "10. In penalty proceedings the offences indicated under Section 67 should be evidenced by the materials recovered on ins .....

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r conducting penalty proceedings cannot exceed this 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 of estimation of turnover based on such inferences. This, going by the clear words employed in the Statute, is within .....

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