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Flipkart Internet (P.) Ltd. Versus State of Kerala

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 hence it could not have been proceeded against under the penal pr .....

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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 transactions of sale that resulted in goods being delivered to customers i .....

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he 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 dealer under the KVAT Act and, in the returns submitted by the said d .....

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he 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 For The Respondent : Liju V. Stephen, Adv. JUDGMENT 1. As the issu .....

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;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 that it is a service provider who is not engaged in the business of s .....

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ler 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 were of the view that it ought to have filed returns and paid tax und .....

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ccording 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 difference in the facts is that the petitioner herein is a person who ac .....

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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 circumstances of the case and the submissions made across the bar, I am of .....

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rs, 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 insofar as the product was delivered to the customer in Kerala and f .....

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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.(C).No.5348/2015 responded to the allegations raised therein by cl .....

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e 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 customer within the State of Kerala and was therefore an inter-state sal .....

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o 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 impugned in the writ petition. Before doing that, however, I must .....

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tioner 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 against the petitioner. The notice does not, however, spell out how .....

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t 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 confronted him with definite conclusions of his alleged guilt and obser .....

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tiated 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 are couched and conveyed to the person proceeded against. 29 .... .....

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rudence 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, while issuing a show-cause notice, the authorities must take care to m .....

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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 petitioner at all. The impugned orders only find that there were tr .....

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sues, 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 since it is trite that the legality of the orders impugned can be s .....

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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. DCT & Ors - [1976] 4 SCC 460]. The most perplexing aspect of .....

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e 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 orders, Exts. P13 and P14 Demand Notices as also Exts. P8 and P9 .....

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er, 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 comply with the other provisions under the said Act that were applicabl .....

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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 inspection or otherwise and the enquiry is pointedly against any actu .....

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y 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 the realm of the assessment proceedings. 12. Section 67 does not c .....

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