TMI Blog2012 (6) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated by the best judgment of the individual officer which definitely is subject to the principles of reasonableness, proportionality and of course natural justice. Such estimation on best judgment would definitely have to be done with due notice and after affording a personal hearing. Such estimation should be reasonable and should have a nexus with the gravity and frequency of the commission of offences as also the quantum of loss suffered by the State. This exercise, in our opinion, cannot be undertaken by the officer empowered with the power to impose penalty u/s 67 of the Act. Section 67 contemplates imposition of penalty on proof of commission of offences as a measure of deterrence; best judgment assessments are made to compensate the loss caused to the State - question answered against the Revenue and in favor of the assessee. Scope of Circular No.28/2008, dated 19.06.2008 - Would the prescription of rates for the purpose of collecting advance tax in the case of evasion prone commodities; bind and restrict the dealers from claiming sale of such commodities at a lesser rate resulting in tax liability only for such lesser amounts? - Held that: - The first appellate author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en verified, the Department alleged that the sale of timber being at rates lesser than that prescribed in the aforesaid circular; leads to undervaluation and consequent evasion of tax, warranting an imposition of penalty under Section 67 of the KVAT Act. That the advance tax was paid as per the circular and sales were effected at rates below the floor rate prescribed under the circular are admitted. 4. We have heard learned counsel Sri.Harisankar V.Menon for the revision petitioner and Sri.Bobby John, learned Senior Government Pleader for the State. 5. The counsel for the revision petitioner would urge before us that going by binding precedents, the circular aforementioned has been issued as has been the time honoured practise of the department; with the intention to plug evasion of tax, specifically with respect to those commodities which the Department, by experience, identifies as being evasion prone. It is equally time honoured that the same would not decide the tax liability or the rates at which the products are sold within the State. Further, it is the contention of the learned counsel that in any event the instant proceedings being under Section 67 of the KVAT Act de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x liability only for such lesser amounts? 8. The question first to be considered is with respect to the estimation of the turnover made by the Intelligence Officer based on the rates prescribed in the circular. The circular if held by us to be indicative or determinative of the actual price for which the goods are sold, the question posed is as to whether in penalty proceedings estimation can be adopted. The provision authorizing imposition of penalties, coming up for consideration in the instant case, is Section 67 of the KVAT Act. Clauses (a) to (l) of Section 67 enumerates the various offences that attract imposition of penalty. If any authority empowered under the Act is satisfied that any person has committed any or all of the offences enumerated in clauses (a) to (l): such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of tax or other amount evaded or sought to be evaded where it is practicable to quantify the evasion or an amount not exceeding Ten thousand rupees in any other case . When action is initiated under Section 67 of the KVAT Act for defects/offences mentioned in clauses (a) to (l), it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain facts, there should be material on record to substantiate the same. It is true that the language used in section 45A(1) is subjective . Though literally, the language is so, the practical approach of the courts has been to insist on objective evaluation . 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 actual suppression or omission in the course of the business transactions, which would lead to the definite conclusion of evasion or attempt to evade. On detection of such offences; in the event of the tax evaded or sought to be evaded being determinable, the officer initiating penalty proceedings is perfectly justified in imposing penalty at the maximum rate of twice the rate of tax actually evaded or sought to be evaded. Such officer conducting penalty proceedings cannot exceed his 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the power to impose penalty under Section 67 of the Act. Section 67 contemplates imposition of penalty on proof of commission of offences as a measure of deterrence; best judgment assessments are made to compensate the loss caused to the State. The first question hence is answered against the Revenue and in favour of the assessee. 13. The next question is regarding the scope of Circular No.28/2008, dated 19.06.2008. The powers to issue orders, directions and instructions for the proper administration of the Act is contained in Section 3(2)(c) of the KVAT Act. Section 3(2) confers on the Commissioner the power of superintendence over all officers and persons employed in the execution of the said Act and the power to issue orders, etc., for the proper administration of the Act, is a necessary corollary to the power of superintendence. The Hon'ble Supreme Court in State of Kerala v. Kurian Abraham (P) Ltd. [(2008) 3 SCC 582] considered the scope of the powers and the ambit of the orders issued under in pari materia provisions of the Kerala General Sales Tax Act, specifically Section 3(1A) of the said Act. Considering tax administration to be a complex subject consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he liability happens. It is under this provision that the subject circular in the instant case has been issued. 15. We are not concerned with the validity of the circular so issued which, in any event, has been upheld by a Division Bench of this Court in KMP Timbers Saw Mills v. Commercial Tax Inspector and another [(2012) 50 VST 195 (Ker)]. Upholding the validity of the statutory provision, i.e. Section 47(16A), as also the circular issued under the said provision, this Court held: Further, advance tax is only a provisional deposit towards tax and nothing in the Act requires the appellant or any party to pay tax except on actual sale price. The value fixed under the circular for payment of advance tax does not reflect the basis for actual liability. In fact, tax is payable only on actual sale price and the appellant is absolutely free to claim refund of advance tax paid, if it is in excess over tax liability. If there is allegation of under-invoicing, it is for the assessing officer to establish the same in adjudication proceedings . Hence, there can be no doubt that the value fixed under the said circular was only for the purpose of deciding advance tax liability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price being the 'Maximum Retail Price' for the purposes of levy of tax, by a legal fiction. Having considered the entire line of decisions on the issue of levy of sales tax on the sale of goods, the Hon'ble Supreme Court held: By substituting the assumed quantity of goods or a price which is not the subject-matter of that contract of completed sale for the purpose of measuring tax, the legislature assumes existence of contract of sale of drugs by legal fiction which has not taken place and which cannot be considered to be a sale in the manner stated in the Sales Act, which alone can be the subject of tax under Entry 54 in List II. Substitution of assumed price or the assumed quantity in place of actual price/quantity in a completed sale transaction, for the purpose of levy of tax on the subject-matter of tax results in taking away from it the character of sale of goods as envisaged under the Sales Act . The subject of tax being sale, it was held, the measure of tax for the purpose of quantification must retain the nexus with sale which is the subject of tax. Hence, the measure of tax cannot be determined on a notional basis and cannot at all be on a hypot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eivable by a dealer for the sale of any goods. Total turnover is the aggregate turnover in all goods of a dealer, including purchase and sale, whether or not such turnover is liable to tax. Taxable turnover means the turnover of the dealer which is liable to tax in accordance with the KVAT Act. It is also to be noticed that prevailing market price has been defined under Section 2(xxxviA). The definition refers to the publication with respect to wholesale price by the Economics and Statistics Department of the State or any other authorised agency and in the absence of such publication, the price at which similar goods are sold by the Kerala State Civil Supplies Corporation or any other similar agency. Apart from the fact that no such record or publication has been subjected to scrutiny in the instant case, it is also pertinent that there is nothing in the statute to enable adoption of such published rates as the actual price on which tax is to be paid. The above provisions would indicate that the legislature thought it fit to levy tax on the actual price received by the seller on the sale of goods at the seller's hands. The circular of the Commissioner cannot and does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar dealers. However, the various rates said to have been adopted by the other dealers detailed in the order does not seen to have been put to the dealer. There is also an allegation of fictitious billing, which again has not been put to the dealer. If at all evidences were available with respect to specific under-valuation regarding any variety of timber or regarding the sales not having been effected and property in goods not having been transferred; then it was for the Intelligence Officer to specifically put such instances to the dealer so as to determine the tax sought to be evaded or attempted to be evaded. The entire proceeding is founded on the fact that the dealer had been selling imported timber logs at a lower rate than the minimum price fixed by the circular, thereby paving way for claim for refund of input tax. The under-valuation as a result of wilful suppression of a sales turnover was deduced only on the above reasoning. The Intelligence Officer in fact proceeds on the assumption that the floor rate fixed by the circular is to reflect the market rate and not for the levy of advance tax at the entry check post. This is contrary to the specific words employed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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