IN THE HIGH COURT OF KERALA
WP(C).No.38474 of 2018(H)
K J DENNIS
AGED 62 YEARS, COCO DALE, M O WARD
1) STATE OF KERALA
REPRESENTED BY CHIEF SECRETARY
GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695008
2) STATE TAX OFFICER
SECOND CIRCLE, COLLECTORATE
3) ASSISTANT COMMISSIONER (ASSMT)
SECOND CIRCLE, COLLECTORATE
4) DISTRICT COLLECTOR
ALAPPUZHA DISTRICT, 1ST FLOOR, COLLECTORATE, CIVIL
STATION, ALAPPUAHZHA, KERALA-688001
5) DEPUTY TAHSILDAR
AMBALAPPUZHA TALUK, ALAPPUZHA
S V Bhatti, J
Dated: August 09, 2019
Appellant Rep by: Sri Sukumar Nainan Oommen, Sri Sherry Samuel Oommen Sri Rahul Ipe Prasad
Respondent Rep by: GP Dr Thushara James
KVAT Act, 2003- Writ – Sections 25 & 60
Keywords – Purchase suppression – Illegal re-assessment – Principles of natural justice – Restoration
The assessee filed the annual return for the relevant AY 2008-09 alongwith audited statement in Form 13 & 13A. The State Tax Officer found some discrepancies about purchase and called upon the assessee to furnish more details about purchases. Unsatisfied with the replies, the assessment order was issued taking note of suppressed purchase and making addition while disallowing export sales. The Commissioner (A) upheld the confirmed the order. The Appellate Tribunal, however, remanded the matter back to the Assessing Authority on the grounds of principles of natural justice because it refused to heed the request of the assessee to prove the unaccounted purchase and export sales. The remand order set aside the assessment order with a direction that failure to produce necessary documents within two months by the assessee will restore the original assessment order.
On remand, the Assessing Authority called for documents in support of genuineness of purchases and export sales but the assessee omitted to furnish such materials within the assigned period. Hence, re-assessment was proposed. After considering the objections, the re-assessment order was passed. The assessee challenged the re-assessment as illegal because the authority failed to abide by the direction of the Tribunal.
Having heard the parties, the High Court held that,
Whether where the Appellate Tribunal has remanded the matter for fresh consideration subject to restoration of original assessment order in case the assessee defaults in timely submission of necessary documents, the State Commissioner cannot independently pass a re-assessment order when such omission occurs – YES: HC
++ the consequence of omission to produce books of accounts, by referring to the emphatic conclusion, the assessment order is restored so far as AY 2008-09 is concerned. In other words, the assessment proceedings initiated through Exts.P2 and P4 resulting in Ext.P6 are allowed to stand and the Department cannot assume jurisdiction to again revive the proceedings by issuing a notice. In considering the legal effect of assessee’s default in producing the books of accounts, the words in Appellate Tribunal’s order viz “the original assessment order will stand restored” have to be given full effect by the lower revenue forum. The words are more in the nature of declaration, accepting assessment order as a valid assessment order;
Whether the lower Revenue forum is within competence to ignore the contextual remand order of the Appellate Tribunal which is final and binding to take a different course of action by passing a re-assessment order – NO: HC
++ the Tribunal has restored original assessment order and it is not within the competence of the lower revenue forum to ignore such order and independently pass order of re-assessment. In the considered view of this Court by giving the contextual meaning to the word ‘restore’ or ‘restoration’, the order is illegal and beyond the jurisdiction. As per the scheme under the Act, in the three tier system provided for determination, appeal, appeal to Tribunal, the final decision taken in the hierarchy of forums is binding on the officers and the assessee. In the case on hand, the Tribunal has taken the final decision. Therefore, that decision alone is binding between the parties for the AY 2008-09.
Assessee’s writ petition allowed
Per: S V Bhatti:
Heard Sri.Sukumar Nainan Oommen and Dr.Thushara James for petitioner and respondents respectively.
2. Petitioner challenges Exts.P10, P11 and P13 as completely illegal and beyond the jurisdiction of the State Tax Officer/second respondent herein. The point for consideration arises under Sections 25 and 60 of KVAT Act (for short ‘the Act’). In the instant writ petition the writ prayer deals with an assessment order in Ext.P13 for the assessment year 2008-09 made by the second respondent. The admitted and undisputed circumstances leading to the second round of litigation are narrated before taking up the two legal objections raised by Sri. Sukumar Nainan Oommen.
2.1 The petitioner for the assessment year 2008-09 filed annual return and certified audited statement in Form 13 and 13A. The second respondent, upon verification of the assessment records and a few patent discrepancies in the annual return filed by the petitioner, through Ext.P2 notice dated 16.07.2010 issued under Section 25(1) of the Act called upon the petitioner to file objections, if any, on the proposed re-assessment. The petitioner through Ext.P3 filed objections to the proposed re-assessment made in Ext.P2. The second respondent issued Ext.P4 notice dated 10.11.2010 revising the turnover as Rs.26,63,96,995/- and called for reply from petitioner. The petitioner in Ext.P5 filed objections to Ext.P4 notice. The second respondent in Ext.P6 order of assessment held as follows:
“Along with the reply the assessee produced the books of accounts for my verification for the year 2008-09.
On verification of the books of accounts the following amount on account of purchase have been seen duly accounted against the unaccounted purchase notified in the notice read as 3rd.
The above purchase has been proved and hence eligible for deduction from the unaccounted purchases proposed in the notice. Hence the actual suppressed purchase has been arrived hereunder:
|Total purchase suppression proposed||Rs.270,82,600.00|
|Less Purchase proved||Rs.159,21,012.00|
|Balance purchase suppression fixed||Rs.111,61,588.00|
|Add freight & Gross profit @ 25%||Rs.279,00,397.00|
|Corresponding sales suppression fixed||Rs.139,51,985.00|
The reply filed the assessee is not convincing. The case cited in the reply is irrelevant in this case. The assessing authority advanced only a purchase suppression and the assessee in return produced proof for the genuine transaction only to a certain extend as narrated above. Even in the case of Gross Profit proposed in the notice is 25% where as the assessee has raised it as 20% in their reply. It is very clear that the assessee has not clearly learned what was pointed out in the notice under read. In the circumstance the assessment for the year 2008-09 is completed as here under relying on the figures of books of accounts and the documents produced for verification, with certain modification to the proposal by giving allowances to the purchases that proved. Hence the following orders are passed.”
and finally determined the total tax due from the petitioner as Rs.13,07,423/- (Rupees Thirteen lakh Seven thousand Four hundred and Twenty Three only). The petitioner aggrieved by Ext.P6 filed appeal before the Deputy Commissioner (Appeals), Commercial Taxes Kollam. The Deputy Commissioner vide order dated 23.01.2013 confirmed the order in Ext.P6. The petitioner filed appeal before Appellate Tribunal under Section 60 against the order in Ext.P6, as confirmed by the Deputy Commissioner in order dated 23.01.2013. The Appellate Tribunal vide order dated 13.11.2013 in Tax Appeal (VAT) No.354 of 2013 accepted the objections raised by the petitioner particularly against denial of opportunity and that the order in Ext.P6 is vitiated by violation of principles of natural justice and recorded the following findings:
“4. Heard both sides. The learned representative for the appellant argued that the assessing authority is wrong in stating that the appellant did not account the purchase of Rs.1,11,61,588/-. The representative argued that the appellant had requested to the assessing authority to give the details of unaccounted purchase amounting to Rs.1,11,61,588/- and the reason for dis-allowance of export sales which were not given to the appellant by the assessing authority. The representative submitted that the appellant was not given an opportunity to prove the unaccounted purchase and export sales inspite of the request made to the assessing authority. The assessing authority has not considered the request of the appellant and there is violation of natural justice in this case. Therefore, we are of the view that the matter requires to be considered again by the assessing authority. We, therefore, set aside the orders of the authorities below and remit the case back to the assessing authority for fresh disposal. The appellant is directed to produce all the books of accounts, purchase and export details before the assessing authority within two months from the date of receipt of this order. The assessing authority shall verify the books of accounts and other details like purchases and exports and allow the appellant’s claim as per law. We make it clear that if the appellant fails to produce the records as directed by us above within the time limit of two months, the original assessment order will stand restored.”
3. It is evident from Ext.P13 assessment order that the petitioner did not avail the opportunity provided by the order of Appellate Tribunal in Ext.P7 and produce the records at any time much less within the time granted by Appellate Tribunal. Likewise the respondents did not also take any action against the petitioner by taking note of the portion in Appellate Tribunal’s order emphasized supra. Respondent no.2 issued Ext.R2(a) notice dated 17.10.2017 for production of record. The operative portion of Ext.R2 notice issued in Form 17 since has relevance for consideration of the legal grounds urged by the petitioner the statutory format is reproduced hereunder:
(FOR THE PRODUCTION OF ACCOUNTS, DOCUMENTS, REGISTERS, STATEMENTS etc)
[See Rules 38 & 101]
M/S.D C Mills
Whareas your attendance is necessary to give evidence/whereas the following documents Books of accounts for the year 2008-09 are required with reference to as enquiry under the Kerala Value Added Tax Act, 2003 now pending before me, you are hereby summoned to appeal in person or through an authorized representative to produce, or cause to produce, the said documents before me on the 24th day of October 2017 at 11.00 am O’clock at (place) O/o. The State Tax Officer, Second Circle, Civil Station, Alappuzha.
Without prejudice to the provisions of any other law for the time being in force, if you intentionally omit or fail to attend and give evidence or to produce the books of accounts registers, records/ or other documents, as required, a penalty upto Rs.10,000/- (Rupees Ten thousand only) may be imposed upon you under Section 67(1) of the KVAT Act, 2003.
Given under my hand and seal this 17th day of October 2017.”
Later on the second respondent has made the order in Ext.P13 and determined the total tax liability as Rs.1,11,92,236/- (Rupees One crore Eleven lakh Ninety Two thousand Two hundred and Thirty Six only). Hence the writ petition.
4. Adv Sukumar Nainan Oommen contends that Ext.P13 order of assessment is completely illegal and without jurisdiction. 013. The order of remand offers opportunity to petitioner to submit the books of accounts and thereafter a fresh order could be passed. The order of remand deals with a consequence of restoration of order in Ext.P6, if the petitioner fails to avail the opportunity provided by the Appellate Tribunal. The petitioner, it is stated, though was justified by a few circumstances beyond his control for not producing the books before second respondent, the learned counsel fairly states that it turned out to be a blessing in guise. The fact that the petitioner committed default in producing the books or did not avail the opportunity would only restore the order in Ext.P6 and the second respondent does not have jurisdiction to issue notice in Ext.R2(a) and make re-assessment under Section 25(1) of the Act. According to his argument, by operation of consequence to the non-production of accounts by petitioner Ext.P6 is revived and continues to be binding between the parties as the binding effect is derived from adjudication by the Appellate Tribunal in Ext.P7 dated 13.11.2013. Therefore, the second respondent, by ignoring the legal effect of restoration of Ext.P6 order, issued Ext.R2(a) notice dated 17.10.2017 and without jurisdiction passed the order in Ext.P13. He further contends that Ext.R2(a), if is treated as independent notice without reference to the order of remand in Ext.P7, then the notice is illegal and beyond the period of limitation prescribed by the Act. Therefore for both the reasons, it is contended, Ext.P13 is liable to be set aside.
5. Dr.Thushara James contends that the petitioner, by availing the remedies under the Act, was successful in getting Ext.P6 order set aside. Once Ext.P6 order is set aside, according to her, the second respondent is well within his competence and jurisdiction to continue and complete the process initiated in Exts.P2 and P4. The objection now raised by petitioner is nothing but a convenient objection to wriggle out of the liability under the Act. According to her the interpretation of Ext.P7 by the petitioner is unsustainable and the petitioner cannot take advantage of his own default in not producing the records within the time granted by the Appellate Tribunal. She vehemently contends that the notice issued in Ext.R2 is substantially in continuation of notices issued in Exts.P2 and P4 but Ext.R2 notice is not issued proposing a fresh re-assessment. Therefore, the order in Ext.P13 is in continuation of the order passed by the Tribunal. Answering the argument that the notice in Ext.R2(a) and the order in Ext.P13, if are taken independently they are beyond the period of limitation, she states that the respondents will have to either stand or fail only by referring to the earlier notices issued in this behalf, but if R2(a) is taken as the starting point for re-assessment, the reassessment is certainly beyond the period of limitation.
6. I have taken note of rival submissions advanced by the counsel appearing for the parties. Now the short point for consideration is whether Ext.P13 order of assessment is in line with the order of Appellate Tribunal in Ext.P7 and amounts to reviving or re-opening Ext.P6 which has otherwise become final by the declaration of the Appellate Tribunal.
7. The case of petitioner is that Ext.P7 dealt with the argument of petitioner made against denial of opportunity and the objection raised in this behalf was accepted by the Appellate Tribunal. Thereby the assessment order in Ext.P6 was set aside. As the Tribunal is interdicting the order in Ext.P6 on the ground of violative of principles of natural justice, the Appellate Tribunal did not consider any other point on which the parties are at issue with each other in Tax Appeal. Therefore, as a necessary consequence the Tribunal has rightly restored to file the proceedings of re-assessment initiated through Ext.P2 and Ext.P4 notices. The Tribunal apprehending inordinate delay on the part of petitioner assessee in producing the books before second respondent has also provided for the consequence of such omission if committed by the petitioner/assessee. The Tribunal has made it clear that the petitioner if fails to produce the records as directed by the Tribunal within the time limit of two months the original assessment order will stand restored. There is no dispute on the assessee/petitioner producing the record. Ext.R2(a) calls upon the petitioner to produce books of accounts. The assessee, in fact, did not produce the record. Therefore, the consequence of omission to produce books of accounts, by referring to the emphatic conclusion, it can be concluded that Ext.P6 assessment order is restored so far as assessment year 2008-09 is concerned. In other words, the assessment proceedings initiated through Exts.P2 and P4 resulting in Ext.P6 are allowed to stand and the second respondent cannot assume jurisdiction to again revive the proceedings by issuing a notice in Ext.R2(a) dated 17.10.2017. In considering the legal effect of petitioner’s default in producing the books of accounts the words in Ext.P7 viz “the original assessment order will stand restored” have to be given full effect by the respondents. The words are more in the nature of declaration, accepting Ext.P6 as a valid assessment order. By operation of the concluding portion in Ext.P7, Ext.P6 is revived.
8. The Tribunal has restored Ext.P6 order and it is not within the competence of the second respondent to ignore Ext.P6 order and independently pass order of re-assessment in Ext.P13. In the considered view of this Court by giving the contextual meaning to the word ‘restore’ or ‘restoration’ used in Ext.P7 order, the order in Ext.P13 is illegal and beyond the jurisdiction of second respondent. The respondents do not contend that independent of Exts.P2 and P4, the respondents could have initiated proceedings for re-assessment through Ext.R2(a) at this length of time as such initiation is beyond the period of limitation. Ext.P13 order, for the above reasons, is set aside as illegal and beyond the jurisdiction of second respondent.
9. It is not the case of Department at any point of time during the pendency of proceedings before the Deputy Commissioner (Appeals) or before the Tribunal that in the reassessment notices issued in Exts.P2 and P4 a few omissions are noticed and the Department intends to revise its notices and proceed afresh against the petitioner. If that is the case, the Department would have invited an order for restoring the file to the second respondent but not on the reasons recorded in Ext.P7.
10. As per the scheme under the Act, in the three tier system provided for determination, appeal, appeal to Tribunal etc, the final decision taken in the hierarchy of forums is binding on the officers and the assessee. In the case on hand, the Tribunal has taken the final decision. Therefore, that decision alone is binding between the parties for the assessment year 2008-09.
The writ petition ordered as indicated above.