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Judgment
K. Vinod Chandran, J.
APPENDIX
PETITIONER''S ANNEXURES :
ANNEXURE A:
Copy of the Penalty Order imposed by the Intelligence Officer (IB), Ernakulam Dated 31.3.2010.
ANNEXURE B:
Copy of the Appellate Order Dated 30.12.2010 of the Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam.
ANNEXURE C:
Copy of the order of the Tribunal dated 23.09.2011.
RESPONDENT''S EXHIBITS :
Nil
The State is in revision challenging the orders of the Tribunal setting aside the orders of penalty imposed by the Intelligence Officer(I.B), Ernakulam on the ground that the Revenue has failed to establish that there was an attempt to evade payment of tax or deliberate suppression of any kind. The penalty orders have been issued for the assessment years 2007-08 and 2008-09. The assessee is a dealer effecting sales of "UJALA SUPREME" and "UJALA STIFF AND SHINE", two products used for providing brightness and stiffness to clothes subjected to laundering. The orders issued by the Intelligence Officer for both the years were produced as Annexure A in the respective revisions and indicate that the proceedings were initiated in tandem for both the years. The crux of the allegation was that on sale of the products, the petitioners collected and paid tax only at 4% instead of the correct rate of tax at the rate of 12.5%. Clearly this was a case of under assessment especially since the Value Added Tax scheme brought in by the Kerala Value Added Tax Act, 2003 (for short ''KVAT Act'') postulates a system of self assessment.
In fact the issue has, behind it, a short history. The manufacturer of both the products is M/s. Jyothi Laboratories Ltd. Among others, the respondent/assessee is a distributor in the State of Kerala. One of the other wholesale distributors had approached the Commissioner of Commercial Taxes for clarification regarding the very same products. The assessee contended that the products are covered by entries 155(8)(d) and 118(5) in List A to Schedule III of the Act and liable to tax only at the rate of 4%. The Commissioner, however, found that the products fell under entry 27 of notification SRO 82/2006. The wholesale distributor was before this Court against the order of the Commissioner. This Court by a decision reported in M.P. Agencies V. State of Kerala, reported in (2010) 18 KTR 82 (Ker.) upheld the order of the Commissioner. The said decision was rendered on 6.4.2009. Just before the said decision was rendered, the Tribunal in the case of the manufacturer, had accepted the contention that both the products are covered under the entries of the third schedule to the Act. The State filed a revision against the orders of the Tribunal before this Court which was considered as O.T.Rev.13 of 2009. The penalty imposed by the assessing authority was also deleted by the Tribunal against which the State filed O.T.Rev.No.16 of 2009. Another Division Bench of this Court followed the decision of M.P Agencies case (supra) and held that both the products come under the entries in SRO 82/2006 exigible to tax at the rate of 12.5%. However, with respect to the penalty imposed, this Court confirmed the deletion of the same. This was on the reasoning that there was no specific finding of willful and purposeful suppression of facts or turnover nor a finding that the assessee had acted with mala fide intention to evade tax. It was also held that the Assessing Authority ought to have passed a separate order of penalty after issuing notices proposing penalty. The said judgment was passed on 12.4.2011.
In the instant case, the Intelligence Officer(I.B) had initiated penalty proceedings for the two years specifically on the issue dealt with by the two Division Bench decisions, as noticed above. In the year 2007-08; Annexure A order in O.T.Rev.40 of 2012, shows that there is one other suppression detected by the Intelligence Officer. In addition to the differential tax payable as a result of the assessee''s own under assessment, tax due as per the suppressed sales turnover was also taken into account for that year, in determining the quantum of tax evaded.
The learned Government Pleader would contend that the assessee despite being aware of the earlier Division Bench decision in M.P Agencies case (supra) and the clarification issued by the Commissioner which was impugned therein; steadily failed to collect tax at the rate of 12.5%. This according to the State would amount to willful and contumacious conduct resulting in purposeful evasion of tax. The Intelligence Officer(I.B), it was contended, was perfectly right in imposing such penalty for both the assessment years.
The learned counsel for the respondent would, however, urge that going by the decision of the Hon''ble Supreme Court in E.I.D Parry (I) Ltd. V. Asst. Commissioner of Commercial Taxes reported in (2000) 117 STC 457, no penalty could be imposed since the correct position of law was not clear and the same is even now in a flux. The assessee would contend that, the correct rate of tax even now is not determinable and that they cannot be persuaded to collect and remit the tax at the higher rate, since the Hon''ble Supreme Court finds in their favour, that would result in refund not being granted as the consumers from whom tax is collected are not ascertainable. The learned counsel would also submit that parallel to the penalty proceedings, the Assessing Officer also has issued notice proposing to assess the turnover at the higher rate and their objection submitted thereon seems to be accepted since no orders were forthcoming from that authority. It was also alleged that the allegation of having not maintained true and correct accounts were without verification of books of accounts which were produced before the Assessing Authority.
The assessee does not dispute its knowledge about clarification of the Commissioner or the decision of this Court rendered in M.P Agencies case(supra) on 6.4.2009. The plea that the law is in a flux cannot at all be countenanced after the said date. The facts in the Supreme Court decision in E.I.D Parry (I) Ltd. (supra) would reveal that there were conflicting decisions of the Madras High Court and the same was resolved only by the decision of the same High Court in 1991. In such circumstances, holding that the correct position of law within the State of Tamil Nadu was not free from doubt till then, it was held by the Supreme Court; that no penalty is leviable. It is pertinent that even in the subsequent decision of this Court in O.T.Rev.16 of 2009, deletion of penalty was confirmed only since no separate orders were issued and there were no findings of wilful and purposeful suppression.
The assessee cannot contend that the issue is still in a flux with respect to the sale of the said products inside the State of Kerala. There are two authoritative decision of this Court rendered by two different Benches confirming the classification of the products as exigible to tax at the higher rate of 12.5%. The assessee''s contention that it refrains from collecting and remitting the tax visualising the possibility of its getting no refund; if it eventually wins, is devoid of any legal basis or substance. In fact, the Hon''ble Supreme Court has oftener than ever held that the inability to collect tax cannot be a reason to extinguish, reduce or in any way modify the liability to pay. The assessed though is reported to have filed Petition for Special Leave before the Supreme Court against both the judgments of the successive Division Benches of this Court; the Supreme Court has not granted a stay of the said judgments. In the context of the judgment of the jurisdictional High Court still holding sway over the State and the transactions carried on are within the State; the liability for tax on the sale of the products within the State at all points of sale would definitely be at the rate of 12.5%. It will be futile to contend that it is due to the possibility of obtaining no refund that collection and remittance at higher rate is not made. In fact the refund not being allowed in such circumstances, is only by virtue of the principle that the registered dealer collecting tax on its sales would not be able to refund the tax so collected to its different unascertainable consumers and hence, though collected in excess, it could be utilised for the public good if allowed to remain with the State. A corollary cannot be drawn to desist from collection of tax, that too held to be legitimate by the highest court in the State. Such a conduct would definitely be wilful and deliberate evasion of tax.
The further contention of the assessee would be that when the penalty proceedings were initiated and continued, parallel proceedings were initiated by the Assessing Officer also. It is a moot question as to what the assessee objected to; before the Assessing Officer. However, it does not lie within our jurisdiction to pre-empt, the original authority from exercising its original jurisdiction. However, the contention of the assessee that the books of accounts could not be properly verified by the Intelligence Officer disturbs us. It is also pertinent that Section 25 of the KVAT Act empowers the Assessing Officer to initiate proceedings on under assessment and also by a proviso enable the dealer to file revised returns and pay tax which has escaped assessment along with interest under sub section 5 of Section 31 and thrice the interest as settlement fee. In the event of the assessing authority finding any willful suppression, it would also be fully competent for such officer to initiate proceedings u/s 67, however, with separate notice proposing penalty. The assessee does not have a case that it has filed revised return as is contemplated under the proviso to Section 25. The assessee would only urge that the law is in a flux; which contention cannot hold good at least after M.P. Agencies case (supra); which decision was rendered on 06.04.2009. Such contention, we are afraid will not hold good. However, the fact that assessment for the said years, proposed by the Assessing Officer at the higher rate has not yet been concluded, impresses us considerably. The assessee has also a case that if at all the penalty could be levied, the Assessing Officer would be better equipped to examine the contention in a wholesome manner. In the circumstances, we are of the opinion that Annexure A orders produced in both the revisions are to be set aside. However, we are also of the opinion that the finding of the Tribunal that there is nothing to show willful evasion of tax also cannot hold good. We do not venture at this stage to answer the questions of law raised. The issue shall be remanded to the Intelligence Officer with respect to both the years. The Intelligence Officer also shall consider whether it would be more appropriate to leave the question of penalty to the Assessing Officer, taking into account the stage at which the assessment proceedings of the two years are. Needless to say that in the event of the Intelligence Officer finding so, he shall be entitled to supply his findings to the Assessing Officer, who again has to consider the same independently. If the Intelligence Officer takes a decision to proceed with the penalty proceedings the same shall be done necessarily after verifying the books of accounts as also the judgment of the jurisdictional High Court in M.P. Agencies case (supra) with specific reference to the date on which it was rendered. The revision for both the years are disposed of vacating the findings of the Tribunal and the first appellate authority and setting aside the order of the Intelligence Officer, however, remanding the issue to the Intelligence Officer for de novo consideration, in accordance with law and also the observations made above.
Ordered accordingly.