proprietor of the concern by name Khima Kanchi having his business establishment in Door No.44/2219 A2, Deshabhmani Road, Ernakulam. They are engaged in manufacturing of gold ornaments. They are having requisite licences and registration under the competent authorities. They have also taken registration under the Kerala Value Added Tax Act (hereinafter referred to as 'the KVAT Act') and Central Sales Tax Act (hereinafter referred to as 'the CST Act'). They used to obtain row gold/old gold from customers for manufacturing of new pattern of ornaments and after manufacturing, they used to return after levying labour charges on the basis of contract. Earlier they were engaged in trade of gold ornaments also in a small level. They are regularly filing the necessary returns before the authorities and the assessing authority never objected or complained of about the activities of the petitioner. On 21.2.2014 the first respondent conducted a search and seized 7593.862 grams of gold ornaments and a sum of Rs.53,640/- from the premises of the petitioner. They have incorporated the provision under Section 102 of the Code for conducting search and they have produced all the seized articles before the Additional Chief Judicial Magistrate Court, (Economic Offence), Ernakulam.The petitioner has filed CMP.No.674/2014 under Section 451 of the Code for getting interim custody of the seized ornaments and cash. The second respondent filed a report simply raising a demand on the petitioner for a sum of Rs.27,20,665/- (Rs.906885 as tax + Rs.18,13,770/- as penalty) and contended that the goods can be released after collecting the above said amount from the petitioner. The learned Magistrate by the impugned order partly allowed the petition as follows:
“Gold ornaments excluding gold ornaments weighing 123 sovereigns, and the money produced shall be released to the petitioner on the petitioner executing a bond for Rs.5,00,000/- with two solvent sureties for the like sum to the satisfaction of the court. The gold ornaments weighing 123 sovereigns retained by the court shall be released to the Intelligence Officer Squad No.4, Ernakulam Department of Commercial taxes after a period of 15 days from this date.”
3. Dissatisfied with the order passed by the learned Magistrate, the petitioner has filed this petition challenging the same to the extent which has gone against him.
4. The learned Public Prosecutor filed a statement earlier which reads as follows:
“1. It is submitted that on 21.2.2014 a reliable information received regarding the unlawful possession of Gold and money a t Khima Kanchi situated a t Desabhimani Raod.
2. It is submitted that soon after receiving the information search memorandum was prepared and sent to the Honourable Additional Chief Judicial Magistrate (Economic Offence) Court, Ernakulam and a search conducted as per 165 Cr.P.C. A huge quantity of about 7718.450 gms of thick gold and gold ornaments and Indian Currency worth Rs.53,640/- are also found inside that room without any record or license found there to real the ownership or possession of the gold and money by anybody. So these articles were seized as per search list on the belief that these are involved in any crime cases.
3. It is submitted that after seizing the money and gold, FIR has been registered as 160/14 U/s.102 Cr.P.C and FIR search list are submitted before the Hon'ble Additional Chief Judicial Magistrate (Economic Offence) Court, Ernakulam.
4. It is submitted that the gold and money also sent to the Court and the same was received by the Court as T.No.32/2014 and the report has been submitted to the Intelligence Officer, Department of Commercial Taxes (2nd respondent). Soon after that somebody filed a claim petition before the Hon'ble Additional Chief Judicial Magistrate (Economic Offence) Court, Ernakulam for the release of the seized money and gold. A report submitted before the Hon'ble Additional Chief Judicial Magistrate (Economic Offence) Court, Ernakulam as per the direction of the Court.
5. It is submitted that, not any records or license is produced by anybody to prove the ownership or the possession of this much gold and money. During investigation, it is revealed that no tax was remitted for the entire gold and report was submitted to the Commercial Taxes Department regarding the non- remittance of tax. During investigation, no other offence was revealed connecting the gold and currency. So it is humbly requested that this Hon'ble Court may take necessary decision in this regard”.
5. Thereafter as directed by this Court, the second respondent also filed another statement which reads as follows:
“1. It is submitted that M/s. Khimakanchi petitioner is a registered dealer on the rolls of the Commercial Tax Officer, 2nd Circle, Kalamassery having TIN 32071328818.
2. It is submitted that a penalty proposal was issued to the dealer on the basis of the Mahazar prepared by the Police Department. A penalty proposal was issued to the dealer vide this office No.ISE-IV/2013-14 dated 14.3.2014 served by registered post on 17.3.2014. The dealer filed reply on 20.3.2014 requested for an opportunity for personal hearing, and the details of certain dealers who have supplied raw gold for manufacturing purpose. On 20.3.2014 issued a notice for requested to produce the documents such as stock register, ledgers, purchase register, sales register, copies of job bills, vouchers, cash book, bank book and closing stock statement etc. The dealer furnished the above documents on 24.3.2014.
3. It is submitted that as per the documents, certain dealers are issued vouchers for the supply of raw god for manufacturing purpose. Notices were issued on 4.4.2014 for various jewellers to prove the genuineness of the transactions. M/s. Bhima Jewels, M.G. Road, Ernakulam, Joy Alukas, Anupama Jewellery, Josco Fashion Jewellers have been produced certain issue vouchers on 21.4.2014 for the supply of gold for manufacturing purpose. Certain discrepancies were noticed at the time of verification of the accounts. Stock variation is seen. Penalty proceeding is kept pending for want of actual figures from the documents of the jewellers supplied for manufacturing purposes. Enquiry is being done in certain cases. At least one month time is required for arriving the actual figures. On the basis of the verification of the documents, a revised notice is to be issued for finalization after giving an opportunity being heard”.
6. According to the counsel for the petitioner, there is no offence committed by the petitioner and it cannot be treated as stolen article. Even assuming that there was some discrepancy in maintaining of accounts or evasion of tax, then it is for the authority to conduct enquiry and impose penalty and recover the evaded tax. Now the penalty proceedings have been initiated and enquiry is going on. So there is no necessity to retain the gold ornaments or to hand over the same to the intelligence wing of the enforcement of commercial tax as directed by the court below. The court below has already ordered return of gold ornaments weighing 123 sovereigns and the money on executing a bond for Rs. 5 lakhs with two solvent sureties. So, even if this Court feels that some security has to be given on same conditions, the balance articles also to be returned to the petitioner subject to the condition that this will have a charge for the penalty and tax if any to be assessed in the proceedings initiated by the commercial tax department.
7. On the other hand, the learned Public Prosecutor opposed the application on the ground that huge amount is due from the petitioner on account of evasion of tax.
8. It is an admitted fact that the petitioner is the proprietor of Khima Kanchi jewellery and it is also not in dispute that he has obtained necessary licence for conducting the business and he is a registered dealer and obtained necessary registration under the KVAT Act as well as CST Act. It is also an admitted fact that Ernakulam North police had conducted search in the shop of the petitioner and they have seized 7593.862 grams of gold ornament and cash worth Rs.53,640/-. According to the police, the petitioner was not able to give satisfactory explanation for the same and also registered a case as Crime No.160/2014 of Ernakulam North Police Station and produced those articles and cash before the Additional Chief Judicial Magistrate Court, (Economic Offence), Ernakulam. It is in a way admitted that crime was registered showing Section 102 of the Code which cannot be treated as a crime as it is only on suspicion that search has been conducted. So far no report has been filed incorporating any penal provision against the petitioner. Further, it is seen from the records that a report has been filed before the court stating that those articles are not stolen articles as well. So it is on that basis that the learned Magistrate has released a major portion of the gold ornaments and cash excluding 123 sovereigns to the petitioner on executing a bond for Rs. 5 lakhs with two solvent sureties for the like sum each to the satisfaction of that court. According to the learned Magistrate, since Commercial Tax Department has raised a claim in respect of the property as articles were not properly accounted and the petitioner is liable to be proceeded against the provision of the KVAT Act and penalty proceedings have been initiated against the petitioner, the learned Magistrate had declined to release those articles to the petitioner, but directed to return 123 sovereigns to the Intelligence Officer, Squad No.4, Ernakulam, Department of Commercial Taxes after a period of 15 days from the date of the order. This is being challenged by the petitioner now.
9. Admittedly, the petitioner is a registered dealer entitled to deal with gold under the provisions of the KVATax Act. The Public Prosecutor also had no case that he was not submitted any return to the department and he was not paying tax earlier. But, now the case is that gold ornaments weighing 123 sovereigns were not accounted and according to the department, it is an undisclosed item and thereby huge amount is due to the Government towards tax and non disclosure of this is liable to penalty as well. It is admitted by both sides that proceedings have been initiated by the department to ascertain whether it is an undisclosed amount and whether penalty has to be imposed on the petitioner or not and the enquiry is going on. If it is found that the petitioner is liable to pay penalty or he will have to pay additional tax, they are entitled to recover the same from the petitioner and not only this article, but also the assets of the petitioner will be a first charge for the amount under Section 38 of the Act. So for that purpose, the article need not be now handed over to the department. Under the circumstances, this Court feels that the order to the extent directing the gold ornaments weighing 123 sovereigns to the Intelligence Wing of the Commercial Tax Department is liable to be set aside and the same also to be returned to the petitioner on executing a bond for Rs. Five lakhs with two solvent sureties for the like sum each to the satisfaction of that court with a rider that, ultimately if it is found that the petitioner is liable to pay any additional tax or penalty, then property including gold ornaments will be a charge for the same under Section 38 of the KVATax Act. So the petition is disposed of as follows:
The order passed by the court below declining to release 123 sovereigns of gold ornaments to the petitioner and directing the same to be released to the Intelligence Officer, Squad No.4, Ernakulam, Department of Commercial Taxes after a period of 15 days is set aside and the same is also directed to be released to the petitioner on executing a bond for Rs.5 lakhs with two solvent sureties each to the satisfaction of the court below. This will be subject to the final adjudication to be done by the Commercial Tax Department in respect of which proceedings have been initiated subject to the final adjudication of the tax department regarding the liability of the petitioner to pay additional tax or penalty and if ultimately the department found that he is liable to pay additional tax or penalty, then the property of the petitioner including the value of those articles will be a charge of recovery of the same, if the petitioner had not paid the amount as provided under Section 38 of the KVAT Act. This can also be incorporated as a condition in the bond. With that condition, the lower court is directed to return the gold ornaments to the petitioner on satisfying the execution of the bond as stated above.
With the above directions and observations, the petition is allowed.
Sd/ K. RAMAKRISHNAN, JUDGE.
cl /true copy/ P.S to Judge