“CR”
A question, the answer to which is debatable; with respect to classification, whether could attract penalty under Section 67 of the Kerala Value Added Tax Act, 2003 (KVAT Act) is the short question to be decided.
2. The brief facts for answering the above question are that the assessee sells a product which is known in the market as “Fryums”. The assessee disclosed the turnover; however, claims exemption insofar as classifying the same to be “Papads”. Entry 36 of the 1st schedule relating to 'Papad'; obviously grants exemption from tax. The debate is insofar as the Assessing Officer by Ext.P7, sought to treat it as “food products like pickles and corn flakes as included in Entry 49 of the 3rd schedule;
exigible @ 4%. And the instant proceedings proceeded on the assumption that the product would be exigible at the rate of 12.5% as specified in SRO.82 of 2006 under Entry 103; residuary entry.
3. The learned senior counsel placed reliance on Cement Marketing Co. of India Ltd.
v. Assistant Commissioner of Sales Tax, Indore and Others (1980 (1) SCC 71). The brief but forceful contention is that penalty under Section 67 of the KVAT Act cannot be maintained for reason of there being no contumacious conduct on the part of the assessee and for further reason that the penalty contemplated under Section 67 for attempted evasion of tax would definitely take in mens rea and cannot at all be said to be a civil obligation, which attracts penalty without anything more, other than tax delinquency as such.
4. The learned Special Government Pleader (Taxes) however, primarily opposes the writ petition on the ground of effective efficacious alternate remedy being available to the petitioner. The learned Government Pleader would also contend that the Intelligence Officer was perfectly within his powers in proceeding on an enquiry, when admittedly the petitioner had disclosed the turnover of its product as non- taxable, while obviously it was taxable.
5. Both; the learned senior counsel appearing for the assessee, as also the learned Special Government Pleader would urge this Court to consider the issue of classification on merits. However, this Court is of the opinion that the same has to be left to the assessment proceedings and it may not be proper for this Court to consider the question of classification, in a proceeding filed against a penalty order, when assessment, with all its ramifications, has to be proceeded with by the authority, conferred with such powers under the enactment.
6. An incidental look, into the facts, would reveal that the petitioner had, under the Kerala Value Added Tax Act, 2003, filed a return showing the turnover of its product; however claiming exemption as aforesaid. The Assessing Officer by Ext.P7, issued a notice under Section 25 seeking to classify the produce “Fryums” under item No.49 exigible to tax @ 4%. A detailed reply is said to have been filed in Ext.P8; on which admittedly no action has been taken till date. An assessment under the KVAT Act being one in the nature of self assessment, no order as such need be passed unless the Assessing Officer intends to meddle with the self-assessment made, on the basis of classification or otherwise, as permitted by statute. It is also clear that going by the limitation provided under the KVAT Act, the period for such interference, to the self assessment made under Section 25, is not yet over. More reason why this Court should not go into the facts and pre-empt the Assessing Authority from a consideration of the question of classification.
7. In the present writ petition the penalty proceedings are with respect to the year 2011-12 and 2012-13. Notices were issued and were replied to; however, culminating in Exts.P13 and P14 orders imposing penalty at twice the amount of tax, alleged to have been evaded for the respective years. That assessee disclosed the turn over, in the books of accounts, as also the annual returns, is not disputed at all. The power of the Assessing Authority to look into the annual return as also the books of accounts and determine the classification of a product cannot also be brought into question, nor is it up for consideration herein. The assessee having included the goods dealt with by the assessee as turn over, it would have been competent for the Assessing Officer to classify exempted goods as being exigible to tax and adjudicate upon the classification under the relevant entries; and to have modified the assessment accordingly.
8. In almost similar circumstances the Honourable Supreme Court in Cement Marketing Co. of India Ltd.(supra), held that if the assessee does not include a particular item to tax under a bona fide belief that he is not liable so to include it, the return filed cannot be condemned as a 'false' one which finding alone would invite imposition of penalty. What then, is the scope of a penalty proceeding, is this Courts concern, herein. In that case the assessee deducted the freight charges from the price shown in the invoice since the invoice showed the 'free on rail destination railway station' price. The amount of freight paid to the assessee, according to them, was not exigible to sales tax and hence was not included in the taxable turn over, in the returns filed. Despite the finding that freight formed part of the sale price, on facts, it was held that “imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the Section cannot be invoked for imposing penalty” (sic). The principle was reiterated in E.I.D Parry (1) Ltd v. Assistant Commissioner of Commercial Taxes [ 2000 (2) SCC 321 ].
9. On point is the decision of the Honourable Supreme Court in Sree Krishna Electricals v. State of Tamil Nadu and Another (2009 (11) SCC 687), paragraph 7 of which is extracted hereunder:-
“So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's accounts books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities includes these items in the dealers' turnover disallowing the exemption penalty cannot be imposed. The penalty levied stands set aside”.
10. On the strength of the above binding precedents and on the fairly neat facts stated above, this Court finds that no penalty proceedings can be initiated in the aforesaid case on the basis of a mere dispute in classification; which, as noticed above, according to the assessee, the Assessing Authority and the Intelligence Officer are under three different entries. Such a debatable issue definitely cannot lead to a presumption of any contumacious conduct on the part of the assessee or a finding of attempt to evade tax. The assessee has made a claim, in turn, which can be rejected or accepted in assessment proceedings. Even on rejection, sufficient grounds do not exist for attracting penalty
11. With respect to the efficacious alternate remedy, it is trite that this Court would not exercise the discretionary jurisdiction under Article 226 of the Constitution of India in cases where there are efficacious alternate remedies; the two well recognized exceptions being violation of principles of natural justice and a proceeding taken under a provision of law which is ultra vires. One another exception would be when the proceeding itself is an abuse of process of law State of H.P v. Gujarat Ambuja Cement Ltd. [STC (2005) 142, Pg.1 ]. In the present case, though there is no ground of violation of principles of natural justice, definitely, the Intelligence Officer has proceeded without jurisdiction and a penalty imposed under Section 67 of the KVAT Act, on the facts and law stated above, would definitely be a patently illegal proceeding. Exts.P13 and P14 are hence, set aside. However, clarifying at the risk of repetition, that, this Court has not gone into the issue of classification at all, which is best left to the Assessing Officer.
Writ petition allowed. Parties are directed to bear their costs.
Sd/-
K.VINOD CHANDRAN,
Judge
Mrcs //True Copy//