Antony Dominic, J.@mdashThe prayer in this writ petition is to quash exhibit P13 order levying penalty on the petitioner u/s 45A of the Kerala General Sales Tax Act, 1963 as confirmed by exhibits P14 and P15 orders.
2. Facts of the case are that the petitioner is a company incorporated under the Companies Act, 1956 and is a registered dealer under the provisions of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as, "the Act" for short), dealing in petroleum products including high speed diesel. In so far as this writ petition is concerned, it is relevant to note that by exhibit P1, S.R.O. 1091/1999, issued u/s 10 of the Act, the Government of Kerala, ordered to;
I. Make a reduction in the rate of tax payable under the said Act,--
(1) on the turnover of sale or purchase, as the case may be, of goods specified in column (2) of Schedule I from the rate specified in column (3) to the rate specified in column (4) thereof, against each;
(2) by persons specified in column (2) of Schedule II on the turnover of goods specified in column (3) to the rate specified in column (4) subject to the conditions specified in column (5) against each;
(3) on the turnover of sale to the persons or organizations mentioned in column (2) of Schedule III of goods specified in column (3) thereof to the rate mentioned in column (4) on the seller producing a certificate in duplicate in the form in the annexure I obtained from the purchaser;...
3. Schedule III, to the extent it is relevant, is extracted below for reference :
Schedule III
Persons or organizations, the rate of tax on the sale of goods to whom is reduced under sub-clause (3) of clause I
|
Sl No. |
Description of person/ organization |
Description of goods |
Reduced rate of tax (per cent) |
|
(1) |
(2) |
(3) |
(4) |
|
1 |
Administrator, Union Territory of Lakshadweep, Laccadive Cooperative Marketing Federation, Kozhikode and the Lakshadweep Harbour Works and any dealer recognized by the Administrator, Union Territory of Lakshadweep subject to the condition that such dealer shall utilize the concessions only for such goods intended for the use in the Union Territory of Lakshadweep |
Any goods, the rate of tax in respect of which exceeds 4 per cent. |
4 |
4. Format of the certificate at annexure I to the notification reads as under :
Annexure I
Certificate
(To be issued by the purchaser vide sub-clause (2)
and sub-clause (3) of clause I (in duplicate))
1. I/We have purchased the goods described herein below from Shri/ Messrs....
(here enter the name and complete address of the seller).
He/They/is/are not registered dealer(s)
His/Their Registration Certificate Number is
2. The said goods are intended for--
(i) Use in the Union Territory of Lakshadweep.
(ii) For the use of the.........(here enter the name of the Government Department or Organization)
(iii) Use in the manufacture of.........(here enter the name of goods)
3. I/We undertake to pay over to the Government the amount of tax concession I/We received if I/We fail to make use of the said goods for the manufacture of.........(here enter the name of goods intended to be manufactured), within the State.
4. I/We are Registered dealer on the rolls of the Sales Tax Office.../my/our registration certificate No. is....
5. I/We claim the reduction in rate of tax under item...of Schedule...to Notification S.R.O. No. 1091/99.
Description of goods
|
Sl. No. |
Name of goods |
No. and date of the sale bill/invoice/voucher |
Quantity |
Value |
|
(1) |
(2) |
(3) |
(4) |
(5) |
Place :
Signature
Date :
(Seal)
(1) Name of the person authorized to sign
(2) Name and address of the purchaser :
(Strikeout whichever is not applicable).
5. In the writ petition, it is averred that the petitioner appointed M/s. Nizy Enterprises, Feroke, Calicut as its Business Development Associate ("BDA", for short) to procure business from the Union Territory of Lakshadweep for commission. Exhibit P4 dated June 21, 2004 is the letter appointing the BDA and the following clauses of exhibit P4 needs to be noticed.
(i) that the appointment shall be initially valid for three months with effect from June 15, 2004 which may be extended by the company, (clause 1)
(ii) the area of operation of the BDA will be the State of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala, (clause 2)
(iii) the company shall be at liberty to terminate the appointment at any time without notice if the services are found to be unsatisfactory, (clause 7)
(iv) the appointment shall be deemed to have been terminated in case the BDA do not receive any letter from the petitioner extending the appointment for a further period, (clause 8)
(v) that the product availability of the company, in so far as it is relevant is at MRPL, Mangalore, and Cochin and supplies will be effected at ex-storage points and transportation arrangements shall be made by the customers, (clauses 1 and 3 of general information)
(vi) all supplies will be on cash and carrying basis, (clause 6)
(vii) the BDA shall canvass the business from customers for their own consumption only, (clause 15 of role of BDA)
(viii) that certain customers may be entitled to exemption from certain levies and the BDA shall in such cases furnish necessary supporting documents to the company, (clause 23 of role of BDA).
(ix) that BDA should advice the customers to forward their indents to supply locations to effect delivery, (clause 25 of role of BDA)
6. The petitioner submits that the BDA canvassed orders from respondents 5 and 6, dealers of petroleum products in Lakshadweep, which admittedly is outside the area of operation of the BDA as per clause (2) of exhibit P4. Though in terms of exhibit P4 letter of appointment, customers are to place indents, petitioner states that indents were placed by the BDA for supply of HSD in favour of purchasing dealers and a copy of one such indent is exhibit P5 dated 1st day of October, 2004. Here I should also notice that as on the date of exhibit P5, the period of exhibit P4 appointment of the BDA had expired and it is not the case of the petitioner that the period of appointment was extended as provided in clause 8 of exhibit P4.
7. According to the petitioner before effecting sales, to confirm the genuineness of the dealers, they had obtained the following documents :
1. Exhibits P2 and P2(a) certificates dated October 23, 1999 and October 12, 2004 issued by the seventh respondent that respondents 5 and 6 are considered as recognized dealers. (It is to be noticed that exhibit P2 issued in favour of the fifth respondent is not with reference to exhibit P1, S.R.O. No. 1091/1999 while the validity period of exhibit P2(a) is only 6 months from October 12, 2004.)
2. Exhibits P6 and P7 dated June 18, 2004 and October 15, 1999, respectively and which were renewed periodically, are the permits issued by the seventh respondent authorizing respondents 5 and 6, to do business as dealers of the articles mentioned therein which includes petroleum products also.
3. Exhibits P8 and P8(a) dated November 5, 2004 and March 13, 2001, permissions issued by the Department of Explosives for transportation of HSD, subject to the conditions mentioned therein. (It is to be noticed that one of the conditions required that the dealer shall make adequate arrangement for storage of the product in a godown duly licensed and shall obtain license in form XVI of Petroleum Rules, 2002 for storage.)
4. Exhibits P9 and P9(a), the certificates as per annexure 1 to exhibit P1 S.R.O. No. 1091/1999. (These certificates are dated January 31, 2005 and October 30, 2004, respectively and are issued subsequent to the sale of the huge quantities of HSD mentioned therein.)
5. It is also stated that on the strength of the aforesaid documents, payments by demand drafts and cheques were received and HSD was sold to respondents 5 and 6, availing of the concessional rate of tax four per cent, as provided under exhibit P1.
8. According to the petitioner, delivery of HSD was given from HHA Tank Terminal and Konkan Storage System, Cochin and purchasing dealers arranged tankers for its transportation. Exhibits P3 and P3(a) are the specimen invoices produced by the petitioner to prove sale to the dealers and that receipt has been acknowledged by the representatives of the customers. It is stated that accordingly returns under the Act were filed and tax at four per cent, was paid.
9. Subsequently, the petitioner was called upon to produce evidence to prove movement of goods from Kerala to Lakshadweep, and thereupon, copies of export bills filed by respondents 5 and 6 at the Ports at Beypore Port, Kozhikode and Mangalore were obtained and were furnished to the Department. It is stated that the first respondent conducted certain investigation and finally issued exhibit P10 show-cause notice dated June 20, 2006 with the following allegations :
It has come to the notice of the undersigned that you have effected sales of high speed diesel to the following dealers during 2004-05 and claimed concessional rate of four per cent. KGST on the strength of certificate filed by them as per Government Notification No. S.R.O. No. 1091/99 upon declaration that such diesel is for use in Union Territory of Lakshadweep.
|
Sl. No. |
Name of dealer |
Quantity |
Amount ( Rs. ) |
KGST @4% |
|
1. |
Ifan Enterprises |
1980 |
45452424.60 |
1818096.98 |
|
2 |
Shebna Enterprises |
3924 |
80745486.60 |
3229819.46 |
|
Total |
5904 |
126197911.20 |
5047916.44 |
You are borne on the files of Assistant Commissioner (Assmt.) Commercial Taxes, Special Circle II, Ernakulam where you had filed certificates stipulated under S.R.O. No. 1091/99 in annexure I in support of the claim of concessional rate of four per cent. As further evidence to prove movement of goods from Kerala to Lakshadweep, you had furnished copies of ''export bills'' filed at Beypore Port, Kozhikode and Mangalore Port. In order to verify bona fides of the export of goods to Lakshadweep and the authenticity of the export documents filed, the Investigation Branch attached to the office of the Deputy Commissioner (Intelligence), Ernakulam visited the ports of Beypore and Mangalore, perused the copies of export bills filed with the port authorities and obtained copies of export bills. On cross verification of the export documents filed with the port authorities and that filed at the office of the Assistant Commissioner (Assmt.), Commercial Taxes, Special Circle II, Ernakulam, it was noticed that the export bills filed with the Assistant Commissioner are fabricated and fake. The commodities transported through ports of Beypore and Mangalore are totally different and do not match with the goods declared in the certificates as per S.R.O. No. 1091/99 filed together with related export bills.
The seal and signature of the port officer appearing in the export bills are manifestly bogus. When such fake export bills were shown to the port authorities they endorsed the fact of fabricated nature of such documents.
The consequential situation is nothing but the irrefutable fact that the concessional rate of four per cent. KGST is not admissible on the sales of HSD aggregating to Rs. 12,61,97,911.20 effected to M/s. Ifan Enterprises, Agathi and Shebna Enterprises, Agathi during 2004-05. In other words you have wrongly availed of the concessional rate of four per cent. KGST. As per the stipulation under entry 1 of Schedule III to S.R.O. No. 1091/99 the concessional rate of four per cent would only apply subject to the condition that a dealer recognized by the Administrator, Union Territory of Lakshadweep utilizes the concession only in respect of goods used in the Union Territory of Lakshadweep. The condition contemplated under the Government notification has not been fulfilled or violated wherefore the certificates in annexure I filed lose their significance and become infructuous.
Undisputedly HSD carried rate of 24 per cent. KGST u/s 5 of the KGST Act read with Schedule I. As such the concessional rate irregularly availed of by you resulted in evasion of tax to the tune of Rs. 2,52,39,582.22 as shown below :
|
Total KGST due |
Rs. 3,02,87,499.00 |
|
Less : Concessional rate availed |
Rs. 50,47,916.00 |
|
Balance tax due |
Rs. 2,52,39,583.00 |
10. On the above allegations, it has proposed to impose penalty amounting to Rs. 5,04,79,164, being twice the amount of tax evaded and the petitioner was called upon to file objection to the proposal. On receipt of the show-cause notice, the petitioner filed exhibit P11, its preliminary objections, in which contentions raised are :
(1) that only when tax evasion is proved by way of either assessment or adjudication, the question imposing penalty arises and therefore without determining the tax liability, it is premature to initiate penalty proceedings;
(2) that the petitioner wanted to be furnished copies of the documents relied upon, to scrutinize the documents and file its reply;
(3) that before effecting sale, all precautions were taken by obtaining exhibits P2, P6 and P8 referred to above and that they were satisfied themselves about the genuineness and eligibility of the dealers;
(4) that the purchase indents and orders were placed by the dealers and the dealers have undertaken that goods so purchased shall not be diverted to any other party;
(5) it is stated that sales were effected at their terminals at Cochin and dealers arranged tankers for transportation and took delivery which was duly acknowledged by the drivers;
(6) that certificates as per annexure I to exhibit P1 have been obtained and the dealers have undertaken to pay to the Government amount of tax concession received, if they fail to use the product in Lakshadweep;
(7) to prove that transactions have been carried out and that materials have been sold and physically delivered, copy of the party ledger where the demand drafts issued by the dealers have been accounted and stock registers, were also relied on;
(8) that once product is delivered from the terminal to the transporters authorized by the dealers and delivery has been acknowledged and annexure I certificates have been obtained, the responsibility of the seller, availing of concession, is fully discharged and that the petitioner cannot be made liable either for tax or penalty for any subsequent misdeed of the dealer;
(9) that the seller is discharged of the liability is also evident from clause (3) of annexure I certificate where the purchaser has undertaken to pay out to the Government the amount of tax concession availed of, if they fail to make use of the goods; and
(10) that notice should have been issued to the dealers instead of the petitioner.
11. In exhibit P12, the additional reply filed, it is stated that when enquiry was set in motion by the fourth respondent, as required by him, copies of the export bills were obtained from the purchasers during January and February 2006 and that the petitioner had no reason to believe that anything was amiss. It is also stated that the petitioner had not received copies of the so called fake export bills and that when they tried to contact the purchasers, they were not able to secure their co-operation. On this basis the petitioner requested that the penalty proceedings against them be dropped.
12. Considering exhibits P11 and P12 replies and after hearing the petitioner, the first respondent passed exhibit P13 order dated December 28, 2006, imposing penalty of Rs. 5,04,79,164 on the petitioner, for the assessment year 2004-05 for evasion of tax to the tune of Rs. 2,52,39,583. In this order, although the first respondent, accepted that the petitioner had obtained necessary licenses, permits, etc., authorizing respondents 5 and 6 to deal with petroleum products, he has found fault with the petitioner for not informing the seventh respondent about the supply of HSD to respondents 5 and 6 and requesting them to monitor its actual utilization. Further the petitioner is also faulted for not alerting the port authorities at Beypore and Mangalore for monitoring the actual movement of the goods sold. It is stated that if these steps were taken, the company could have ensured the bona fides of the concessional sales and safe-guarded the Government Revenue. It has been held that, he had reason to believe that the petitioner colluded with respondents 5 and 6 to defraud the Government revenue.
13. In exhibit P13, it is also found that the company was accepting payment by demand drafts from one Sri. P.V. Babu, S/o. P.K. Velayudhan, operating a bank account at Induslnd Bank, with fictitious business address at BNV Trade Links, Tharakkandom Estate, Ravipuram, Ernakulam. This order contains details of five demand drafts and it is stated that Sri. P.V. Babu had no authority to pay for the HSD purchased and that local enquiry at his business premises revealed that the business was bogus. Yet another factor pointed out in exhibit P13 order is that the entire payment was made by demand drafts and that despite the running accounts maintained in respect of regular customers, the oil company did not accept cheque payments and that by adopting this process, the company was only ruling out the risk of the purchaser dishonoring the cheques. It is stated that there was no evidence at all to show that the petitioner received any consideration from respondents 5 and 6 in respect of HSD allegedly sold to them and that all payments were made by strangers who are not parties to the contract of sale.
14. It is stated in exhibit P13 order that the applications for export filed by respondents 5 and 6 at the ports and authenticated by the port officer, when compared with the copies filed by the petitioner with the fourth respondent showed that the documents produced by the petitioner contained forged signature of the Port Officer and as a specimen testifying the fraud, details of six forged documents and the corresponding genuine documents have been given in the order. On this basis, the first respondent concluded that local sales of HSD was effected in Kerala and the differential tax of 20 per cent, was irregularly availed of on the basis of forged export bills, the original of which related to supply of vegetables, provisions, etc. The argument of the company that in view of the undertaking contained in annexure I to exhibit P1 the purchasers are liable, was rejected on the reasoning that such undertaking is applicable only when goods intended for manufacture were not actually utilized for that purpose. Further it is also held that the liability to pay tax in respect of HSD is on the first seller in Kerala and that it is an undisputed fact that the petitioner has effected the first sale of HSD and therefore the statute does not empower anybody to shift the point of levy. On this basis, overruling the contentions raised, penalty as proposed in exhibit P10 notice was levied.
15. The petitioner filed revision u/s 45A(3) of the Act before the second respondent, who by exhibit P14 order, dismissed the revision. Further revision u/s 45A(5) was filed before the third respondent which was also dismissed by exhibit P15 order. It is in these circumstances, the writ petition is filed.
16. Counter-affidavit has been filed by respondents 1 to 4. It is stated that the materials disclosed in the investigation showed that the HSD allegedly sold to respondents 5 and 6 have not been taken to Lakshadweep and that the differential tax benefit has been swindled by tax evaders. It is stated that the statutory liability to pay tax is on the seller and that the petitioner being the dealer liable for tax, should have taken all precautions to ensure that the goods sold have actually moved to Lakshadweep, so as to entitle them for the concessional rate of tax. It is also the case of the respondents that under the Petroleum Act, it is the duty of the petitioner to deliver the goods at destination point and that admittedly the goods were delivered at the delivery point. It is also the case of the respondents that the undertaking in the notification is intended to apply only to manufacturers who fail to make use of the goods for the declared purpose.
17. There is no appearance on behalf of the fifth respondent. However the proprietor of the sixth respondent has filed a counter-affidavit. In the affidavit, he has stated that he was a primary school headmaster and that since his retirement on November 30, 2003, he is leading a retired life. Dealing with the transaction in question, the averments in paragraphs 2 to 7 in the counter-affidavit, being of relevance, are extracted below for reference :
I desired to start a stationary shop in Agathi and had applied for a permit before the Agathi, Sub-Divisional Officer in the April 2004. Thereafter I had to shift my residence to Kozhikode, since my daughter secured admission for B. Ed course in Salafi College, Meppayoor, Kozhikode. My daughter at that time was having a breast feeding one year old child hence could not be accommodated in the hostel. Therefore the following one year period (May 16, 2004 to May 5, 2005) I was residing at Meppayoor, Calicut. Because of the above reason I could not collect the permit from Agathi Additional Sub-Divisional Office. Subsequently, I came to know that it was illegally collected by my son-in-law Mr. Mohammed Yasir, Fareeda Manzil, Valappil, Ramalloore P.O., Kakkoor, Kozhikode on May 18, 2004. The aforesaid Mohammed Yasir and my elder daughter were residing at Agathi at that time. I have not given any authorization to my son-in-law to collect the same. This was done without my knowledge, consent or approval.
Subsequently, using this permit bearing No. 5/2004, a dealership certificate from the Administrator of the Union Territory of Lakshadweep is obtained for selling industrial fuel and other products in Lakshadweep. The dealership certificate was issued on October 12, 2004 on which date I was residing at Calicut. On reaching back to Agathi this respondent made enquires to my son-in-law about the permit, but he was giving evasive replies. Suspecting some foul play I had applied to cancel this permit on December 27, 2006 and it was cancelled on January 30, 2007. Now this respondent suspects that dealership certificate might have reached the petitioner-company through his son-in-law who is a friend of one Mr. M. Haris the husband of P.P. Shahida, proprietrix of M/s. Nizy Enterprises, PP 15/48 Petta, Feroke, Kozhikode which as stated in para 4 of the writ petition is the Business Development Associate of the petitioner-company.
All the intends for supply of the oil as admitted by the company, was placed by the aforesaid Nizy Enterprises without knowledge or authorization from me. There is absolutely no consent, contract or even any correspondence directly between the oil-company and the dealer. As such M/s. Ifan Enterprises, Agathi, is a proprietary concern and this complainant is the sole proprietor. Nobody can act for and on behalf of the concern without authorization or power of attorney given on that behalf. The complainant has not given power of attorney or authorization to anybody to enter into any contract or business deal with any oil-company. Even the bills raised from the oil-company for M/s. Ifan Enterprises bears the signature of strange persons as recipients. Signature shown in the bills is of different persons on different dates. It is also not clear as to who had paid the money. The demand drafts shown by the company before sales tax authorities have not originated from the account of M/s. Ifan Enterprises. Payments worth crores have been made from fictitious accounts. The only contract entered for the business is between the oil-company and Nizy Enterprises appointing the latter as their Business Development Agency. All the documents submitted for this respondent, Ifan Enterprises were forged/fabricated documents bearing signature of strange persons.
The petitioner-company instead of verifying any of the documents made sales worth crores of rupees on the strength of the order placed by Nizy enterprises. The oil-company had not even bothered as to who made the payments. The oil-company should be put to strict proof evidencing payment from this respondent in order to make the alleged transaction ''sales'' as alleged by the company to this respondent in order to fasten any sort of liability. The declarations submitted by some strange persons cannot conclusively claim that they have effected factual sales of HSD to any persons for actual use in Lakshadweep save paper transactions. This defendant living on pension cannot do such business in crores of rupees. Sale whether under the Sale of Goods Act or the Kerala General Sales Tax Act, 1963 necessarily postulates transfer of goods from the seller to the buyer for valuable consideration paid by the buyer. In the instant case, value, consideration (sale price) flowed to the seller not from the buyer as per the document of title (sale invoice) but from strange persons who are not parties to the contract of sale. Even while the oil-company uninterruptedly accepted big demand drafts (DD) in lakhs for the heavy supplies of HSD it did not confirm that DDs really originated from the bank accounts of this respondent. The oil-company cannot sit idle and accept payments in respect of payments exceeding limits as per the income tax Rules. In the instant case when the payments exceeded Rs. 50,000 inevitably DDs can be taken only through bank account which should have been enquired. In view of the above findings the petitioner-company has suffered judgment in the appeal, revision as well as in the writ petition filed before the High Court of Kerala. The honorable High Court in its judgment dated 3rd April, 2007 in W.P. (C) 7803 of 2007 has recorded this fact.
18. On behalf of the seventh respondent, counter-affidavit has been filed and they confirm that exhibits P2 and P2(a) certificates were issued. They also submit that the Department of Explosives have issued exhibits P8 and P8(a) to respondents 5 and 6. It is stated that coming to know of the serious malpractices committed in connection with the sale of petroleum products by availing of concessional rate of tax, the seventh respondent had issued exhibits R7(a) and R7(b) dated February 20, 2008 cancelling exhibits P2 and P2(a) certificates.
19. The petitioner has filed separate reply affidavits disputing the averments in the counter-affidavits. Along with the reply to the counter-affidavit filed by respondents 1 to 4, the petitioner has also produced exhibit P18 complaint made to the Commissioner of Police, Kochi City against the partners and proprietor of respondents 5 and 6, alleging that they have committed offences under sections 420, 468 and 471 of the Indian Penal Code. It is also stated that they have filed O.S. Nos. 138 and 139 of 2008 before the sub-court, Kochi against respondents 6 and 5, and also their Business Development Agent for recovery of Rs. 39,25,829 and Rs. 69,74,171, respectively along with interest at 12 per cent.
20. Based on the above pleadings, contentions raised by the senior counsel for the petitioner are the following :
1. In the absence of assessment of tax due, levy of penalty is premature especially in a case where the quantum of tax payable is also under dispute.
2. That the show-cause notice did not specify the provision of section 45A of the KGST Act that is allegedly violated by the petitioner.
3. The report of the investigation conducted by the Department and the export bill obtained from the port authorities, which were relied on in exhibit P13 order were not furnished to the petitioner.
4. That the alleged six forged documents (annexure D mentioned in exhibit P13 order), pertain only to 250 kilo liters of HSD and if that be so, the first respondent could not have levied penalty on the entire 5,904 kilo liters sold to respondents 5 and 6 during 2004-05.
5. That the petitioner having complied with all the requirements of exhibit P1 notification, if at all any subsequent misdeeds have been committed by the purchaser, over which the petitioner has no control, it could not have been penalized and that it is the purchaser who alone is liable for penalty.
6. That the respondents have while issuing exhibits P13 to P15 travelled beyond the scope of exhibit P10 show-cause notice and have arrived at conclusions, on facts which were not mentioned in the show-cause notice.
7. It is stated that in any case, no element of mens rea having been proved against the petitioner, it cannot be made liable for penalty.
21. The learned Special Government Pleader for Taxes submitted that the liability to pay tax is at the point of first sale of the goods and therefore the tax liability is that of the petitioner. He contended that the petitioner having availed of concessional rate of tax, should have proved that the sale in question occasioned movement of the goods from Kerala to Lakshadweep. It is stated that if the goods have moved as required, the petitioner could have proved such movement of goods, by producing documents which are required to be maintained by the dealer, under the various provisions of the Petroleum Act and the Rules. He also contended that although in the show-cause notice the provision of section 45A which was violated by the petitioner was not indicated, a reading of exhibit P10 show-cause notice would show that the case against the petitioner was that it has wrongly availed of concessional rate of tax and therefore it was evident that provisions of section 45A(1), (d) and (g) are the provisions that are applicable.
22. Regarding the documents that are relied on by the petitioner in exhibit P11 reply, reference was made to exhibit P2 certificate allegedly produced by the fifth respondent and pointed out that the same was not issued with reference to exhibit P1 and it was contended that the sale effected by the petitioner was not on the strength of certificate required under exhibit P1. Referring to exhibit P3 invoice, counsel pointed out that the product receipt location indicated was Lakshadweep and therefore the story that goods were delivered ex-cochin is now canvassed only to avoid the liability for penalty. He referred to exhibits P9 and P9(a), the certificates allegedly furnished by the dealers and contended that these documents showed that the certificates were issued much later to the sale of huge quantities of HSD. Answering the contention of the petitioner that the investigation report was not furnished to them, learned Government Pleader submitted that there was no investigation report in this case and that no such document has been relied in exhibit P13 order. Referring to the export bills produced by the petitioner, he submitted that the petitioner had produced 137 export bills and that its correctness was verified with the corresponding export bills at the Ports at Beypore and Mangalore and that it was found that as against petroleum products, the goods actually shipped were rice, provisions, etc., and also that the signature of the port officer contained in the export bills produced by the petitioner were forged and that these facts were confirmed by the concerned port officers.
23. Regarding the alleged non-supply of the documents relied on in the enquiry, learned Government Pleader referred to exhibit P13 order itself and submitted that all documents were perused by the authorized representative of the petitioner and that exhibit P12 supplementary reply was filed only thereafter. It was contended that there was no provision in the Act and the Rules requiring that in a case of this nature penalty u/s 45A of the Act could not have been imposed unless the assessment proceedings are completed. Referring to the contention of the learned counsel that the six forged documents relied in exhibit P13 order covers only 250 KL HSD and therefore penalty could not have been imposed on the entire quantity sold, learned Government Pleader submitted that the six documents relied on are only samples. Answering the contention of the counsel for the petitioner that in the absence of any allegation of collusion in the show-cause notice, penalty could not have been imposed on the basis that the petitioner had colluded with others, learned Government Pleader contended that finding of collusion contained in exhibit P13 is only an inference drawn by the first respondent based on the records available in the case. He also went on to argue that the levy of penalty on the petitioner could be sustained even if the finding of collusion is eschewed. According to him, the petitioner having sold the goods, the liability to pay tax under the Act is on the seller and therefore there is no substance in the contention that the Department should have initiated proceedings against respondents 5 and 6.
24. I have considered the submissions made by both sides.
25. Section 45A of the Act provides for imposition of penalty. As per this section, notwithstanding section 46, if any of the authorities specified therein is satisfied that any person has committed any of the acts specified in clauses (a) to (h) of sub section (1), such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of sales 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. Explanation I provides that the burden of proving that any person is not liable to penalty u/s 45A of the Act shall be on such person. As held by this court in the case of M.R.F. Limited v. Assistant Commissioner (Assmt)-II, Sales Tax Special Circle, Kottayam (2000) 117 STC 23 u/s 45A any person can be imposed penalty and it need not be on the selling dealer alone or the dealer who is liable to pay tax directly to the Government. Similar view has been taken by this court in the case of Apollo Tyres Limited v. Assistant Commissioner (Assessment), Sales Tax Special Circle II, Ernakulam (2004) 138 STC 249 where it has been held that it is the settled position in law that if the purchasing dealer violates the conditions of declaration in form No. 18, the selling dealer is not liable to pay the tax evaded. These judgments have been rendered following the apex court judgments in State of Madras v. Radio and Electricals Ltd. (1966) 18 STC 222 (SC),
26. Relying on the law laid down in the above judgments the learned senior counsel for the petitioner contended that once sale has been concluded, adopting all reasonable precautions, if at all the purchaser has misconducted themselves subsequently, the seller cannot be made liable for the tax or penalty. Though this contention would sound attractive, the answer to the question will certainly depend upon the nature and genuineness of the transaction between the seller and the purchaser. As already noticed, in this case, it is the genuineness of the sale, which is under dispute and the authorities have concluded that against the professed intention of the buyer to utilize the HSD in Lakshadweep no part of the HSD sold has been shipped to the island. The question is whether in such a situation, there is anything illegal in making the seller liable.
27. Admittedly the liability of tax is at the first sale on the State and is on the seller. Exhibit P1 notification provides that if the conditions prescribed in the notification are satisfied, reduction in the rate of tax payable under the Act is allowed on the turnover of sale, and on the seller producing the prescribed certificate. This case is also not covered by section 5(3)(ii) of the Act, to hold that purchaser alone is liable. Further, it was the petitioner, the seller, who availed of the concession and if the goods have not reached Lakshadweep, necessarily, the concession availed of by the petitioner, is irregular and the petitioner as the person, who effected the first sale of HSD and availed of the concession, is bound to face the consequences. On the other hand, if the petitioner had succeeded in proving that the sale in question was a genuine one and that in all bona fides, they had acted upon the certificates and other documents given by the purchasers and that it was the purchasers who misconducted themselves later, the consequence may have fallen upon the purchasers. Such contentions have been upheld by this court in the judgment in the M.R.F. Limited (2000) 117 STC 23 and Apollo Tyres (2004) 138 STC 249. There is total dearth of proof in this respect and therefore, respondents 1 to 4 cannot be faulted for initiating proceeding u/s 45A of the KGST Act against the petitioners.
28. While considering the genuineness of sale, it is to be noticed;
1. that the sale of 5,904 kilo liters of HSD sold by the petitioner, out of 8,316 kilo liters supplied to Lakshadweep during 2004-05, was the business canvassed by its BDA who was appointed as per exhibit P4.
2. First of all, appointment of the BDA was for a period of three months from June 15, 2004 and unless extended, it automatically expires. The petitioner has no case that the period of appointment was extended and if that be so, it is for the petitioner to explain under what authority the BDA canvassed the business during the period subsequent to the expiry of their appointment. In fact exhibit P5 intents placed by the BDA itself is after the expiry of the period specified in exhibit P4.
3. Further there is absolutely no explanation forthcoming as to how the BDA could canvass orders from Lakshadweep, while its area of operation was confined to States of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala.
4. Further, exhibit P4 itself says that one of the places of product availability is MRPL Mangalore. While so, it is surprising that the buyers have taken delivery from Cochin, transported the same by trucks to Mangalore and then shipped the HSD to Lakshadweep, when HSD was very much available in Mangalore itself.
5. Even going by the documents produced by the petitioner, respondents 5 and 6 are dealers of petroleum products and the huge quantity allegedly purchased by them was admittedly in that capacity only. While the petitioner was thus entering into such huge transactions canvassed by its BDA, exhibit P4 appointment order itself provided that the BDA shall canvass business from customers for their consumption only.
6. Further while exhibit P4 requires customers to place their intents, even going by the pleadings in this writ petition, intents were placed by the BDA only. This read with the averments in the counter-affidavit filed by the sixth respondent, speaks volumes about the bona fides of the petitioner and the genuineness of the sales.
7. The corresponding 137 export bills verified with the ports, showed that the goods shipped were actually rice, provisions, etc., which means the goods sold by the petitioner were not shipped at all.
8. Further no payments were received from the purchasers and the entire payments were made by Sri. P.V. Babu, operating a fictitious account in the IndusInd Bank. These circumstances, are not explained by the petitioner and inspite of all this the petitioner wants everyone to believe that they did not feel anything amiss in the transaction and that everything was genuine. The aforesaid facts only leads to the irresistible conclusion that the transactions in question are not genuine. If that be so, I cannot accept the contention of the counsel for the petitioner that the seller cannot be held liable and that if at all anybody is liable, it is the buyer alone.
29. It should be remembered that under Explanation 1 to section 45A of the KGST Act, the burden of proving that any person is not liable to penalty shall be on such person and the question is whether the petitioner has discharged this burden. With the materials available, it is proved that the concession availed of by the petitioner was irregular and that the returns filed by them, at any rate, are incorrect. If so, the petitioner is liable for penalty u/s 45A. In such a situation, in view of Explanation 1 to section 45A, the burden is entirely on the petitioner to prove that they are not liable for penalty. While examining whether the petitioner has discharged the burden cast on it, necessarily, reference will have to be made to the documents produced by the petitioner. These documents are exhibits P2, P2(a), P6 and P7, P8 and P8(a) and P9 and P9(a). Although it is true that these documents have been obtained and produced, the fundamental question is whether the goods have reached its destination which alone will entitle the petitioner to claim the benefit of exhibit P1 notification. Admittedly the goods have not reached, and in fact going by the pleadings in this writ petition, the petitioner also has no such case. The burden could have discharged by the petitioner if this fact has been proved which has not been done. If so, I am not prepared to accept that the petitioner has discharged its burden.
30. Counsel for the petitioner contended that the show-cause notice was defective for the reason that the specific provision of section 45A allegedly violated by the petitioner was not mentioned in the notice. In support of this contention counsel placed reliance on the judgments in Amrit Foods v. CCE, U.P. (2005) 190 ELT 433 and
31. The learned senior counsel for the petitioner contended that the report of the investigation said to have been held, and the other documents relied on in exhibit P13 were not disclosed to the petitioner and therefore, the proceedings are vitiated for violation of the principles of natural justice. The learned Government Pleader submitted that there was no investigation report as contended. If so, this complaint has no substance. In so far as the other documents relied on against the petitioner, including the export bills, bank records of Sri. P.V. Babu are concerned, learned Government Pleader referred me to the finding in exhibit P13 order, where it is stated that Sri Tomy Varghese, the authorized representative of the company, appeared before the first respondent on July 31, 2006, perused the documents causing the issuance of notice u/s 45A and that he was exhaustively heard. It is also stated in exhibit P13 that Sri. Tomy Varghese had also filed a further objection to the show-cause notice vide his letter dated July 31, 2006. Nowhere in the writ petition, has the petitioner pleaded that the aforesaid statement in exhibit P13 is factually incorrect. Even if it is true that copies of the documents were not furnished to the petitioner, if documents relied on were allowed to be perused, the petitioner cannot contend that natural justice has been violated or that any prejudice has been caused to them.
32. Pointing out that documents at Sl. Nos. 1 to 3 referred to in exhibit P13 were not furnished to the petitioner, it was contended that natural justice was violated. Apart from the fact that the revisional authority has rejected this plea for the reason that these are departmental instructions and hence irrelevant, exhibit P10 show-cause and exhibit P13 order shows that these documents have not been relied on by the authorities. For these reasons, there is no substance in this contention either.
33. It was contended that the six allegedly fabricated documents mentioned in exhibit P13 order, cover only 250 kilo liters of HSD and therefore at any rate, penalty could not have been imposed on the entire quantity sold. In support of this contention learned senior counsel for the petitioner relied on the apex court judgments in
34. The learned senior counsel made extensive reference to exhibits P13 to P15 orders. Criticizing the findings in exhibit P13, learned counsel contended that there was no basis for the finding that the petitioner should have informed the seventh respondent about the supplies or that they should have alerted the port authorities. Counsel contended that in view of the provisions contained in exhibit P1 notification, they had no such responsibilities. It was also contended that as a seller, they were free to accept payment from anybody who offers it and that the fact that payments were accepted from Sri. Babu, can be of no consequence. Further much was attempted to be made out of the statement in exhibit P13 that the petitioner had colluded with the purchasers.
35. As far as the finding of collusion is concerned, I feel that if the order is read in its totality, the finding of collusion can be seen to be only an inference drawn by the first respondent and therefore the fact that this allegation was not made in the show-cause notice, cannot be fatal to the proceedings. That apart, even if the finding of collusion is eschewed, still the other findings against the petitioner are sufficient to hold the petitioner liable to penalty. True, going by exhibit P1 notification, it may not be the responsibility of the seller to monitor movement of the goods or that as a seller the petitioner is entitled to accept payment for anyone who offers it. However, when the genuineness of the transaction, where concessional rate of tax has been availed of, is raised as the issue, certainly these are all circumstances, which are relevant and the authorities cannot be faulted for pointing out these circumstances. As contended by the counsel for the petitioner, proceedings to impose penalty is quasi-criminal and contumacious conduct of the person concerned is necessary to impose penalty. In other words, the mere commission of an offence need not automatically be visited with penalty. However, in this case, I am not prepared to think that it is the mere commission of an offence that has been committed by the petitioner, having regard to the facts noticed in this case, about which detailed reference has already been made.
36. For the aforesaid reasons, I do not find anything illegal with exhibit P13 order or exhibit P14 or exhibit P15 revisional orders confirming the same.
37. This writ petition is only to be dismissed and I do so.
