M/S. Ernad Latex vs. State Of Kerala

Facts

The revision petitioner, M/s. Ernad Latex, is a dealer in rubber. For the assessment year 2008-09, they claimed exemption from tax on inter-state trade of natural rubber under SRO No.804/08, which required payment of purchase tax under the KVAT Act as a condition. The assessee had claimed input tax credit on purchases, effectively not paying purchase tax. An Intelligence Officer found tax evasion under the CST Act, as the assessee claimed exemption on a turnover of Rs.3,61,92,304/- without fulfilling the condition. The tax evaded was Rs.7,23,846/-, and a penalty equal to twice this amount was imposed. The assessee filed a revised return on 28.10.2009, after penalty proceedings were initiated on 12.10.2009, based on an audit report produced on 25.09.2009.

Held

The Court held against the assessee on all issues. Regarding the first two issues, the Court found that the assessee failed to comply with Section 42(2) and its proviso. The revised return was filed after penalty proceedings were initiated, and the audit report was produced before the penalty notice but the revised return was filed subsequently. The proviso to Section 42(2) clearly states that it shall not apply to any dealer against whom penal action is initiated for omission or mistake. Therefore, the revised return could not be accepted. The exemption was wrongly claimed as the condition of paying purchase tax was not met. On the third issue, the Court rejected the contention that Section 67 of the KVAT Act could not be invoked. It referred to Section 9(2A) of the CST Act, which makes provisions of the general sales tax law regarding penalties applicable to CST Act transactions. The evasion of tax under the CST Act by claiming an exemption without fulfilling its conditions was an offence, and the penalty imposed was proper. The Court answered all questions of law against the assessee and in favour of the revenue.

Key Issues

1. Whether the Tribunal erred in upholding the penalty imposed for not paying purchase tax to claim exemption under Annexure A notification, when the assessee filed revised returns based on an audited certificate before 31.10.2009? 2. Whether the Tribunal erred in affirming the penalty based on tax liability on inter-state transactions, when the assessee had paid purchase tax based on the revised return, which was a condition for exemption? 3. Whether the Tribunal ought to have set aside the penalty on the ground that Section 67 of the KVAT Act cannot be invoked for levying penalty under the CST Act? Petitioner's arguments: The petitioner contended that they were entitled to file a revised return before 31.10.2009, as per Section 42 of the KVAT Act, and that the revised return was filed within this due date. They also argued that Section 67 of the KVAT Act, which deals with penalties, could not be invoked for transactions under the CST Act, as the latter has its own penalty provisions under Sections 10 & 10A. Revenue's arguments: The revenue argued that the assessee failed to comply with the conditions of the exemption notification by not paying purchase tax. They also contended that the revised return was filed after penalty proceedings were initiated, rendering it invalid as per the proviso to Section 42(2) of the KVAT Act. Regarding the invocation of Section 67, the revenue relied on Section 9(2A) of the CST Act, which extends the provisions of the general sales tax law relating to penalties to CST Act transactions.