A.A. Francis vs. State Of Kerala
Original PDF →Facts
The petitioner, A.A. Francis of Franjo Engineering Corporation, a registered dealer under the KVAT Act engaged in works contract, had a vehicle carrying a consignment intercepted on 14.10.2010 by the Intelligence Officer, Squad No.II, Alappuzha. The goods were being transported to Southern Railway, Kayamkulam, without proper documents as required by Section 47(2) of the Act read with Rule 67(1) of the KVAT Rules, 2005. The Intelligence Officer imposed a penalty of Rs.75,750/- under Section 47(6) of the Act. The petitioner's representative appeared but did not produce books of accounts, arguing the letter accompanying the goods indicated transport for a works contract and the driver omitted to take the gate pass. The Intelligence Officer rejected these contentions. The orders of the Intelligence Officer, Assistant Commissioner (Appeals), and the Value Added Tax Appellate Tribunal were challenged.
Held
The Court held that the petitioner's consignment was not accompanied by a tax invoice, delivery note, or certificate of ownership. The Tribunal had found that the petitioner purchased materials to make panels for installation, and ordinarily, property in goods passes to the awarder only after utilization. The contract with the Railways did not indicate property passing before work execution. Letters from the Railways only stated the goods were intended for use at the work site, but no documents required under Section 46(3) of the Act were produced. Therefore, even the exceptional circumstance mentioned in D.P. Metals (where documents were not readily available due to mistake) did not apply. The Court found no reason to interfere with the Tribunal's order. The questions of law were answered against the assessee and in favour of the revenue.
Key Issues
1. Whether on the facts and in the circumstances of the case, the orders imposing penalty are liable to be cancelled as illegal and unsustainable under law? (Question of law) 2. Whether the Appellate Tribunal was correct in law in confirming the imposition of penalty, considering that documents indicated the goods belonged to the Railway and the petitioner pays tax under a compounded rate for works done? (Question of mixed law and fact) 3. Whether the Appellate Tribunal erred in law in confirming the maximum penalty without furnishing reasons? (Question of law) Petitioner's contentions: The authorities ought to have found no attempt to evade tax, as certificates from Southern Railway showed the consignment was for a works contract. The petitioner also relied on the decision in Guljag Industries v. Commercial Tax Officer and ST.Rev.No.119 of 2006 (M/s Keltron Component Complex Ltd. v. State of Kerala). Revenue's contentions: The petitioner was bound to comply with statutory requirements while transporting goods, and failure to do so invites penal consequences. The revenue relied on Assistant State Tax Officer v. Indus Towers Ltd.
Sections Cited
Section 47(2), Rule 67(1), Section 47(6), Section 46(3), Section 66, Section 29A(4), Section 29(2), Section 78(5), Section 78(2)
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
ORDER T.R.RAVI, J. Petitioner is a registered dealer under the KVAT Act (hereinafter referred to as 'the Act'), engaged in works contract of supply and erection of electrical goods and equipments. On 14.10.2010, the Intelligence Officer, Squad No.II, Alappuzha, intercepted a vehicle containing a consignment from the petitioner to the Southern Railway, Kayamkulam, and found that goods were being transported without proper and genuine documents required under Section 47(2) of the Act read with Rule 67(1) of the KVAT Rules, 2005 (hereinafter referred to as 'the Rules').
On 22.06.2011, the Intelligence Officer issued an order imposing a penalty of Rs.75,750/- being double the amount of tax sought to be evaded under Section 47(6) of the Act. It is seen from the order that even though in response to a notice, the authorised representative of the petitioner had appeared, the books of accounts were not produced at the time of hearing. The contention of the authorised representative was that, the letter accompanying the goods would show that the dealer was transporting goods from -3- Ernakulam to Kayamkulam for the purpose of executing a work on behalf of Southern Railway. He had also submitted that the driver of the vehicle omitted to take the gate pass. The Intelligence Officer rejected the contentions and found that the transport was not accompanied by documents prescribed under Section 46(3) of the Act, that the dealer did not offer any satisfactory explanation for not using the documents prescribed under Section 46(3) of the Act, that the transport document accompanying the consignment did not contain the TIN of the dealer and that the dealer did not produce any books of accounts for verification.
The order of the Intelligence Officer (Annexure E) was challenged in appeal before the Assistant Commissioner (Appeals). By order dated 15.05.2012(Annexure F), the appeal was dismissed confirming the order of the Intelligence Officer. The appellate order was challenged before the Tribunal. By Annexure G order, the Tribunal dismissed the appeal. Before the Tribunal, the petitioner contended that the authorities ought to have found that there was no attempt to evade tax. According to the petitioner, the certificates issued by the Southern Railway clearly show that the consignment was intended for the execution of the works contract -4- which had been entered into between the petitioner and the Southern Railway. The Tribunal found that the letter which accompanied the consignment does not go to show that the switch boards to be transported were Railway property and that the petitioner was merely transporting the same for and on behalf of the Railways. Admittedly, the petitioner is not engaged in the business of logistics or transport. The Tribunal found that the dealer had transported the goods without a tax invoice or delivery note or certificate of ownership and that the copy of the letter did not specifically certify that the goods were owned by the Railways. In the above circumstances, the Tribunal held that the letter cannot be treated as equivalent to a certificate of ownership provided under Rule 58(18) of the Rules. The petitioner thereafter preferred a rectification petition under Section 66 of the Act, contending that a document which was produced was not considered and specifically dealt with in the order. The photocopy of the certificate issued by the Senior Section Engineer of the Railways, stating that two numbers of electrical panel boards loaded in the vehicle are items transported for use in the proposed new Sub Station at Kayamkulam Railway Station was relied on to contend that the -5- items belong to the Railway. The Tribunal rejected the rectification petition. The Tribunal found that the panels are made by the petitioner utilising materials purchased by him, for installation in the work and that ordinarily the property in goods will pass to the awarder of the contract only after the same are utilised in the work that is being executed. According to the Tribunal, the work agreement does not justify the contention of the petitioner. The Tribunal held that the certificates are not sufficient to prove that the Railways were the owners of the goods. Annexures H and I are the order in the rectification petition and the rectified order respectively. The revision has been filed challenging the orders Annexures E to I.
The petitioner has raised the following questions of law for decision of this Court. (i) Whether on the facts and in the circumstances of the case the orders Annexure-E to I are liable to be cancelled being illegal and not sustainable under law? (ii) Whether on the facts and in the circumstances of the case Appellate Tribunal was correct in law in confirming the imposition of penalty particularly considering the fact that the documents Annexures-C and D proves that the goods under detention were belongs to Railway and that petitioner is paying tax under the compounded rate for the entire works -6- done? (iii) Whether on the facts and circumstances of the case the Appellate Tribunal has erred in law in confirming maximum penalty without furnishing reasons for the same?
Heard Sri N.Muraleedharan Nair on behalf of the petitioner and Senior Government Pleader Sri Mohammed Rafeeq on behalf of the Revenue.
The counsel for the petitioner reiterated the contentions that were taken before the Tribunal and relied on the decision of the Hon'ble Supreme Court in Guljag Industries v. Commercial Tax Officer reported in [(2007) 7 SCC 269] and the decision of a Division Bench of this Court in ST.Rev.No.119 of 2006 (M/s Keltron Component Complex Ltd. v. State of Kerala) in support of his contentions. The Senior Government Pleader on the other hand contended that the petitioner was bound to comply with the requirements of the Statute, while transporting goods and that failure to comply will necessarily invite penal consequences. He relied on a decision of the Division Bench of this Court in Assistant State Tax Officer v. Indus Towers Ltd. reported in [2018 (55) GSTR 404 Kerala] = [2018 KHC 498].
In Guljag Industries (supra), the Hon'ble Supreme Court was considering a batch of cases relating to the scope of -7- Section 78(5) of the Rajasthan Sales Tax Act, 1994 (hereinafter referred to as RST Act, 1994). The facts in the cases considered by the Supreme Court were different. In one case, a vehicle containing a consignment was intercepted and it was found that the goods were accompanied by an outward gate pass, an invoice showing a date and the name of the consignor and the consignee and Form ST 18A, which though duly signed, did not declare the goods transported. Action was taken since the transportation was without complying with the statutory requirements and penalty was also sought to be imposed. In another case, the consignment on verification was found to be in excess than what was stated in the accompanying bill. The High Court had held that levy of penalty was not automatic in a case where the goods in movement are found to be unaccompanied by the required documents. On facts, the High Court found that if for some reason, the driver fails to produce the documents at the Check Post, but they were subsequently produced and were found to be not false or forged, it cannot be said that there was intention to evade tax. The Hon'ble Supreme Court held that existence of mens rea is an essential ingredient in every offence, but that presumption is liable to be -8- displaced either by the words of the Statute relating to the offence or by the subject matter with which it deals. Having said that, the Apex Court went on to consider whether the wording of Section 78(5) of the RST Act, 1994 displaced the presumption that mens rea is an essential ingredient. After referring to the statutory provisions, the Apex Court held that movement of goods accompanied by blank Form ST 18A was on the face of it a contravention of Section 78(2) of the RST Act, 1994. The Court further held that such a contravention invites strict civil liability on the assessee. The Court held that the penalty is for a statutory offence and there is no question of proving intention or mens rea. To the argument that it was open to the assessees to show to the competent authority that there was no intention to evade the tax by producing documents, the Hon'ble Supreme Court held that there was no merit in such an argument. With regard to cases where the goods in movement were not accompanied by the specified documents, the Apex Court held that they stand on a different footing and are to be decided in the light of the judgment in State of Rajasthan v. D.P.Metals reported in (2002) 1 SCC 279. 8. In paragraph 32 of the judgment in Guljag Industries -9- (supra), the Apex Court noted the dictum laid down in D.P.Metals (supra) as under:
“32. In the present case, the assessees have relied upon the judgment of this Court in State of Rajasthan v. D.P. Metals [(2002) 1 SCC 279]. In that case the facts were as follows: The assessee firm manufactured stainless steel sheets. The assessee was a registered dealer. On 22-1-1997 a truck was inspected by CTO. The same was found without Form ST 18-A. A show-cause notice was issued to the assessee. After the hearing, a penalty was levied under Section 78(5) of the RST Act, 1994. It was held that under Section 78(5) levy of penalty was on the person in charge of the goods. It was held that the said penalty was leviable under two circumstances. Firstly, if there was non-compliance with Section 78(2)(a) of the said Act, namely, that it was not carrying the documents mentioned in that clause. Secondly, if false or forged documents/declaration was submitted then penalty under Section 78(5) was leviable. After analysing the said section, this Court held that in the case of submission of false or forged documents/declaration, the authority was entitled to presume the motive to mislead the authorities. However, in such cases that presumption was rebuttable by the assessee on producing the requisite documents referred to in Section 78(2)(a). That, once the ingredient of Section 78(5) stood established after giving a hearing, there was no discretion with the officer to reduce the amount of penalty or to waive the penalty. If by mistake some of the documents were not readily available at the time of checking, principles of natural justice might require -10- opportunity being given to produce the same. It was further held that under Section 78(5) the legislature has fixed the rate of penalty and, therefore, the quantum of penalty could not be waived or reduced.”
In Keltron (supra), the Division Bench of this Court was considering a case where the Sales Tax Officer (Enquiry) while conducting an enquiry under Section 29A(4) of the KGST Act, came to the conclusion that the transaction is in the nature of inter-State transaction, and therefore, there is an attempted evasion of tax, not under the provisions of the KGST Act, but under the provisions of the Central Sales Tax Act. That is to say, he assumed the role of the Assessing Officer. This Court held that the plain language employed in Section 29A(4) of the Act, as well as its intendment does not clothe the officer to levy penalty as long as the documents carried in the vehicle satisfy the requirements of the conditions enumerated under section 29(2) of the Act and the rules framed thereunder. The above decision also is not of any help to the petitioner, since the proposition laid down is very much in accordance with the provisions of the Statute and nothing further.
In Indus Towers (supra), a Division Bench of this Court in which one among was a member ( KVC, J.), considered the judgment in D.P.Metals (supra) and held that the declaration of -11- law made by the Apex Court was to the effect that if by mistake some documents were not readily available at the time of checking, principles of natural justice require an opportunity to produce the same and that even in such circumstances, it was to be proved that there was no possibility of the document being subsequently prepared.
In the case on hand, admittedly the consignment was not accompanied by either a tax invoice or delivery note or certificate of ownership. Then the only question is whether the documents were existing and were not readily available at the time of checking. On facts, the Tribunal found that the petitioner had purchased materials for making panels which were to be utilised for installation at the work spot and that these switch board panels were being transported. The Tribunal found that ordinarily the property in goods will pass to the awarder of the contractor only after utilisation of those goods in the work being executed. Referring to the contract between the petitioner and the Railways, it was noticed that there was nothing in the contract to indicate that property in goods passed to the awarder of the contract even before the execution of the work. Except letters issued by the Railways to -12- the effect that the goods are intended to be used in the work site, no documents as required under Section 46(3) of the Act were produced at any stage of the enquiry. In the above circumstances, even the exceptional circumstance pointed out in D.P.Metals (supra) does not exist in the case.
We do not find any reason to interfere with the order of the Tribunal. The questions of law raised in the revision petition are answered against the assessee and in favour of the revenue. The revision petition fails and is dismissed. The parties will bear their respective costs. K. VINOD CHANDRAN JUDGE T.R. RAVI JUDGE dsn -13-
Appendix — schedule of exhibits
Reproduced from the public record of the Kerala High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.