2004 (3) TMI 733 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the shop inspection conducted on May 13, 2003.
2. Compliance with procedural safeguards under Rule 34(12) of the Kerala General Sales Tax Rules, 1963.
3. Admissibility of evidence obtained through the inspection.

Issue-wise Detailed Analysis:

1. Validity of the Shop Inspection Conducted on May 13, 2003:
The petitioner, a private limited company running a duty-free shop, challenged the validity of a shop inspection conducted on May 13, 2003. The petitioner argued that the inspection was arbitrary, mala fide, and conducted to harass them, especially since it occurred within a week of a prior inspection by the registering authority on May 7, 2003. The respondent countered that the inspection was valid, authorized by the Deputy Commissioner (Intelligence), Commercial Taxes, Ernakulam, and conducted in compliance with the law. The court noted that the inspection was carried out by an officer not below the rank of an assessing authority as per Section 28(2) of the Kerala General Sales Tax Act, 1963, and all procedural formalities, including the issuance of notices and authorizations, were duly followed.

2. Compliance with Procedural Safeguards under Rule 34(12) of the Kerala General Sales Tax Rules, 1963:
The petitioner contended that the inspection violated Rule 34(12) of the Kerala General Sales Tax Rules, 1963, which mandates that a list of unaccounted goods found during an inspection must be signed by two respectable witnesses and a copy given to the dealer or person-in-charge. The court observed that signatures of certain individuals (Vineeth Kumar, Anilkumar, Satheesh, and Rathish) were present in the inventories, but it was unclear whether they qualified as "respectable witnesses" under Rule 34(12). The court concluded that it could not definitively determine whether the inspection was conducted in accordance with Rule 34(12) based on the available evidence.

3. Admissibility of Evidence Obtained Through the Inspection:
The court discussed the admissibility of evidence obtained through potentially illegal inspections. Citing the Supreme Court's decision in *Pooran Mal v. Director of Inspection (Investigation) Income-tax, New Delhi [1974] 93 ITR 505*, the court held that evidence obtained through illegal searches or seizures could still be used in legal proceedings if it was relevant. The court also referenced several precedents, including *M.K. Annamalai Chettiar and Co. v. Deputy Commercial Tax Officer [1965] 16 STC 687* and *Deputy Commissioner of Sales Tax (Law) v. C. Prasad [1994] 92 STC 361*, which supported the view that materials obtained in illegal searches could be relied upon for assessments. The court acknowledged a contrasting decision in *Deputy Commissioner, Sales Tax (Law) v. P. C. Joseph and Brothers [1994] 94 STC 296*, which emphasized compliance with procedural safeguards, but did not comment on its alignment with the Supreme Court's stance.

Conclusion:
The court dismissed the writ petition, allowing the petitioner to raise objections regarding the reliance on the shop inspection report (SIR) in future proceedings. The court emphasized that it was for the concerned authority to consider such objections in light of the principles laid down by the Supreme Court and other relevant decisions. The court concluded that there was no procedural lapse in conducting the inspection and that the materials collected could be used in subsequent legal proceedings, subject to the petitioner's right to challenge their admissibility.