2008 (2) TMI 843 - HC - VAT and Sales Tax

Penalty levied under section 45A of the Kerala General Sales Tax Act, 1963 for evasion of tax by the petitioners for the assessment years 1993-94 to 1996-97 - Held that - Total turnover of business of all the petitioners carried on in the name of the society could be clubbed to determine whether there is tax liability and based on this, penalty also could be levied under section 45A of the KGST Act. Separate amounts are dealt with in the penalty order only for the purpose of recovery of penalty from each of the petitioners in proportion to business carried on by them in the name of the society. In this view of the matter, it is held that penalty under section 45A read with section 19C of the KGST Act was rightly levied on all the petitioners for each of the years irrespective of whether the turnover arrived at in the case of individuals for any year is less than the non-taxable limit. The original petitions are, therefore, devoid of any merit and are dismissed.

Summary

Issues:
Challenging penalty under section 45A of the Kerala General Sales Tax Act, 1963 for evasion of tax for assessment years 1993-94 to 1996-97.

Analysis:
The judgment involves a challenge against penalties imposed under section 45A of the Kerala General Sales Tax Act, 1963 for tax evasion by the petitioners during the assessment years 1993-94 to 1996-97. The petitioners, engaged in the manufacture and sale of note books, were found to have camouflaged their transactions through a cooperative society to evade sales tax. The Sales Tax Department discovered that the society, used as a front by the petitioners, did not have the funds for purchases, and the transactions were actually carried out by the petitioners. Despite clear evidence of tax evasion, some petitioners denied the transactions. The court directed the society's secretary to provide details, but the affidavit filed confirmed the fraudulent nature of the transactions. The judgment cites the principle from McDowell's case, emphasizing that the petitioners cannot escape liability for tax evasion through the society.

The petitioners argued that since individual turnovers were below the non-taxable limit, penalties should not apply. However, the court rejected this argument, citing section 19C of the KGST Act, which imposes joint and several liability on persons involved in transactions leading to tax evasion. As the society and petitioners were jointly involved in evading tax, they were held jointly and severally liable for penalties. The court concluded that penalties under section 45A, read with section 19C, were rightly imposed on all petitioners for each year, regardless of individual turnover amounts. The judgment dismissed the original petitions, finding them devoid of merit.

In summary, the judgment upholds the penalties imposed under section 45A of the KGST Act on the petitioners for tax evasion through fraudulent transactions involving a cooperative society. It emphasizes joint and several liability under section 19C for individuals involved in transactions leading to tax evasion, dismissing the petitioners' argument regarding individual turnover amounts. The court's decision is based on the principle of holding accountable those who evade tax through deceptive practices, affirming the penalties imposed on the petitioners for their actions.