2015 (9) TMI 1393 - HC - VAT and Sales Tax

Estimation of turnover towards local sales whereas no proof of local sale - suppression was detected at check-in-borders during transportation - Demand of security deposit - Habitual defaulter - Conversion of security deposit to penalty - best judgment assessment - Held that - The assessing officer opined that when a pattern of suppression can be established on the basis of two instances spreading over different months of a financial year, the proposed addition is reasonable. It is also indicated that the detection was noticed while transporting goods through different check-posts at Vazhikadavu and at Tholpetty. It is also found that the modus operandi practised by the dealer was to transport twice the quantity conceded. - Therefore when the authorities under the KVAT Act proceeds on the basis that despite the suppression being detected only twice, taking into consideration the manner in which goods were being transported, the assessment could be made under section 24 of the KVAT Act cannot be found to be unreasonable which requires interference. But, tribunal failed to consider the question relating to the estimation made by the assessing officer in relation to the fact that the assessee has no local sales at all and therefore the turnover estimated under section 6(1) of the Act is bad in law, the same is required to be considered in accordance with the procedure prescribed. - Impugned order is set aside - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Legality of the estimation towards suppression on local sales under the KVAT Act based on offences detected under the CST Act.
2. Whether issues not raised before lower authorities can be considered by the Tribunal.
3. Validity of the assessment made under section 24 of the KVAT Act when suppression was detected only under the CST Act.
4. Applicability of rule 39(5)(i) and (iii) of the KVAT Rules regarding limiting the addition of suppression to the return periods where offences were detected.

Detailed Analysis:

1. Legality of the estimation towards suppression on local sales under the KVAT Act based on offences detected under the CST Act:
The petitioner argued that since he had no local sales of arecanut within Kerala, he had no obligation to pay tax under the KVAT Act. The Tribunal held that the petitioner had not raised the contention before the lower authorities that the assessing authority was not justified in estimating turnover suppression for local sales based on offences detected during inter-State movement under the CST Act. The Tribunal found that the petitioner was transporting goods in excess of the quantity declared, justifying the invocation of section 24 of the KVAT Act.

2. Whether issues not raised before lower authorities can be considered by the Tribunal:
The petitioner contended that the Tribunal committed a serious error of law by rejecting the returns filed under the KVAT Act for offences committed under the CST Act. The Tribunal's decision was challenged on the grounds that it ignored rule 39(5)(i) and (iii) of the KVAT Rules. The Tribunal's stance was that issues not raised before lower authorities could not be raised for the first time before the Tribunal. However, the court observed that even if a contention was not urged before the Tribunal, a question of law could still be raised before the High Court, as supported by precedents like Bhavani Tea and Produce Co. Ltd. v. State of Kerala and Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd.

3. Validity of the assessment made under section 24 of the KVAT Act when suppression was detected only under the CST Act:
The petitioner argued that the assessment under section 24 of the KVAT Act was unsustainable since the suppression was detected only in transactions under the CST Act. The Tribunal found that the petitioner was in the habit of transporting goods in excess of the declared quantity and undervaluing the goods, justifying the assessment under section 24 of the KVAT Act. The court noted that the assessing officer's approach was based on the detected pattern of suppression, which was reasonable.

4. Applicability of rule 39(5)(i) and (iii) of the KVAT Rules regarding limiting the addition of suppression to the return periods where offences were detected:
The petitioner contended that the estimation of turnover should have been limited to the return periods of August and December, where the offences were detected. Rule 39(5)(i) and (iii) of the KVAT Rules were cited, which state that if irregularity relates to one return period and does not disclose a pattern of suppression, the best judgment assessment should be limited to that period. However, if a pattern of suppression is detected, the assessment can cover all return periods. The authorities proceeded on the basis that a pattern of suppression was evident, justifying the best judgment assessment for the entire period.

Conclusion:
The court found that the Tribunal failed to consider the petitioner's contention that he had no local sales and that the turnover estimated under section 6(1) of the KVAT Act was illegal. The Tribunal's decision to dismiss the issue on the ground that it was not raised earlier was incorrect. The court emphasized that questions of law raised before the Tribunal should be considered based on the available materials. The revision was allowed, setting aside the impugned order, and the Tribunal was directed to reconsider the matter afresh in light of the observations made.

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