2009 (2) TMI 886 - HC - VAT and Sales Tax

Proceedings initiated u/s 67 of the KVAT Act 2003 challenged on the ground of the orders passed being vitiated on the ground of period of limitation having expired - Adjudicating officer ceased to have jurisdiction by virtue of limitation of one year provided under the proviso to Section 67(1) - Notice was issued u/s 67 pointing out that variation in stock was noticed during inspection and consequently appellant was called upon to file objection against proposal for penalty - No reply from appellant - another notice was issued proposing penalty for attempted evasion of tax for two years - Even though the adjudicating authority is bound to complete adjudication pursuant to search u/s 67 within one year from the date of detection of offence appellant did not raise any objection of time bar even after receipt of two notices HELD THAT - In this case we are told that the records were verified on 19.7.2007. However it is not known whether the process of evaluation was carried out then or later. Counsel for the appellants contended that proceeding is time barred even with reference to date of verification of accounts which was on 19.7.2007. The verification of accounts need not be the date of detection of offence. During verification the officer has to evaluate the accounts and compare the same with physical stock and only when he detects offence he gets jurisdiction to proceed to levy penalty. Even though statute does not require the officer to record detection of offence initiation of proceedings u/s 67 is sufficient evidence of detection of offence. We do not find anything in the Act to indicate the grounds on which Deputy Commissioner can extend the time for completion of proceedings u/s 67(1). In any case the contention of the counsel that the extension of time should be granted by the Deputy Commissioner within the time limit of one year is a tenable contention. If records prove that extension of time is granted beyond one year from date of detection of offence then such proceedings automatically become invalid affecting the validity of the penalty order itself. This is a matter which requires to be examined by the appellate authority with reference to records. However we do not think any adjudication proceedings is contemplated under the Act requiring notice to be issued to the dealer or even issuing a communication extending the time. If the dealer raises objection to the penalty notice on ground of limitation then AO is bound to communicate the order of the Deputy Commissioner and thereafter only he gets jurisdiction to continue the proceedings against the assessee. In this case appellant has not raised the objection of limitation when notice was served proposing penalty. So much so appellant can raise the objection only in appeal and ld Single Judge rightly held so. We therefore dismiss the Writ Appeal leaving freedom to the appellant to verify the records and raise limitation as a ground which appellate authority will consider with reference to the records and in the light of the meaning assigned to the Section. Appellant is granted two weeks time from date of receipt of this judgment to file appeal if it is not already filed.

Issues:
Challenge against penalty order due to availability of alternate relief, extension of time for completion of proceedings under Section 67(1), date of detection of offence, validity of penalty order issued beyond statutory time limit, necessity of notice from Deputy Commissioner before granting extension of time.

Analysis:

1. The appeal was filed against a judgment where the Single Judge declined to entertain a challenge against a penalty order, citing the availability of an alternate relief through an appeal before the statutory authority. The appellant, a registered dealer under the Kerala Value Added Tax Act, 2003, was engaged in the furniture business and faced penalties for attempted tax evasion following a search of their business premises. Despite the statutory requirement for completing adjudication within one year from the detection of the offense, the appellant did not raise any objection to the time bar until receiving the penalty order. The Single Judge disposed of the Writ Petition, allowing the appellant to raise the objection in the statutory appeal. The appellant challenged this judgment in a Writ Appeal, which was heard by the High Court.

2. The appellant contended that the extension of time for proceedings under Section 67(1) should have been communicated to them by the Deputy Commissioner for it to be valid. They also argued that the extension should be granted within the statutory limitation of one year from the detection of the offense. The High Court examined relevant legal precedents cited by the appellant, including a Supreme Court decision and a Karnataka High Court decision, but found them inapplicable due to differences in the provisions of the KVAT Act. The court highlighted the proviso to Section 67(1), emphasizing that the limitation of one year runs from the "date of detection of offense," which may not necessarily be the date of the search. The court clarified that the detection of an offense requires a thorough verification process and comparison of physical stock with accounts before the officer can issue a penalty notice.

3. The High Court addressed the appellant's argument regarding the necessity of a notice from the Deputy Commissioner before extending the time for proceedings. While the Act does not specify grounds for such extensions, the court acknowledged the need for justification and noted that the extension should be granted within the one-year limitation period. The court emphasized that if the extension exceeds one year from the detection of the offense, the proceedings and subsequent penalty order could be deemed invalid. The court also clarified that the dealer must raise objections to the penalty notice on the grounds of limitation for the Assessing Officer to communicate the Deputy Commissioner's order and proceed with the proceedings. As the appellant did not raise the objection initially, the High Court upheld the Single Judge's decision, allowing the appellant to raise the limitation issue in the appeal.

4. In conclusion, the High Court dismissed the Writ Appeal, granting the appellant two weeks to file an appeal if not already done. The court emphasized the importance of verifying records and raising the limitation issue before the appellate authority, which would consider the matter in light of the statutory provisions and records presented. The judgment provided clarity on the interpretation of the relevant provisions of the KVAT Act regarding the time limit for proceedings and the necessity of communication and justification for extending such time limits.

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