2020 (6) TMI 118 - HC - VAT and Sales Tax

Imposition of penalty u/s 67 of the KVAT Act - Production of Books of Accounts - principles of natural justice - HELD THAT - It is pertinent to note that, neither in the impugned orders nor in the counter affidavit, there is no allegation of the petitioner having failed to produce the books of account on 8.10.2014. On the other hand, what is stated is that, the dealer had not produced any books of accounts for any of the years 2008-09, 2009-10, 2010-11, 2011-12 for verification now, in spite of the directions by the appellate authority and of the issuance of this office notice . The above statement lends credence to the submission of the petitioner that, though the books of accounts were produced on 8.10.2014, he was directed to produce them at a later stage, but was not served with any notice thereafter. The impugned orders, passed without reference to the books of accounts and by discarding the statements of the witnesses, examined behind the petitioner's back, cannot be sustained - the first respondent is directed to reconsider the penalty orders in terms of the directions contained in Ext.P4 appellate order, providing effective opportunity to the petitioner to participate in the enquiry proceedings, including examination of witnesses - petition allowed by way of remand.

Summary

Issues:
1. Imposition of penalty under Section 67 of the KVAT Act based on inspection report.
2. Appellate authority's directions regarding specific recoveries and penalty modification.
3. Compliance with appellate authority's directions and subsequent issuance of orders by the first respondent.
4. Challenge to the orders issued by the first respondent on grounds of lack of opportunity and violation of principles of natural justice.
5. Dispute regarding production of books of accounts and examination of witnesses.

Analysis:
1. The petitioner, engaged in the business of two and three-wheeler spare parts, was subjected to penalty under the KVAT Act following an inspection that revealed discrepancies under eight different heads. The penalty orders for assessment years 2008-09 to 2011-12 were challenged by the petitioner in separate appeals, leading to the appellate authority's directions to the Intelligence Officer to conduct detailed enquiries regarding specific recoveries, such as Recovery No.8 related to alleged major tax evasion, and Recovery No.3 concerning unaccounted purchases. The appellate authority also instructed verification of Recovery No.5, involving purchases by the petitioner's brother for his business.

2. The petitioner contested the subsequent orders (Exts.P5 to P5(C)) issued by the first respondent, alleging lack of reasonable opportunity to participate in the proceedings. The petitioner's counsel argued that the enquiry conducted by the first respondent disregarded the directions of the appellate authority and violated principles of natural justice by not providing adequate notice or sharing witness statements. The petitioner's compliance with producing books of accounts was also disputed.

3. The Senior Government Pleader contended that the first respondent's actions were justified due to the petitioner's alleged non-compliance with directives to produce relevant documents, necessitating the enquiry process. However, the petitioner maintained that the books of accounts were presented but further instructions were not provided, leading to a lack of clarity regarding the petitioner's obligations.

4. The court observed that the first respondent's conduct in examining witnesses without the petitioner's presence and withholding witness statements contravened principles of natural justice. The appellate authority's emphasis on detailed verification before imposing penalties underscored the necessity for a fair and transparent process, which was not upheld in this instance.

5. Discrepancies arose regarding the actual production of books of accounts and the subsequent actions taken by the first respondent. The court found inconsistencies in the accounts of both parties and ruled in favor of the petitioner, setting aside the challenged orders and directing a reconsideration of penalty orders in accordance with the appellate authority's directives, emphasizing the need for the petitioner's active participation and fair treatment in the proceedings.