2020 (6) TMI 274 - HC - VAT and Sales Tax

Compounding of Offences - suppression of sales turnover - failure to take registration - Kerala VAT Act - Special Rebate - HELD THAT - In the present case , what assumes significance is that the assessee failed to establish that the stock available belongs to a registered dealer; and that it reached the assesse s hands as per the permissible mode and with supporting prescribed documents, under the KVAT Act - there are no reason to interfere with the assessment made adopting the sales turnover as detected by the Intelligence Officer. Purchase Turnover - HELD THAT - It is very clear from the records that the assessee had not been maintaining proper books of accounts and there were purchases made of gold and sale of ornaments. The mere fact that the sale effected was minimal would not detract from the fact that the assessee would have probably suppressed other transactions also for which there would be no material available. The purchases found on inspection, to have been made, were above the limit prescribed under Section 15, for registration. The sale made of the goods purchased after manufacture would definitely have been higher. The Intelligence Officer had only adopted the actual turnover suppression and in the best judgment assessment, the Assessing Officer was well within his power to make an estimation of the purchase made which also had to suffer tax under Section 6(2). When there is no material to evidence the purchases or the tax paid on that count, the estimation made is perfectly in order. Special Rebate - Whether the Tribunal erred in allowing the Special rebate under Section 12, in the context of the specific prohibition under sub-section (2) of Section 12? - HELD THAT - There would be no question of law arising from the assessment made insofar as the equal addition as made by the Assessing Officer and affirmed by the Tribunal with respect to both the liability under Section 6 and Section 6(2). However considering the contention of the assessee that the assessee had been carrying on job-works as also the fact that the assessee is dis-entitled from claiming special rebate we modify the further addition to be at 25% (1/4th )of the actual addition made on account of the sales and purchases as adopted by the Assessing Officer. Application disposed off.

Summary

Issues:
1. Assessment based on turnover suppression detected by Intelligence Officer.
2. Liability under Section 6(2) based on estimation by Assessing Officer.
3. Validity of estimation made towards probable omissions and suppression.
4. Allowance of special rebate under Section 12.
5. Ownership of stock found in assessee's premises.
6. Application of Velimparambil Hardwares case.
7. Maintenance of proper books of accounts by the assessee.
8. Eligibility for special rebate post-registration.

Analysis:

1. The assessment in question arose from an inspection revealing a significant turnover suppression of ?3,33,69,622 by the assessee engaged in manufacturing gold ornaments on a job work basis. The Assessing Officer added 90% of the suppressed turnover under Section 6(2) of the KVAT Act. The first appeal deleted this addition, but the Tribunal reinstated it along with an equal amount for probable omissions. The State appealed against the deletion, while the assessee contested the turnover adoption, claiming no direct purchase or sale of gold.

2. The court found the assessee's claim of only conducting job works unsubstantiated, noting purchases exceeding ?19 lakhs, necessitating compulsory registration under Section 15 of the KVAT Act. The invoices from a registered jeweler were deemed insufficient to prove ownership of the detected stock. The court referenced Velimparambil Hardwares to emphasize the need for proper documentation supporting goods transfer for job works.

3. Regarding the estimation of purchase turnover, the court upheld the Assessing Officer's decision, given the lack of proper accounts maintenance by the assessee and the probability of additional suppressed transactions. The court deemed the estimation justified, considering the unavailability of evidence for actual purchases and tax payments.

4. The court addressed the issue of special rebate eligibility post-registration, highlighting Section 12's prohibition of rebates for unregistered dealers. Despite the subsequent registration by the assessee, the court held that the detection and estimation occurred before registration, rendering the special rebate inapplicable.

5. Ultimately, the court ruled against the assessee on questions related to turnover suppression adoption and purchase turnover estimation, aligning with statutory provisions. However, considering the job work nature and rebate ineligibility, the court modified the additional liability to 25% of the initial amount. The court also confirmed the denial of special rebate, emphasizing the timing of detection and registration as crucial factors.