2009 (7) TMI 1171 - HC - VAT and Sales Tax

Section 44(10) of Kerala Value Added Tax Act, 2003 (and the provision under which penalty is levied, namely, section 44(8) ) challenged as illegal and unconstitutional Held that - No violation of article 14 because dealers engaged in storing goods in undeclared godowns without giving prior intimation to the registering authority are a class different from the other class of dealers who store the goods in declared godowns and in undeclared godowns after prior intimation in writing to the registering authority in terms of the Rules. So much so, we are of the view that there is no violation of article 14 as well. Therefore, the challenge against constitutional validity of section 44(10) was rightly turned down by the learned single judge and we uphold the judgment in this regard. The maximum penalty levied at half the value of goods found in undeclared godowns under section 44(8) read with section 44(10) is not tenable. Discretion provided to the officer in regard to quantum of penalty itself indicates that he has to consider facts relating to each case and penalty should be levied based on the gravity of the offence. Appeals partly allowed vacating the penalty orders, but with direction to the officer to reconsider penalty after giving opportunity to the appellant to produce records and evidence in support of their contentions.

Summary

Issues:
Constitutional validity of section 44(10) and validity of penalty orders under section 44(8).

Constitutional Validity of Section 44(10):
The appellants challenged the constitutional validity of section 44(10) of the Kerala Value Added Tax Act, 2003. They argued that this provision violates Article 19(1)(g) and Article 14 of the Constitution of India by treating accounted goods as unaccounted based on a fiction. The court analyzed the purpose of introducing this provision, which was to deter tax evasion by penalizing dealers storing goods in undeclared godowns. The court noted that prior intimation to the registering authority could prevent goods from being treated as unaccounted. The provision was deemed harsh but not unconstitutional as it aimed to maintain discipline among registered dealers. The court upheld the validity of section 44(10) as it provided safeguards and did not hinder bona fide business activities.

Validity of Penalty Orders under Section 44(8):
The appellants contended that section 44(8) did not include a penalty clause for goods treated as unaccounted under section 44(10. The court clarified that the existing provision of section 44(8) could be invoked for levying penalties in cases where dealers stored goods in undeclared godowns. The court explained that the penalty under section 44(8) applied to goods treated as unaccounted under section 44(10). While the penalty was mandatory, the officer had discretion to consider circumstances and evidence presented by the dealer to determine the penalty amount. The court directed the officer to reconsider penalties, emphasizing that penalties should be based on the gravity of the offense and facts of each case.

Conclusion:
The High Court of Kerala upheld the constitutional validity of section 44(10) and clarified the applicability of penalties under section 44(8) to goods treated as unaccounted. The court allowed the writ appeals partially, vacating the penalty orders and instructing the officer to reassess penalties based on the evidence provided by the appellants. The discretion in determining penalty amounts was highlighted, emphasizing the need for a case-specific approach in penalty imposition.