2015 (11) TMI 157 - HC - VAT and Sales Tax

Compounding of offense - Duty on goods stored in the undeclared godowns - Non maintenance of books of accounts - Held that - Offence alleged to have been committed by the Petitioner, in respect of the undeclared godowns, was the failure to keep true and complete accounts. The requirement for maintaining true and correct accounts by dealers is one that is mandated by Section 40 of the Act and the penal provision that is attracted in cases of default is Section 71 of the Act. The books of accounts required to be kept by a dealer, such as the Petitioner, are enumerated in Rule 58 of the KVAT Rules. The requirement of maintaining accounts for each godown, if there is more than one godown for keeping his stock, is also mandated by the said Rule. In the light of the said provisions, the Petitioner s composition of the offence of failure to keep true and correct accounts virtually amounted to an admission by it of the fact that it had not kept true and correct accounts in respect of the stock in its undeclared godowns. - Petitioner cannot be permitted to go back on the admission that formed the basis of the acceptance by the State of his application for compounding under Section 74 of the Act. Accordingly, we find that the Petitioner could not have availed the appellate remedy under Section 55 of the Act against Annexure-B order of the Intelligence officer and the finding of the Appellate Tribunal that holds so is legally un-assailable. Resultantly, we see no reason to interfere with Annexure-D order of the Appellate Tribunal - Decided against assessee.

Issues Involved:
1. Non-declaration of godowns.
2. Variation in stock.
3. Un-accounted sales.
4. Compounding of offences under Section 74 of the Kerala Value Added Tax Act.
5. Appeal rights under Section 55 of the Kerala Value Added Tax Act.

Issue-Wise Detailed Analysis:

1. Non-declaration of godowns:
The Petitioner, an assessee under the Kerala Value Added Tax Act, was found to have not declared two godowns during an inspection by the Intelligence Wing of the Commercial Taxes department. This non-declaration was considered a contravention of Section 40 of the Act, which mandates maintaining true and complete accounts.

2. Variation in stock:
During the inspection, a variation in stock valued at Rs. 8,294 with a tax effect of Rs. 1,037 was detected. This discrepancy highlighted the Petitioner's failure to maintain accurate stock records, which is a requirement under the Act.

3. Un-accounted sales:
The inspection also revealed un-accounted sales worth Rs. 32,823, resulting in a tax effect of Rs. 4,103. This further indicated the Petitioner's failure to keep accurate accounts as required by the Act.

4. Compounding of offences under Section 74:
The Petitioner opted to compound the offences under Section 74 of the Act, which allows for the settlement of offences by paying a compounding fee instead of undergoing a formal adjudication process. The Intelligence Officer determined the tax payable as Rs. 1,52,000 and the compounding fee as Rs. 1,52,000.

5. Appeal rights under Section 55:
The Petitioner challenged the compounding order before the Appellate Authority, which rejected the appeal. Subsequently, the Petitioner appealed to the Appellate Tribunal, which also dismissed the appeal. The Tribunal held that once an offence is compounded under Section 74, the order permitting compounding cannot be challenged under Section 55. The Tribunal referenced the decision in Sreesastha Trading Company v. State of Kerala and Others-1992 (1) KTR 74 to support its decision.

Detailed Analysis:

Compounding of Offences:
The Petitioner chose to compound the offences, which involves admitting the commission of the offence and paying a fee to avoid further penalty or prosecution. The Appellate Tribunal emphasized that by opting for compounding, the Petitioner admitted to the offences and therefore could not later challenge the order on the grounds of incorrect quantification of the compounding fee. The Tribunal noted that compounding is a contractual agreement between the assessee and the state, where the assessee avoids adjudication in exchange for a fee.

Appeal Rights:
The Tribunal found that an order under Section 74 is not expressly excluded from appeal under Section 55. However, it determined that the very nature of a compounding order, which is based on the assessee's admission of the offence, precludes it from being appealed. The Tribunal held that the scheme of composition does not allow an assessee to approbate and reprobate, meaning they cannot accept the benefits of compounding and then challenge it.

Quantification of Compounding Fee:
The Petitioner argued that the compounding fee was incorrectly quantified, claiming that the turnover related to the undeclared godowns was already accounted for in the books. The Tribunal rejected this argument, stating that the offence was the failure to keep true and correct accounts, not the evasion of tax. The admission of this offence was the basis for the compounding, and the Petitioner could not contest this admission.

Conclusion:
The Tribunal concluded that the Petitioner could not avail the appellate remedy under Section 55 against the compounding order. The appeal was dismissed, and the Tribunal's decision was upheld, confirming that the Petitioner could not challenge the compounding fee after admitting to the offences. The OT Revision was dismissed without any order as to costs.

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