2018 (10) TMI 517 - HC - VAT and Sales Tax

Law of estoppel - levy of penalty twice the rate - excess stock found during investigation - Whether the Inspecting Authority was justified in invoking the provision of Section 77 (2) of KVAT Act, 2003 and Sub Section 1(J) of Section 52 of KVAT Act, 2003, under the facts and circumstances of the case? Held that - The material on record clearly depicts that though the Inspecting Authority issued notice under the provision of Section 77(2) of the KVAT Act, 2003, the appellant who was present at the time of spot inspection did not rise any objections with regard to unaccountable stock found in the premises of the factory and also did not provide any circumstantial reasons for the same and rightly paid the levied penalty - Once the appellant issued cheque for entire amount, the appeal before the appellate authority was not maintainable in view of the law of estoppel, it was unethical for the appellant to file appeal. The Appellate Authority without verifying the original records, proceeded to pass erroneous order. Therefore, penalty imposed under Section 77(2) of KVAT Act, 2003 is in accordance with law - the order passed by the Revisional Authority, the same is in accordance with law. Accordingly, the substantial question of law raised in the present appeal has to be answered in affirmative holding that the Inspecting Authority was justified in invoking the provisions of Section 77(2) of KVAT Act, 2003 and Sub Section 1(J) of Section 52 of KVAT Act, 2003. As soon as notice issued under Section 77(2) of KVAT Act, 2003, immediately seven days time has to be given, but in the present case, notice issued under Section 77(2) of KVAT Act, 2003 to the appellant and he did not filed any objection, nor disputed the contents of the notice and the appellant was ready and willing to pay the penalty and accordingly, paid the penalty levied. Therefore, the contention raised by the learned counsel for the appellant that, there is no proper verification and absolutely, there was no unaccountable stock in the factory premises cannot be accepted. The appellant has not made out any ground to interfere with the impugned order passed by the Revisional Authority by this Court in exercise of power under the provisions of Section 66(1) of the Karnataka Value Added Tax Act, 2003 - appeal dismissed.

Issues Involved:
1. Justification of invoking Section 77(2) of the KVAT Act, 2003.
2. Adherence to the principles of natural justice.
3. Validity of the penalty imposed.
4. Legality of the appellate and revisional orders.
5. Applicability of precedents cited by the appellant.

Issue-wise Detailed Analysis:

1. Justification of invoking Section 77(2) of the KVAT Act, 2003:
The court examined whether the Inspecting Authority was justified in invoking Section 77(2) of the KVAT Act, 2003. The appellant's manufacturing unit was inspected, and an excess stock of Star Gutkha was found, which was not accounted for in the books. The Inspecting Authority issued a notice under Section 77(2) proposing a penalty for the unaccounted stock. The appellant admitted to the excess stock and agreed to pay the penalty. The court upheld the penalty, stating that the Inspecting Authority was justified in invoking the provisions of Section 77(2).

2. Adherence to the principles of natural justice:
The appellant contended that the penalty order was issued without affording a reasonable opportunity to be heard, violating the principles of natural justice. The court noted that the appellant was present during the inspection, did not raise any objections, and voluntarily agreed to pay the penalty. The court found no violation of natural justice principles as the appellant had admitted to the unaccounted stock and agreed to the penalty.

3. Validity of the penalty imposed:
The court analyzed whether the penalty imposed was valid. The appellant argued that the penalty was based on an approximate stock-taking method and that the Inspecting Authority did not follow proper procedures. The court found that the appellant admitted to the excess stock and agreed to pay the penalty. The court held that the penalty was valid and in accordance with the law, as the appellant had voluntarily admitted to the unaccounted stock and paid the penalty.

4. Legality of the appellate and revisional orders:
The court examined the legality of the orders passed by the Appellate and Revisional Authorities. The Appellate Authority had set aside the penalty order, but the Revisional Authority reinstated it. The court found that the Appellate Authority had not considered the material on record and allowed the appeal based on vague and general presumptions. The Revisional Authority, on the other hand, had exercised its power correctly and reinstated the penalty order. The court upheld the Revisional Authority's order, stating that it was in accordance with the law.

5. Applicability of precedents cited by the appellant:
The appellant relied on several precedents to support their case. The court reviewed these precedents and found that they were not applicable to the facts and circumstances of the present case. The court noted that the appellant had admitted to the unaccounted stock and agreed to pay the penalty, which distinguished the present case from the cited precedents.

Conclusion:
The court dismissed the appeal, upholding the penalty imposed by the Inspecting Authority and reinstated by the Revisional Authority. The court found that the Inspecting Authority was justified in invoking Section 77(2) of the KVAT Act, 2003, and that there was no violation of the principles of natural justice. The penalty was valid, and the Revisional Authority had correctly exercised its power to reinstate the penalty order. The precedents cited by the appellant were not applicable to the present case.

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