2023 (12) TMI 671 - HC - VAT and Sales Tax

Penalty order u/s 67(1) of the Kerala Value Added Tax Act, 2003 - turn over suppression - tax evasion - this Court in exercise of the power of judicial review under Article 226 of the Constitution of India can interfere order of penalty or not - HELD THAT - It is well settled that the High Court, in exercise of power of judicial review, under Article 226 of the Constitution of India, would interfere with an order or the proceedings under a statute against which the statutory remedy of appeal etc. is provided only when the proceedings taken under provisions are ultravires, in violation of principles of natural justice, assumption of jurisdiction which is not otherwise vested in the authority or where there is infringement of fundamental rights or in clear evidence of abuse of process of law. It is also well settled that even when grounds on which the jurisdiction can be invoked by the High Court are present, it should be invoked sparingly and only when there is something which goes to the route of the matter and it would be injustice to the petitioner to relegate to alternate forum. From the facts, as narrated in the show cause notice and the order impugned, it is evident that the petitioner/assessee has not made true and correct disclosure, and there has been a pattern of untrue and incorrect returns for all the quarters for the year 2013-14 suppressing substantial volume of taxable contract receipts evading the tax. Therefore, there is little substance in the submission of the learned counsel for the petitioner that there was no deliberate suppression of the contract receipts as recorded in the impugned order - The assessment proceedings have also been completed under Section 25 of the Act for the year 2013- 2014 and a demand of Rs. 5,53,85,288/- has been issued against the petitioner. The petitioner has filed an appeal against the said order before the first appellate authority and paid 20% of the tax amount. The impugned order passed by respondent No. 1 is neither without jurisdiction nor in violation of the principles of natural justice as alleged and therefore, this Court would not like to exercise its jurisdiction under Article 226 of the Constitution of India. The petitioner's appeal against the assessment order is already pending and therefore, if the petitioner files appeal within a period of 15 days against the impugned penalty order Ext. P12 dated 30.11.2014, the appellate authority should consider the appeal on merits, without going into the question of limitation in accordance with law. Petition disposed off.

Issues Involved:
1. Legality of the penalty order under Section 67(1) of the KVAT Act.
2. Compliance with procedural requirements and principles of natural justice.
3. Applicability of compounded tax rate under Section 8 of the KVAT Act.
4. Alleged suppression of turnover and tax evasion.
5. Jurisdiction of the High Court under Article 226 of the Constitution of India.

Summary:

Issue 1: Legality of the Penalty Order
The petitioner challenged the penalty order (Ext. P12) passed under Section 67(1) of the Kerala Value Added Tax Act, 2003 (KVAT Act), which imposed a penalty of Rs. 6,06,16,380/- for tax evasion and turnover suppression for the financial year 2013-2014. The penalty was double the amount of the allegedly evaded tax.

Issue 2: Compliance with Procedural Requirements and Principles of Natural Justice
The petitioner argued that they were not afforded an opportunity of hearing, violating the principles of natural justice. However, the court found that the petitioner was given an opportunity to produce documentary evidence and filed objections, thus complying with natural justice principles.

Issue 3: Applicability of Compounded Tax Rate
The petitioner contended that they had paid VAT at the compounded rate of 3% and the maximum compounding fee of Rs. 8 lakhs, arguing that further penalty proceedings under Section 67(1) should not have been initiated. The court clarified that the option to pay tax at a compounded rate under Section 8 is not a right but an optional method subject to compliance with statutory requirements, which the petitioner failed to meet.

Issue 4: Alleged Suppression of Turnover and Tax Evasion
The Intelligence Squad found substantial turnover suppression and tax evasion during an inspection. The petitioner had not filed the required Form-49 declarations, leading to the conclusion of intentional suppression of actual receipts. The court noted that the petitioner did not make true and correct disclosures in their returns, justifying the penalty.

Issue 5: Jurisdiction of the High Court under Article 226
The court emphasized that judicial review under Article 226 should be invoked sparingly and only in cases of jurisdictional errors, violations of natural justice, or fundamental rights. The court found no such grounds in this case, as the penalty proceedings were neither without jurisdiction nor in violation of natural justice.

Conclusion
The court dismissed the writ petition, allowing the petitioner to file an appeal against the penalty order within 15 days, which the appellate authority should consider on merits without being influenced by the court's observations. The court maintained that the assessment and penalty proceedings are distinct, and the petitioner's appeal against the assessment order is already pending.

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