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TMI Blog2009 (5) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... posed. - W.P. (C.) Nos. 568 of 2009 - - - Dated:- 28-5-2009 - JOSEPH K.M. , J. K.M. JOSEPH J. Common question arises in these writ petitions and they are disposed of by a common judgment. The petitioners call in question the constitutionality of section 44(10) of the Kerala Value Added Tax Act, 2003 (hereinafter referred to as, the Act ). The petitioners have been visited with orders imposing penalty under section 44(8) of the Act. It is, at once, necessary to extract the aforesaid provisions: 44. Power to order production of accounts and powers of entry, inspection, etc. (1) to (7) ... (8) If any officer, while inspecting any place of business under subsection (2) or searching any place under sub-section (3) finds therein any goods not accounted for by the dealer in his accounts and other records required under section 40 to be kept and maintained by him, such officer may, after giving the dealer a reasonable opportunity of being heard, by order, direct the payment of a penalty, not exceeding fifty per cent of the value of the goods not accounted for, as may be fixed by such officer. ... (10) If any officer, in the course of any inspection or search of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to invoke section 44(8) of the Act on the strength of the goods being found at an undeclared godown. It is pointed out that section 44(8) provides for imposition of penalty. It has penal consequences. It may be true that section 44(10) provides for a presumption that the goods found at an undeclared godown are to be treated as not being accounted. It is nothing more, nor nothing less. There is no scope for extending the purport of section 44(10) further and to read it in conjunction with the power under section 44(8), it is contended. It is further contended that the goods are all accounted. It so happened that they were located in the godowns which are undeclared. However, it is complained that penalty has been imposed at the maximum rate, namely, at fifty per cent of the value of the goods which comes to a huge amount. It is contended that if it is to be treated as the law that in respect of goods found at an undeclared godown, there is to be no discretion in the matter of imposition of penalty and invariably, irrespective of circumstances including whether the goods are accounted otherwise, assuming that section 44(8) and (10) are to be read together and power under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age or compensation moneys are received in respect of any such building, machinery or plant as aforesaid, and the amount of such moneys exceeds the difference between the written down value and the scrap value, no amount shall be allowable under this clause and so much of the excess as does not exceed the difference between the original cost and the written down value less the scrap value, shall be deemed to be profits of the previous year in which such moneys were received ... The proviso, therefore, introduces a fiction. What is not a profit in the previous year is deemed to be a profit in that year. The previous year is that year in which such moneys were received. The fiction is an indivisible one. It cannot be enlarged by importing another fiction, namely, that if an amount was receivable during the previous year, it must be deemed to have been received during that year. In dealing with the scope of the fiction in section 10(2)(vii), proviso 2, this court, in Commissioner of Income-tax v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) at pages 748, 751; AIR 1965 SC 1358 at pages 1362 to 1363, observed: 'Though the surplus contemplated by the proviso is not in the technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect of a State losing its legitimate income by way of tax under the Act. It is also important to notice that section 44(8) also speaks about the power to impose penalty when goods are found to be unaccounted. The language of section 44(10) is clearly patterned on the core and indispensable requirement to be found in section 44(8) as well. The mere fact that section 44(10) is not added by way of either of an Explanation to section 44(8) or as a proviso would not, in my view, militate against its functional integrity being interwoven with the power under section 44(8). The Legislature, by section 44(10), apparently intended to deal firmly with the phenomenon of tax evasion being practised by stacking away the goods at undisclosed places, the assessee intending to put it beyond the scrutiny of the official. I do not think it requires any uncalled for straining of the language or torturing out of shape of the provisions to produce the result which the learned Government Pleader commends for my acceptance. A reference to sub-section (8) would also reveal that the word place as it is contemplated in section 44(3) also includes godown. Search can be conducted at any other place other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, which is false and which he either knows to be false or does not believe to be true, such authority may direct that such person shall pay, by way of penalty, an amount not exceeding twice the amount of tax or other amount evaded or sought to be evaded where it is practicable to quantify the evasion or an amount not exceeding ten thousand rupees in any other case: Provided that the authority empowered under this section shall dispose of the case within one year from the date of detection of offence mentioned under this section except where the extension of time is granted by the Deputy Commissioner. Having regard to the scheme of the Act, the context and the purpose, the public mischief that was intended to be dealt with as also the location of the provision in question, I see no reason to agree with the learned counsel for the petitioners that there is no power to impose penalty under section 44(8) up to a maximum of fifty per cent of the value of the goods in a case where the goods are located in an undisclosed godown. I do not see how the provisions of section 44(8) become inapplicable, merely on account of the provisions of section 67. The further question which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved by the order of assessment. That the provisions aforesaid of the impugned Act are in their effect confiscatory is clear on their face. Taking the extreme case, the facts of which we have stated in the early part of this judgment, it can be illustrated that the provisions of the Act, without proposing to acquire the privately owned forests in the State of Kerala after satisfying the conditions laid down in article 31 of the Constitution, have the effect of eliminating the private owners through the machinery of the Act. The petitioner in petition 42 of 1958 has been assumed to own 25 thousand acres of forest land. The liability under the Act would thus amount to Rs. 50,000 a year, as already demanded from the petitioner on the basis of the provisional assessment under the provisions of section 5A. The petitioner is making an income of Rs. 3,100 per year out of the forests. Besides, the liability of Rs. 50,000 as aforesaid, the petitioner has to pay a levy of Rs. 4,000 on the surveyed portions of the said forest. Hence, his liability for taxation in respect of his forest land amounts to Rs. 54,000 whereas his annual income for the time being is only Rs. 3,100 without maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is not even prepared to intimate the location where he is storing the goods which is not a declared godown, then, he cannot be heard to urge that the provision is arbitrary or unreasonable. As already noticed, allowing stacking of goods in undisclosed locations, effectively curbs the powers of the authorities to collect the revenue due to the State. The proviso in section 44(10) is a safeguard against it being enforced against honest assessees. No doubt, in St. Michael's Oil Mills v. State of Kerala [1988] 68 STC 360 (Ker), the question arose under section 28(8) of the KGST Act, 1963. It corresponds to section 44(8) of the Act. Therein, the court has held as follows: (page 362) 4. We see force in the said plea. The first respondent-Intelligence Officer is a quasi-judicial authority. Penalty proceeding is a quasicriminal proceeding in character. In imposing the penalty under section 28(8) of the Act, the officer has to act judicially. He should act fairly and in accordance with the principles of natural justice. He is duty bound to apply his mind to the facts of the case. He cannot act arbitrarily or mechanically. The section states that the maximum penalty leviabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission or any authorized official in any proceedings under this Act'. There is a proviso to sub-section (4) which says that for the purpose of enabling the person whose case or points in whose case is or are being investigated to rebut any evidence brought on the record against him, he shall, on application made in this behalf and on payment of such fees as may be prescribed by rules, be furnished with certified copies of documents, statements, papers and materials brought on the record by the Commission. This little mercy shown to the person whose case is being investigated by the Commission is no substitute for the fullest right of inspection which under ordinary law and the Code of Civil Procedure and in a judicial proceeding a person would have in order to meet the case made against him. He is entitled only to get copies of that portion of the materials which is brought on the record and which is going to be used against him and it is clear that portions of the material which are in his favour and which have not been brought on the record may not be available to him at all. He is not even entitled to see all the books of account which may have been impounded under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tamp duty for reference to the Collector under section 47A. Therein, the court, inter alia, held as follows: 68. As regards fiscal or tax measures greater latitude is given to such statutes than to other statutes. Thus in the Constitution Bench decision of this court in R.K. Garg v. Union of India [1982] 133 ITR 239 (SC); [1981] 4 SCC 675; [1982] SCC (Tax) 30; [1981] Indian SC 372 (vide para 8) this court observed: (pages 690-691 of SCC) 'Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities or abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the Legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues.' ... 99.. In view of the fact that the impugned amendment is an economic measure, whose aim is to plug the loopholes and secure speedy realization of stamp duty, we are of the opinion that the said amendment, being an economic measure, cannot be said to be unconstitutional. The learned Government Pleader also drew support from the decision of the apex court in Assistant Commercial Taxes Officer v. Bajaj Electricals Ltd. [2008] 18 VST 436. Therein, the court, inter alia, was concerned with the question whether section 78(5) of the Rajasthan Sales Tax Act, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the legislation cannot be treated as violative of article 14 of the Constitution by reason of any subsequent happening or event... But, merely because it works hardship on some persons on whom the legislation acts, it cannot be said to be violative of article 14 of the Constitution. The learned Government Pleader also relied on the decision of the apex court in Ashok Leyland Ltd. v. State of Tamil Nadu [2004] 134 STC 473; [2004] 2 RC 249; [2004] 3 SCC 1. Therein, the court dealing with the question of the purpose and object of a legal fiction, held as follows: (paras 54 and 55 at pages 507-508 of STC) 71. In Bhavnagar University v. Palitana Sugar Mill (P) Ltd. [2002] Indlaw SC 1454; [2003] 2 SCC 111 at page 123, it was stated that the purpose and object of creating a legal fiction in the statute is well known. But, when a legal fiction is created, it must be given its full effect. It was held in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587 (HL); [1951] Indlaw HL 3: 'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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