Allowed

State of Kerala v. M/S.Shalimar Jewellary

Kerala HC10 Feb 2021OT.Rev/185/2016

Case brief

AI extract

What is this about?

The High Court allowed the revenue's revision petition against the VAT Tribunal. It held that best judgment assessment under Section 22(10) is permissible even for suppression detected prior to filing a revised return if it indicates a pattern. The Court reduced the addition of two times turnover to one time.

What did the court decide?

Revision petition allowed; addition of twice the turnover reduced to one time addition for both heads.

State of Kerala Vs M/S.Shalimar Jewellary — GST and Indirect Tax | Kerala HC (2021)

¶1

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶2

PRESENT

¶3

THE HONOURABLE MR.JUSTICE S.V.BHATTI

¶4

¶5

THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS

¶6

WEDNESDAY, THE 10TH DAY OF FEBRUARY 2021 / 21ST MAGHA,1942

¶7

OT.Rev.No.185 OF 2016

¶8

AGAINST THE ORDER IN TA(VAT) 190/2014 DATED 27-01-2016 OF KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM

¶9

REVISION PETITIONER/RESPONDENT/RESPONDENT/REVENUE:

¶10

STATE OF KERALA REPRESENTED BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM.

¶11

SRI.SHAMSUDHEEN V.K., GOVT. PLEADER

¶12

RESPONDENT/RESPONDENT/ASSESSEE:

¶13

M/S.SHALIMAR JEWELLARY, BROADWAY, ERNAKULAM-682 031.

¶14

BY ADV. SRI.P.S.SOMAN

¶15

THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 10.02.2021, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

-:2:-

O.T.(Rev.) No.185/16

ORDER

Dated this the 10^th day of February, 2021

¶20

Bechu Kurian Thomas, J.

¶21

The Sales Tax Appellate Tribunal, by the impugned order, allowed the appeal filed by the assessee and set aside the addition of two times of the turnover for alleged suppression. Aggrieved by the same, the revenue has come up in revision.

¶22

The issue arises from the assessment year 2011-12. On detection of suppressed purchases, the assessee compounded the offence under Section 74 of the Kerala Value Added Tax Act, 2003 (for short 'the Act') and filed a revised return under Section 22(10) of the Act. The assessing officer on detecting suppression for the months of May, 2011, June, 2011 and March, 2012, rejected the self assessment of the assessee and carried out the best judgment assessment, as enjoined under the proviso to Section 22(10) of the Act. For the probable omission and suppression, the assessing officer ordered an addition of three times the turnover under two

¶23

O.T.(Rev.) No.185/16 -:3:-

¶24

heads apart from a lumpsum addition. On appeal, by the assessee, the appellate authority upheld the best judgment assessment but found the addition of three times under the two heads as excessive and reduced it to twice the turnover and directed deletion of the lumpsum addition. Still aggrieved, the assessee preferred Second Appeal before the Appellate Tribunal. By the impugned order, the Tribunal allowed the appeal, after finding that the reopening of assessment provided under Section 22(10) of the Act was impossible since in the absence of detecting a pattern of suppression such an assessment cannot be carried out. This revision arises from the aforesaid set of facts.

¶25

In view of the above factual situation, the following questions of law arise for consideration:

¶26

(i) Whether any addition for probable omission and suppression is permissible under law, if the offence had been compounded and the assessee filed a revised return?

¶27

(ii) Whether filing of revised return under Section 22(2) of the Act will absolve the assessee from all further additions during assessment?

¶28

(iii) Whether on account of admission of the offences and consequent compounding, the assessing authority is barred from considering the quantum of suppression detected under Section 22(10) of the Act?

¶29

-:4:-

¶30

O.T.(Rev.) No.185/16

¶31

Though, we need not delve deeper into the facts of the case, except to observe that after the filing of the revised return, the assessing officer resorted to best judgment assessment due to the suppression deleted for the months of May 2011, June 2011 and March 2012 during the same financial year. Once the assessing officer noticed suppression for different months of different quarters of the same financial year, it is certainly a case of pattern of suppression.

¶32

Section 22(10) of the Act deals with instances where, after finalisation of proceedings under Section 74 of the Act, assessee files a revised return, the assessment for the return period shall be deemed to have been completed subject to Sections 24 and 25 of the Act. However, the proviso to Section carves out an exception enabling the assessing officer to proceed with best judgment assessment in spite of payment of compounding fee under Section 74 of the Act and filing of a revised return. The said exception arises when a pattern of suppression is detected by the assessing authority. For the purpose of easier reference, Section 22(10) of the Act is extracted below:

¶33

-:5:-

¶34

O.T.(Rev.) No.185/16

¶35

“22. Assessment in case of non-filing of return and filing of defective return.-

¶36

(10) Where the proceedings referred to in the above subsection are finalised under section 74 on payment of tax due along with the compounding fee, the dealer may thereafter file a revised return incorporating such turnover covered in such proceedings within a period of three months from the finalisation of such proceedings and on the receipt of such return by the assessing authority, the assessment for the return period or periods shall, subject to the provisions of sections 24 and 25, be deemed to have been completed:

¶37

Provided that where a pattern of suppression is detected the assessing authority shall proceed with best judgment assessment in accordance with the provisions of sections 24 and 25, as the case may be.”

¶38

A reading of the above proviso clearly evinces that if the assessing officer detects pattern of suppression, then, it is certainly within the realm of his authority to indulge in a best judgment assessment under Section 24 or 25 of the Act.

¶39

In this context, the learned counsel for the assessee vehemently contended that the pattern of suppression detected must be after the revised return is filed and not on the basis of any suppression detected prior to the filing of the revised return. The learned Government Pleader invited our attention to the observations of a Division Bench of this Court in the order in R.P. No.1101 of 2018 in O.T.Rev. No.224 of 2014, wherein the very same issue was considered and it was held that if the proviso is interpreted to mean

¶40

-:6:-

¶41

O.T.(Rev.) No.185/16

¶42

that the same will have application only if a further suppression is detected, the same would render the proviso to Section 22(10) of the

¶43

Act as redundant and otiose. The following observations are relevant:

¶44

“3. It is the submission of the learned counsel that the return having been filed and the tax with respect to the suppressed turnover having been satisfied with interest; the provision under sub-section (10) of Section 22 deems it to be a regular assessment and then there could be no further estimation made, based on the aforesaid suppression detected.

¶45

5. We are of the opinion that if we accept the contention of the learned counsel for the review petitioner, then the proviso to sub-section (10) would be rendered redundant and otiose. However, the learned counsel would submit that the proviso will have application only if a further suppression is detected. We cannot agree. If a further suppression is detected, then there is absolutely no need to make an estimation so as to bring such turnover for assessment. Any suppression detected could be added on and an estimation is warranted only when there is a best judgment assessment proposed which has to have a reasonable nexus with the detected offence.”

¶46

We are in complete agreement with the above observations. For the application of the proviso to Section 22(10) of the Act, it is not necessary to detect a further suppression after the filing of the revised return. If the pattern of suppression was evident even prior to the filing of revised return, even though the assessee had filed the return under the sub-section and had also paid up the tax and the interest due simultaneous to the payment of the compounding fee, still, best judgment assessment can be resorted

¶47

O.T.(Rev.) No.185/16

¶48

-:7:-

¶49

to. In view of the above, the contention of the assessee that once a revised return is filed in the absence of a further suppression detected, the best judgment assessment cannot be resorted to, is only to be rejected.

¶50

The learned counsel for the assessee further contended that the proviso to Section 22(10) of the Act specifically uses a term 'pattern of suppression' and such a satisfaction having not been specified in the order of the assessing authority, while resorting to a best judgment assessment.

¶51

A perusal of the order of the assessing authority in the instant case reveals that he had specifically mentioned the suppression detected by him for different months of different quarters of the same financial year, which in fact is a reflection of the satisfaction of the pattern of suppression noticed by him. The notice proposing to carry out best judgment assessment also mentions about the pattern of suppression detected. In such circumstances, we are of the view that when the notice for assessment as well as the assessment order reflects the pattern of suppression noticed by the assessing officer, absence of the words 'pattern of suppression' in the assessment order does not render the assessment order as

¶52

-:8:-

¶53

O.T.(Rev.) No.185/16

¶54

illegal. Even though it would have been ideal on the part of the assessing officers to specify in the assessment order the detection of the pattern of suppression by employing those words, in the instant case absence of such words does not by itself erode the validity of the assessment order, since the pattern of suppression is clearly evident from the order itself.

¶55

The learned counsel for the assessee further argued that on account of the amendment introduced by the legislature as per Section 25AA of the Act, the addition of turnover must be limited to 50%. A reading of Section 25AA brought in by Amendment Act of 2019 (Act 5 of 2019), it is clear that the amendment has only prospective effect and does not apply for assessments already completed. In such circumstances, we reject the said contention.

¶56

Taking note of the entire circumstances that arise in the case and the nature of suppression detected, we are of the view that the addition of twice the amount of turnover is excessive and on the other hand an addition of one time would suffice in the instant case.

¶57

Accordingly, in the peculiar facts and circumstances of the case and having regard to the reasonable omission noted by the assessing officer, while reversing the order of the Tribunal, we are of

¶58

-:9:-

¶59

O.T.(Rev.) No.185/16

¶60

the view that instead of the addition of two times for the alleged suppression fixed by the first appellate authority, a one time addition is ordered for both the heads. The questions of law raised are

¶61

answered as above.

¶62

The revision petition is allowed as above.

¶63

Sd/- S.V.BHATTI JUDGE

¶64

Sd/- BECHU KURIAN THOMAS JUDGE

vps

-:10:-

O.T.(Rev.) No.185/16

APPENDIX

PETITIONER'S/S EXHIBITS:

¶70

ANNEXURE A A TRUE COPY OF THE ASSESSMENT ORDER DATED 6.9.2013 PASSED BY THE ASSESSING AUTHORITY FOR THE ASSESSMENT YEAR 201112.

¶71

ANNEXURE B A TRUE COPY OF THE ORDER DATED 2.1.2014 IN KVATA 3245/2013.

¶72

ANNEXURE C CERTIFIED COPY OF THE ORDER OF THE TRIBUNAL IN T.A.(VAT) NO. 190/2014 DATED 27.1.2016

¶73

RESPONDENT'S/S EXHIBITS:

¶74

NIL

State of Kerala v. M/S.Shalimar Jewellary

Case brief

What is this about?

What did the court decide?

State of Kerala v. M/S.Shalimar Jewellary

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

The Principal Commissioner of Income Tax Vs M/S.Hosdurg Service Co-Operative Bank Ltd.

The Principal Commissioner of Income Tax Vs M/S.Feroke Service Co-Operative

The Principal Commissioner of Income Tax, Vs M/S.Hosdurg Service Co-Operative Bank Ltd.

Smt.T.C.Usha,Kollam Vs the Commissioner of Income Tax Tvm

M/S Traco Cable Company Ltd. Cochin Vs the Commissioner Ofincome Tax Cochin

Odumbra Pazhaya Juma-Ath Palli Paripalana Committee Vs Masjid Taqwa Sunniya Madrassa Mahallu Committee