STATE OF KERALA vs. M/S.PUNATHIL ROLLER & FLOUR MILLS (P) LTD

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 21ST DAY OF JUNE 2019 / 31ST JYAISHTA, 1941 OT.Rev.No.27 of 2018 AGAINST THE ORDER IN T.A.(VAT)NO.249/2014 OF KERALA VALUE ADDED TAX/AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE, DATED 30-06-2016 REVISION PETITIONER/RESPONDENT/RESPONDENT/REVENUE: STATE OF KERALA BY SENIOR GOVERNMENT PLEADER SRI. V.K. SHAMSUDHEEN RESPONDENT/APPELLANT/APPELLANT/ASSESSEE: M/S.PUNATHIL ROLLER & FLOUR MILLS (P) LTD ONDEN ROAD, KANNUR, PIN-670 001. THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 21.06.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

OT.Rev.No.27 of 2018 2 C.K. ABDUL REHIM, & R. NARAYANA PISHARADI, JJ. --------------------------------------- O.T. REV. No. 27 OF 2018 ------------------------------------------- Dated this the 21st day of June, 2019. ORDER C.K.ABDUL REHIM, J. State is in revision aggrieved by an order of the Kerala Value Added Tax/Agricultural Income Tax and Sales Tax Appellate Tribunal, Additional Bench, Kozhikode in T.A.(VAT) No. 249/2014, dated 30.06.2016. Through the impugned order, the Tribunal had reversed the assessment made under Section 25 of the Kerala Value Added Tax Act, 2003 ('KVAT Act', for short) against the respondent/assessee, with respect to the year 2009- 10, which was confirmed by the Deputy Commissioner (Appeals), Commercial Taxes, Kozhikode. 2. Annual Return filed by the assessee with respect to the year concerned was rejected by the assessing authority for the reason that, discrepancy was noted in the amount of total purchase reflected in the annual return with that of the audited statement. It was

OT.Rev.No.27 of 2018 3 noticed that there was an excess of purchase turnover to the tune of Rs. 25,83,705/- reflected in the audited statement than what was returned by the assessee. The assessing authority proposed addition of Rs. 28,42,080/- to the taxable turnover, which will be taxed at 4%. The assessee objected the proposal contending that the non- accounting of the relevant purchases was only an inadvertent omission crept in due to a clerical error. But the assessing authority found that the assessee had failed to file any revised return with reconciliation statement, as stipulated under Section 42 of the KVAT Act. Therefore, the assessment proposed was confirmed and tax liability on the additional turnover at 4%, to the extent of Rs. 1,14,820/-, was assessed. 3. In the appeal filed before the Deputy Commissioner (Appeals) the order of assessment was confirmed by repelling the contentions raised by the assessee, based on the finding that the assessee had failed to prove through any documentary evidence that the materials purchased against the bills, which were not returned, has been used in production of finished goods,

OT.Rev.No.27 of 2018 4 which reflected in the accounts and in the sales turnover of the assessee. It was also found that, even at the appellate stage the assessee had failed to file a reconciliation statement conceding the difference between the returns and the accounts. 4. In the second appeal before the Tribunal, it was found that, the mistake detected was only with respect to non-returning of the purchase turnover, but not with respect to any omission in the accounts. Even if it was found that there occurred failure on the part of the assessee to file revised returns under Section 42(2) in order to rectify the mistake, along with an audited certificate, the same will make the returns only incomplete or incorrect, for which penal proceedings are provided under Section 67 of the KVAT Act. But the Department has no case that there occurred any difference in the sales turnover or there is any unaccounted sales. Therefore it was found that the mistake occurred in returning the purchase turnover had not resulted in any escapement or under-assessment. It was observed that, since the authorities have not found

OT.Rev.No.27 of 2018 5 any discrepancy in the sales figures returned, it cannot be found that there occurred any escapement of sales turnover which is taxable. Therefore it was found that the additions made cannot be sustained because of the reason that it was based only on an allegation of non returning of purchases, which reason alone is unsustainable. 5. Learned Government Pleader appearing for the revision petitioner/State contended that, when there occurred a discrepancy in returning the purchase turnover and when the assessee failed to submit a revised return as required under Section 42 of the KVAT Act, the addition made with respect to the suppressed purchase turnover was fully legal and justified. We take note of the findings of the Tribunal that, the Department has no case that the materials covered under the omitted purchase were not converted into finished goods, which was not reflected in the sales turnover and which had escaped assessment. Therefore, we perfectly agree with the findings of the Tribunal that, at the most the filing of incomplete or incorrect return might have attracted

OT.Rev.No.27 of 2018 6 penalization under Section 67 of the KVAT Act. But that alone cannot be used to make an addition in the turnover and to demand tax with respect to the sales turnover of such purchase omitted to be included in the return.

OT.Rev.No.27 of 2018 7 APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE PROCEEDINGS OF ASSISTANT COMMISSIONER (KVAT) SPECIAL CIRCLE, KANNUR DATED 1.06.2011 ANNEXURE B TRUE COPY OF THE PROCEEDINGS OF DY. COMMISSIONER (APPEALS), COMMERCIAL TAXES, KOZHIKODE DATED 23.05.2012 ANNEXURE C CERTIFIED COPY OF THE ORDER OF KVAT/AGRL. INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDL. BENCH, KOZHIKODE IN TA (VAT) NO. 249/2014 DATED 30.06.2016