Bhima Enterprises Vs Deputy Commissioner-1 (Kerala High Court)
The Kerala High Court considered two connected writ petitions filed by an assessee engaged in the business of trading in gold jewellery and registered under the KVAT Act, 2003, the CST Act, 1956, and the CGST/SGST Acts. The dispute related to the assessment year 2017–18, specifically the months of April, May, and June 2017. The petitioner stated that certain inward and outward stock transfer transactions had been inadvertently omitted while filing returns and therefore submitted an application seeking permission to revise the returns.
The Assessing Authority rejected the revision application through proceedings dated 04.02.2021 on the sole ground that the petitioner’s books of account had not been audited under Section 42 of the Act. The petitioner challenged this rejection order as well as the consequential pre-assessment notice issued under Section 25(1) of the KVAT Act.
The second writ petition arose from proceedings initiated under the GST Act. The CGST Assessing Authority issued notices alleging that the petitioner had effected stock transfers of goods outside the State without material to establish that the goods had subsequently been brought back to Kerala. Based on this adverse presumption, notices and consequential orders were issued. The petitioner contended that if the request for revision of the earlier KVAT returns were accepted, the GST proceedings would also require reconsideration.
The principal issue before the Court in the first writ petition was whether the Assessing Authority was justified in rejecting the petitioner’s request for revision of returns solely because the audit contemplated under Section 42 of the KVAT Act had not been conducted.KVA
The Court observed that although Section 42 enables revision of returns based on an audit report subject to the prescribed time limit, the petitioner had sought revision independently of the audit. The Court held that the relevant consideration was whether the request for revision had been made after initiation of proceedings by the Assessing Authority on the very issue highlighted in the revision application. The Court noted that the first notice issued to the petitioner under Section 25(1) read with Section 25AA of the KVAT Act was dated 30.12.2019 and related to the stock transfers for April to June 2017, whereas the application for revision had been submitted on 28.12.2020.
The Court referred to an earlier judgment in W.P.(C) No.22147 of 2017, wherein a learned Single Judge had held that a request for revision made before initiation of assessment or penalty proceedings should be accepted. The Court also referred to the Division Bench judgment in Commercial Tax Officer – I and Another v. C.R. Varghese [2018 (3) KLT 468], which dismissed the appeal against that judgment and observed that the Department has a duty to rise above a mediocre mindset and should not function merely as a facilitator of finance.
The Government Pleader referred to proceedings dated 11.04.2018 under Section 47(6) of the KVAT Act imposing a penalty of ₹29,20,000 under Section 47. The Court noted that these proceedings had not been referred to in the respondents’ counter affidavit or in the assessment notice. It further observed that the penalty proceedings related to transportation of gold jewellery allegedly unsupported by the required statutory documents and held that those proceedings could not constitute a valid ground for rejecting the petitioner’s request for revision of returns.
The respondents also relied upon proceedings arising from a registered crime. The Court found that those proceedings related to the assessment year 2016–17 and therefore had no bearing on the petitioner’s request for revision for the subsequent assessment year 2017–18.
Accordingly, the Court held that the order rejecting the revision application required to be set aside. It directed that the application for revision of returns be considered and disposed of by the Assessing Authority and ordered that the pre-assessment notice issued under Section 25(1) of the KVAT Act be kept on hold until the revision application was decided.
With respect to the second writ petition, the Court observed that the GST proceedings, including the impugned notices and consequential orders, were an offshoot of the same transactions relating to April to June 2017 and were based on an adverse inference regarding stock transfers. Since the Court had directed acceptance of the petitioner’s request for revision of returns in the first writ petition, it held that the consequential GST orders also required to be set aside.
The High Court therefore disposed of W.P.(C) No.14377 of 2022 by setting aside the rejection order and directing consideration of the revision application. It also allowed W.P.(C) No.10098 of 2024, set aside the impugned GST orders, and clarified that the respondents would be entitled to proceed against the petitioner under the GST Act depending upon the outcome of the return revision proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner in these two writ petitions is engaged in the business of trading in gold jewellery and is an assessee under the provisions of the KVAT Act, 2003, as well as the CST Act, 1956. The petitioner has also obtained registration under the provisions of the CGST/SGST Act after the enactment of introduction of the Goods and Services Tax (GST) regime in the State.
2. The dispute in these two writ petitions essentially pertains to the assessment year 2017–18, specifically for the months of April, May and June, 2017. The petitioner states that, while filing the returns for the aforesaid period, it omitted to include certain stock transfer inward and outward transactions. Consequently, the petitioner submitted Ext. P1 application before the 1st respondent – Assessing Authority, seeking permission to revise the returns filed.
3. By Ext.P4 proceedings dated 04.02.2021, the 1st respondent has thought it fit to reject the application submitted as above, essentially stating that the petitioner’s books of account have not been audited, as mandated under Section 42 of the KVAT Act. It is seeking to challenge Ext.P4 proceedings issued by the 1st respondent as well as the pre-assessment notice issued under Section 25(1) of the KVAT Act for the afore period, as evidenced by Ext.P5, that the petitioner has filed W.P.(C) No.14377 of 2022.
4. The challenge in W.P.(C) No. 10098 of 2024 appears to be an offshoot of the issues raised in W.P.(C) No. 14377 of 2022. In the said writ petition, the Assessing Authority under the CGST Act has initiated proceedings against the petitioner by issuing Exts.P7 and P8 notices, alleging that the petitioner had effected stock transfers of various goods outside the State and that there is no material to establish that the said goods were subsequently brought back to Kerala. On that premise, the assessing authority has drawn an adverse presumption against the petitioner and issued the impugned notices at Exts.P7 and P8. The petitioner challenges Exts.P7 and P8, as well as Exts.P9 and P10, consequential orders passed pursuant thereto, contending that, if its request for revision of the returns for the earlier period is allowed, the impugned notices and the consequential orders would also require reconsideration by the Assessing Authority. It is in the above circumstances that W.P.(C) No. 10098 of 2024 has been filed.
5. I have heard Sri. A. Kumar, the learned Senior Counsel instructed by Smt. G. Mini, the learned Counsel for the petitioner, as well as Smt. Harima Hariharan, the learned Government Pleader for the respondents herein.
6. The short issue that arises for consideration in W.P.(C) No. 14377 of 2022 is whether Ext.P4 proceedings issued by the Assessing Authority rejecting the petitioner’s request for revision of returns can be sustained or not. As already noticed, the petitioner submitted Ext.P1 application on 28.12.2020 pointing out that certain stock transfer inward and outward transactions for the period from April to June 2017 had inadvertently been omitted from the returns filed for the said period and, therefore, sought permission to revise the returns.
7. However, the sole ground stated in Ext. P4 for rejecting the application is that the audit contemplated under Section 42 of the KVAT Act had not been conducted. It is true that Section 42 enables an assessee to seek revision of the returns on the basis of the audit report, subject to the time limit prescribed under sub-section (3) thereof.
8. However, in the case at hand, the petitioner has sought revision de hors the audit with respect to the books of account for the period 2017–18. In such circumstances, the only question that arises for consideration is as to whether the request for revision was made after the initiation of proceedings by the Assessing Authority against the petitioner on the very same ground highlighted in the application seeking revision of the return. This Court notices that the first notice issued to the petitioner was the one at Ext.P5, dated 30.12.2019, issued under Section 25(1) read with Section 25AA of the KVAT Act for the assessment year in question. This Court further notices that the proposal contained in the aforesaid notice is also with reference to the stock transfers involved during the period from April to June, 2017.
9. In this regard, reference may also be made to the judgment of this Court in W.P.(C) No.22147 of 2017, wherein a learned Single Judge of this Court, while considering an almost similar situation, held that where a request for revision is made even before the initiation of assessment or penalty proceedings, such request is to be accepted. Though the Revenue preferred an appeal against the said judgment, the Division Bench of this Court in Commercial Tax Officer – I and Another v. C.R. Varghese [2018 (3) KLT 468], dismissed the appeal. While doing so, the Division Bench also observed that the Department has a duty to rise above a mediocre mindset and should not become merely a facilitator of finance alone.
10. In the light of the above, I am of the opinion that the request for revision of the return made by the petitioner ought to have been accepted.
11. At this juncture, this Court also notices the submission made by Smt. Harima, the learned Government Pleader, with reference to the proceedings dated 11.04.2018 initiated under Section 47(6) of the Act, whereby a penalty of ₹29,20,000/- has been imposed under Section 47 of the Act. The afore order, has not been referred to in the counter affidavit filed by the respondents. This Court further notices that even in the notice issued at Ext.P5 proposing assessment, the aforesaid proceedings have not been referred to. A reading of the aforesaid order would show that it pertains to the transportation of certain gold jewellery allegedly not supported by the documents required under the statute. In my opinion, this cannot constitute a valid ground for rejecting the petitioner’s request for revision of the return, for the reasons already noticed.
12. True, in the counter affidavit filed by the respondents in W.P.(C) No.10098 of 2024, reference is made to proceedings initiated against the petitioner on the basis of a crime registered. However, a perusal of the averments contained in paragraph 4 of the said counter affidavit makes it clear that the proceedings relate to the assessment year 2016–17, as is evident from the crime number referred to therein. Consequently, the said proceedings have no bearing on the petitioner’s request for revision of the return for the subsequent assessment year (2017- 18).
13. Therefore, I am of the opinion that the impugned order at Ext.P4 in W.P.(C) No.14377 of 2022 requires to be set aside. In view of the above, the notice at Ext.P5 shall be kept on hold until the application for revision of the return submitted by the petitioner, as evidenced by Ext. P1, is considered and disposed of by the Assessing Authority.
14. Accordingly, W.P.(C) No. 14377 of 2022 would stand disposed of as above.
15. As already noticed, the proceedings initiated pursuant to Exts.P7 and P8 notices, as well as the orders at Exts. P9 and P10 in W.P.(C) No.10098 of 2024, are an offshoot of the transactions relating to the earlier months of the assessment year 2017–18. The proceedings have been initiated by drawing an adverse inference against the petitioner on the ground that certain gold jewellery sent outside had not been received back. Inasmuch as the petitioner’s request for revision of the return for the period from April to June, 2017 has been directed to be accepted by this judgment in W.P.(C) No. 14377 of 2022, I am of the opinion that the impugned orders at Exts.P9 and P10, which are the subject matter of W.P.(C) No.10098 of 2024, also requires to be set aside.
16. Hence, W.P.(C) No.10098 of 2024 would also stand allowed. Exts.P9 and P10 orders issued are set aside. However, it is made clear that the respondents would be entitled to proceed against the petitioner under the GST Act, depending on the outcome of the return revision allowed pursuant to W.P.(C) No.14377 of 2022.
