Case Law Details
Bhima Enterprises Vs State Tax Officer (Kerala High Court)
‘ERROR APPARENT ON THE FACE OF THE RECORD’ IN A TAXING STATUTE – SHOULD BE AN ERROR SELF-EVIDENT – HIGH COURT OF KERALA
The Hon’ble High Court of Kerala held in M/s. Bhima Enterprises Vs. State Tax Officer (Investigation Branch) & Anr (WP(C) No. 28526 of 2021), Dated 3rd March, 2022 that error apparent on the face of the record’ implies an error which can be established not by a long drawn process of reasoning on points having two opinions. It should be an error self-evident which can be established without having any lengthy and complicated arguments.
Facts of the case
The petitioner was an assessee under the erstwhile Kerala Value Added Tax Act,2003 (KVAT Act for brevity) and for the assessment year 2016-17, an order of penalty U/s. 67(1) of the said Act was passed against the petitioner. Instead of challenging the order in appeal, petitioner preferred a petition for rectification U/s. 66 of the said Act, pointing out there are certain apparent errors on the ace of the order which have to be rectified. The contentions raised in the rectification petition were that (a) though the petitioner had sought for a forensic examination of the four slips which according to the petitioner were manipulated documents having no evidentiary value and the affidavit alleging manipulation remained unrebutted were not considered by the assessing officer: (b) the penalty will not be attracted if the transaction in question was accounted and had passed through the books of accounts, as held in the decision in U.K. Monu Timbers (M/s.) v. State of Kerala (2012 (3) KHC 111) and hence there was not a single case of non-accounting of any transaction available as per records: (c) no penalty can be imposed if the job work charges collected from the client had passed through the books of account and conceded before the assessing authority and (d) binding decisions of the jurisdictional High Court and of the Supreme Court were not considered. However, the respondent officer had rejected the petition for rectification after finding that there is no reason to invoke section 66 of the Act. Aggrieved thereby, the petitioner has approached the Hon’ble High Court through the Writ petition.
Held by the Court
> Though the scope of the words ‘error apparent on the face of the record’ has not been delineated specifically, the courts have time and again appreciated the scope of those terms. One of the decisive judgments on the issue is the decision in Satyanarayan Laxminarayan Hegde and Others Mallikarjun Bhavanappa Tirumale (AIR 1960 SC 137), wherein the Supreme Court had considered the scope of the words ‘error apparent on the face of the record’ which according to the Court was essential for exercising its jurisdiction under Article 227 of the Constitution of India. It was explained in the said decision that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions, can hardly be said to be an error apparent on the face of the record. It was further observed that when the error alleged is far from self-evident and can be established, only by lengthy and complicated arguments, such an error cannot be regarded as an error apparent on the face of the record. Of course the above-mentioned decision was not under a taxing statute. However, the scope of the words ‘error apparent on the face of the record’ as explained in the above decision is seen followed by Courts consistently while interpreting even taxing statutes.
> The above finding is fortified by a line of decisions such as in K.Latex Private Limited v. State of Kerala (ILR 2007 (4) Ker 365), Kairali Ayurvedic Health Resort Pvt. Ltd. v. Commercial Tax Officer (2013 (1) KLT 99) and Deva Metal Powders (P) Ltd. v. Commissioner, Trade Tax, Uttar Pradesh [(2008) 2 SCC 439].
> When an error is not self-evident, it ceases to be an error apparent. As observed by the Courts, an error that is apparent from the record should be one which is not dependent for its discovery on elaborate arguments on questions of fact or law. An appreciation of the impugned order reveals that the same is not a cryptic order. The assessing officer has considered the various contentions raised by the assessee in the application for rectification. The correctness or otherwise of the conclusions of the assessing officer in the rectification order cannot be gone into in this jurisdiction under Article 226 of the Constitution of India. Those are matters for consideration under the statutory remedies available.
> As far as the plea regarding failure to grant an opportunity of hearing is concerned, it is evident that while filing an application for rectification, petitioner had not sought an opportunity for a hearing. The statutory prescription for grant of an opportunity of hearing is only when the rectification has the effect of enhancing an assessment or penalty. In the instant case, there is no scope for any enhancement of assessment or penalty, as the rectification application was attempted by the assessee itself. However, had the assessee sought for an opportunity of hearing, the situation could have been viewed differently. Since the assessee itself did not seek an opportunity of hearing, it cannot be said that the impugned order was issued in violation of the principles of natural justice.
> The scope of the rectification petition is considered solely to ascertain whether there is any perversity in the impugned order warranting interference under Article 226 of the Constitution of India. The observations in this judgment are not based on specific factual consideration of issues arising in the instant case. Since the petitioner has an alternative statutory remedy against the order of rectification, the observations made in this judgment shall not be treated as a finding on the merits of the rectification petition. If any statutory remedy is invoked, the same shall be considered untrammeled by any of the observations in this judgment.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner is challenging an order of rectification issued under section 66 of the Kerala Value Added Tax Act, 2003 (for short the Act). The jurisdiction of this Court under Article 226 of the Constitution is invoked alleging that the impugned order is perverse and is issued in violation of the principles of natural justice.
2. Petitioner is an assessee under the Act. For the assessment year 2016-17, an order of penalty was issued against the petitioner on 30-10-2021, imposing an amount of Rs.7,20,50,872/- as penalty under section 67(1) of the Act.
3. Instead of challenging the order of assessment in appeal, petitioner preferred a petition for rectification under section 66 of the Act, pointing out certain specific errors. The main grounds for seeking rectification of the order imposing penalty, related to the conclusion arrived at by the assessing officer and the allegation of turnover suppression based on four slips recovered from the principal place of business of the petitioner.
4. The contentions raised in the rectification petition was that (a) though the petitioner had sought for a forensic examination of the four slips which according to the petitioner were manipulated documents having no evidentiary value and the affidavit alleging manipulation remained unrebutted were not considered by the assessing officer: (b) the penalty will not be attracted if the transaction in question was accounted and had passed through the books of accounts, as held in the decision in U.K. Monu Timbers (M/s.) v. State of Kerala (2012 (3) KHC 111) and hence there was not a single case of non-accounting of any transaction available as per records: (c) no penalty can be imposed if the job work charges collected from the client had passed through the books of account and conceded before the assessing authority as turnover suppression, as per the provisions of section 67 of the Act: and (d) binding decisions of the jurisdictional High Court and of the Supreme Court were not considered, thereby rendering the order of assessment under section 67 as a non-est.
5. In this context it is pertinent to point out that in the rectification petition, the petitioner had not sought the relief of a personal hearing.
6. Thereafter by order dated 23-11-2021, the assessing officer rejected the petition for rectification after finding that there is no reason to invoke section 66 of the Act. It was held that debatable issues cannot be the cause of a rectification petition and also that the error can be established only by an argument and is therefore not a reason to invoke the power under section 66 of the Act.
7. I have heard Sri.A. Kumar, the learned counsel for the petitioner as well as Smt.M.M Jasmin, the learned Government Pleader for the respondents.
8. The learned counsel for the petitioner submitted that the assessing officer went on a totally wrong tangent in rejecting the application for rectification, that too, without granting an opportunity of hearing. It was submitted that the authority erred in failing to note that no elaborate arguments were required to establish the error and that the anomalies pointed out through the rectification petition was evident on the face of the record. The learned Counsel further submitted that the assessing officer failed to address the specific issues that were raised in the rectification petition and that the contentions raised would have substantially altered the turnover assumed by the assessing officer. Further, omission of the assessing officer to notice the contention of the petitioner that the word ‘sale’ in the four slips alleged to have been recovered was added subsequently requiring a forensic analysis without which the petitioner could not have been mulcted with any liability on the basis of suppression. It was further submitted that the income like manufacturing charges, polishing charges and purification charges could not have been treated as turnover or taxable under the Act and that the non-consideration of the specific issues raised had rendered the order totally erroneous and perverse. The assessing officer also failed to appreciate that there was in fact no discrepancy in the physical inspection of stock and the valuation was not on the basis.
9. Smt. M. M. Jasmin, the learned Government pleader on the other hand contended that the issues raised by the petitioner were not matters which could be dealt with in a rectification petition and that the scope of rectification is very limited. It was further pointed out that errors that are capable of being corrected under section 66 of the Act are those that must be evident on a mere glance at the record and not those errors which could, by a long drawn out process of reasoning, be identified. It was further pointed out that the petitioner itself had not sought any opportunity of hearing and in such circumstances, the impugned order is not open for any rectification or interference.
10. In order to appreciate the contentions raised, it is necessary to bear in mind the statutory provision dealing with the powers of rectification. Section 66 of the KVAT Act deals with the power of rectification and reads as below:
66. Power to rectify any error apparent on the face of the record.- (1) Any authority including Appellate Tribunal and Settlement Commission issuing any order or proceedings under this Act may, on application or otherwise, at any time within four years from the year in which the order is passed by it, rectify any error apparent on the face of the record:
Provided that no such rectification, which has the effect of enhancing an assessment or any penalty, shall be made unless such authority has given notice to the person affected and has allowed him a reasonable opportunity of being heard.
(2) Where such rectification has the effect of reducing an assessment or penalty, the assessing authority shall make any refund to the person entitled thereto.
(3) Where any such rectification has the effect of enhancing an assessment or penalty, the assessing authority shall give the dealer or other person, a revised notice of assessment or penalty and thereupon the provisions of this Act and the rules made thereunder shall apply as if such notice has been given in the first instance.
Explanation:-The liability to pay the tax or other amount shall arise only from the date specified in the revised notice.
11. Though the scope of the words ‘error apparent on the face of the record’ has not been delineated specifically, the courts have time and again appreciated the scope of those terms. One of the decisive judgments on the issue is the decision in Satyanarayan Laxminarayan Hegde and Others v. Mallikarjun Bhavanappa Tirumale (AIR 1960 SC 137), wherein the Supreme Court had considered the scope of the words ‘error apparent on the face of the record’ which according to the Court was essential for exercising its jurisdiction under Article 227 of the Constitution of India. It was explained in the said decision that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions, can hardly be said to be an error apparent on the face of the record. It was further observed that when the error alleged is far from self-evident and can be established, only by lengthy and complicated arguments, such an error cannot be regarded as an error apparent on the face of the record.
12. Of course the above-mentioned decision was not under a taxing statute. However, the scope of the words ‘error apparent on the face of the record’ as explained in the above decision is seen followed by Courts consistently while interpreting even taxing statutes.
13. In the decision in R.K.Latex Private Limited v. State of Kerala (ILR 2007 (4) Ker 365) while considering the power of rectification under section 43 of the Kerala General Sales Tax Act, 1963, it was held by this Court that only mistakes that are apparent on the face of the record can be corrected by the jurisdiction for rectification while an erroneous decision can be corrected only by the statutory remedy of appeals. Similarly in the decision in Kairali Ayurvedic Health Resort Pvt. Ltd. v. Commercial Tax Officer (2013 (1) KLT 99), it was held that an illegal decision cannot be corrected by invoking the power of rectification and under the guise of rectification a rehearing cannot be sought for.
14. In yet another decision of the Supreme Court reported as Deva Metal Powders (P) Ltd. v. Commissioner, Trade Tax, Uttar Pradesh [(2008) 2 SCC 439], it was held that the power of rectification does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. The following observations are relevant.
“ 9. An error apparent on the face of the record for acquiring jurisdiction to effect rectification must be such an error which may strike one on a mere looking at the record and would not require any long drawn process of reasoning. …….. An error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions can hardly be said to be an error apparent on the face of the record. Where an alleged error is far from self-evident and if it can be established, it has to be established, by lengthy and complicated arguments, such an error cannot be cured by a writ of certiorari according to the rule governing the powers of the superior Court to issue such a writ.
10 ……… The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended.”
15. Thus when an error is not self-evident, it ceases to be an error apparent. As observed by the Courts, an error that is apparent from the record should be one which is not dependent for its discovery on elaborate arguments on questions of fact or law.
16. An appreciation of the impugned order reveals that the same is not a cryptic order. The assessing officer has considered the various contentions raised by the assessee in the application for rectification. The correctness or otherwise of the conclusions of the assessing officer in the rectification order cannot be gone into in this jurisdiction under Article 226 of the Constitution of India. Those are matters for consideration under the statutory remedies available. When the view expressed by the assessing officer is plausible in the circumstances, it cannot be regarded as an order capable of being corrected under the extraordinary jurisdiction of Article 226.
17. However as far as the plea regarding failure to grant an opportunity of hearing is concerned, it is evident that while filing an application for rectification, petitioner had not sought an opportunity for a hearing. The statutory prescription for grant of an opportunity of hearing is only when the rectification has the effect of enhancing an assessment or penalty. In the instant case, there is no scope for any enhancement of assessment or penalty, as the rectification application was attempted by the assessee itself. However, had the assessee sought for an opportunity of hearing, the situation could have been viewed differently. Since the assessee itself did not seek an opportunity of hearing, it cannot be said that the impugned order was issued in violation of the principles of natural justice. In such circumstances, I do not find any reason to interfere with the impugned order.
18. The unreported decisions cited by the learned counsel for the petitioner are not applicable to the circumstances of this case. In the decision in Punj Lloyd Ltd. v. Commercial Tax Officer (W.P.(C) No.31463 of 2010), this Court had found the order under section 66 to be cryptic and could not discern any application of mind to the grounds raised and hence this Court interfered with the order under section 66 of the Act. Similarly in the decision in M/s. Favourite Constructions Private Limited. v. State of Kerala (W.P.(C) No.2804 of 2021), this Court interfered since despite a prayer requesting for a hearing on the rectification application, such an opportunity was not granted. Again in the decision in M/s. Delta Communications v. State of Kerala (W.P.(C) No.28601 of 2020), this Court set aside the order under section 66 of the Act on the ground of violation of principles of natural justice for not affording an opportunity of hearing. The said decision had not considered the nature of the statutory provision and it is not discernible whether an opportunity of hearing was requested for by the assessee in that case. The circumstances are therefore distinguishable from the facts of the present case. Yet again in the decision in M/s. Oceanus Dwellings Pvt. Ltd. v. The State Tax Officer (W.P.(C) No.33901 of 2019) also, this Court interfered with the order under section 66 of the Act, after finding that a case was made out for interference under Article 226 of the Constitution since there was no proper consideration.
19. In all the above-referred decisions, this Court had interfered with the impugned orders on facts that were peculiar therein or for not granting an opportunity of hearing even after requesting for such a hearing. In the instant case, as already mentioned, an opportunity for hearing was never requested and further, the impugned order had considered the points raised by the petitioner in the rectification application. The question whether the findings in the order declining rectification is correct or not cannot be gone into in this jurisdiction under Article 226 of the Constitution.
20. I have considered the scope of the rectification petition solely to ascertain whether there is any perversity in the impugned order warranting interference under Article 226 of the Constitution of India. The observations in this judgment are not based on specific factual consideration of issues arising in the instant case. Since the petitioner has an alternative statutory remedy against the order of rectification, the observations made in this judgment shall not be treated as a finding on the merits of the rectification petition. If any statutory remedy is invoked, the same shall be considered untrammelled by any of the observations in this judgment.
The writ petition is therefore dismissed.
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