Remand order upheld on the ground of violation of principles of natural justice

State of Kerala Vs Sri. P. T. Johnson (Kerala High Court)

Conclusion: In present facts of the case, the Hon’ble High Court dismissed the Revision filed by the Revenue and upheld the Orders of Tribunal where it sustained the Remand Order passed by the Deputy Commissioner (Appeals) as there was violation of principle of Natural Justice in the Original Order passed by the primary authority.

Facts: The dealer is engaged in the business of rearing Broiler Chicken Birds and its sale. The inspection of dealer’s books, by the Revenue disclosed that the dealer had undervalued the chicken for the purpose of account books and paid VAT thereon. In other words, suppression of actual sale value of chicken was resorted to resulting in evasion of tax.

The Revenue initiated proceedings under Section 67 of the Act for the assessment year 2008-09. The Revenue finally imposed penalty of Rs.3,11,39,550/- through the order dated 30.10.2012 based on undervaluation, resulted in estimation of turnover and details in the income tax returns filed by the dealer are contradictory. The dealer aggrieved by the order, filed appeal before the Deputy Commissioner (Appeals) and the Deputy Commissioner, through the order dated 29.10.2013 set aside the order dated 30.10.2012 and remanded the case to Primary Authority for disposal in accordance with law.

The Revenue filed Appeal before the KVAT against the remand order, but Tribunal upheld the remand order. The Revenue then approached the Hon’ble High Court.

The Hon’ble High Court after taking into submissions from both sides were in agreement with the view expressed by the Deputy Commissioner (Appeals) on the procedure followed by the Primary Authority and denial of reasonable opportunity to the dealer, vitiates the order. Hence, the Hon’ble High Court sustain the findings recorded both by the Appellate Authority and the Tribunal on the violation of principles of natural justice and/or denial of reasonable opportunity to the dealer, including the right to cross-examine the persons whose statements the Revenue is relying on in support of its case against the dealer, for initiating and concluding penalty proceedings.

Further, the Hon’ble High Court while dismissing the Revision Petition held that in view of the above consideration, as matter of fact, there is violation of principles of natural justice and denial of reasonable opportunity to the dealer, thus warranting setting aside the penalty order, and, as a corollary to the above finding, the Appellate Authority has rightly, within its powers and jurisdiction, remitted the matter to the Primary Authority for consideration and decision afresh. The power of remand is available and no exception to the findings recorded by the Tribunal and the Appellate Authority on the remand is warranted. Therefore, the remand to Primary Authority ought to be open-ended and the Primary Authority is given discretion to proceed in accordance with law. Hence, it was made clear that the remand is open and all contentions/objections of both the parties are left open for decision.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

State of Kerala represented by the Deputy Commissioner (Law), Commercial Taxes, Ernakulam/Revenue is the revision petitioner. P.T.Johnson/respondent herein, is a dealer registered under the Kerala Value Added Tax, 2003 (for short, ‘the Act’).

2. The dealer is engaged in the business of rearing Broiler Chicken Birds and its sale. The inspection of dealer’s books, by the Revenue disclosed that the dealer had undervalued the chicken for the purpose of account books and paid VAT thereon. In other words, suppression of actual sale value of chicken was resorted to resulting in evasion of tax.

3. The Revenue has found out similar systematic undervaluation of chicken for the purpose of books and paying or evading payment of tax under the Act by five dealers. The five dealers are alleged to be the close relatives of P.T Johnson/dealer herein. The Revenue initiated proceedings under Section 67 of the Act for the assessment year 2008-09. The Revenue finally imposed penalty of Rs.3,11,39,550/- through the order dated 30.10.2012, marked as Annexure-A. Broadly stated, the penalty proceedings are initiated on the basis of undervaluation, resulted in estimation of turnover and details in the income tax returns filed by the dealer are contradictory. The circumstances relied on by the Revenue for imposing penalty under Section 67 of the Act are not adverted to in our judgment, for, the views/conclusions taken by the Appellate Authority and the Tribunal on the question of violation of principles of natural justice are mainly reviewed. The dealer aggrieved by the order in Annexure-A, filed appeal before the Deputy Commissioner (Appeals) and the Deputy Commissioner, through the order dated 29.10.2013 set aside the order in Annexure-A dated 30.10.2012 and remanded the case to Primary Authority for disposal in accordance with law.

4. The Revenue filed T.A (VAT) No.677 of 2013 before the Kerala Value Added Tax Appellate Tribunal, Ernakulam (for short, ‘Tribunal’) The Revenue raised the grounds that the Deputy Commissioner (Appeals)/First Appellate Authority does not have the power or jurisdiction under Section 55 of the Act to remand the case for disposal to the Primary Authority. In other words, the Deputy Commissioner (Appeals) is convinced from record that the order of assessment is made in violation of any facet of principles of natural justice or requirement of law, there is no need or necessity to remit the matter to the Primary Authority. From the unequivocal expression used in Section 55(5)(a) (b) and (c), the Deputy Commissioner can pass the fresh assessment order on the material available on record.

4.1. The Revenue contends that the appeal is nothing but continuation of original proceedings and, therefore, the legislature, by choice, in its well-informed reasons and wisdom specifically did not confer the power of remand on the Deputy Commissioner (Appeals). Therefore, the remand per se is illegal and beyond the jurisdiction or the power of the Appellate Authority. The second ground is that the order in Annexure-A, does not violate or infringe the principles of natural justice and sufficient reasons are present in Annexure- A order for imposing penalty. Therefore, the remand is unjustified in the facts and circumstances of the case. The Tribunal through a common order dated 29.05.2015 rejected both the contentions. Hence, the revision at the instance of the Revenue.

5. On 22.12.2015, this Court while condoning the delay, noted the question of law mooted in the revision as follows:

“We have heard the learned Senior Government Pleader for the Department of Commercial Taxes. It is submitted that the question of law mooted for consideration is as to whether the Deputy Commissioner (Appeals) has the power to order remand of a case relating to a penalty proceedings when considering an appeal under Section 55 of the KVAT Act. The other questions which are sought to be raised are essentially matters which will depend upon appreciation of facts and evidence which appears to be the purpose of remand by the Deputy Commissioner (Appeals) and confirmed by the VAT Appellate Authority Tribunal. It is submitted that other connected matters are filed.

The learned Senior Government Pleader seeks an adjournment to address arguments further.”

6. We have heard Mr. Mohammed Rafiq, Special Government Pleader, and Mr. K.Srikumar, the learned Senior counsel for parties.

7. Mr. Mohammed Rafiq, keeping in perspective the order dated 22.12.2015 and also the scope of revision under Section 63 of the Act, argued with sufficient emphasis two grounds viz. remand by the Deputy Commissioner as illegal and violation of principles of natural justice that were unsuccessfully raised by the Revenue before the Tribunal. Stated, it is argued that the notice issued under Section 67 of the Act, dealt with all commissions and omissions of the dealer noticed by the Revenue, warranting initiation of action under Section 55 of the Act. The dealer is not exonerated by denying each one of the accusations made against the dealer. The dealer is, therefore, under obligation to satisfactorily place before the Primary Authority that the business carried on by the dealer is compliant with the requirements of the Act and there is no commission or omission in sale price, turnover. Therefore, the findings that denial of reasonable opportunity/violation of principles of natural justice by the First Appellate Authority and the Second Appellate Authority are devoid of merit and liable to be set aside.

8. Mr. K.Srikumar appearing for the dealer, to sustain the finding recorded by the Appellate Authority and the Tribunal, has placed before us the tabular statement showing the allegations in the notice issued under Section 67 of the Act, the findings of the Primary Authority, and the findings of the Tribunal which confirmed the findings of the Appellate Authority. To appreciate the fundamental omission in the procedure followed by the Primary Authority, we find it useful to state the details as follows:

Sl no.	Allegations in the proposal notice dated27.02.2012	Reply/objection to the allegations dated 26.09.2012 & 15.10.2012	Findings of Intelligence Officer in Penalty Order dated 30.10.2012.	Findings of Tribunal in common order dated 29.05.2015.
1.	1. Thomson Group is a single entity Entire sales turnover of the Group (except meager sales turnover conceded by the Rose Poultry Farm) is shown as made to ultimate customers. ie., unregistered dealers and verification has confirmed that such addresses or purchasers of live chicken shown as per Form 8 B Bills are bogus or non-existent. All 6 dealers/assessees are members of a common business group ‘Thomson Group’ and attempted evasion of tax in close cooperation. Form 8 B bills (bills to be issued to end consumers under rule 58 of KVAT rules. 100 notices were sent to purchasers, referred to in Form 8B bills which were returned with an endorsement of postal authorities that such persons are “not known” Sales claimed to have been conducted is only a paper transaction to camouflage the actual transactions which have been revealed in the investigations conducted. There is no dealer to dealer sale of chicken and the entire turnover has been made only to unregistered dealers.	There is no business concern with the name ‘Thomson Group’. Thomson Group is not a juridical person or legal entity. The group has no registration under KVAT Act either as proprietor or as partner in any business. The liability under the Act is on dealer. The dealer is a person who carries on the business of buying, selling or supplying of goods for remuneration, or other valuable consideration. Sales to end customers or ultimate customers are not an act prohibited by law or an offence under the Act. Statute expressly allow sale to end customers by prescribing Form 8 B sale bill for that purpose. Statute does not insist for postal address of the buyer in the sale bill when sale is made to end customers. Address of the purchaser is given in Form 8 B bill only as reported by the buyer himself.  The requirement is only to furnish Name and address of purchaser. There is no requirement to furnish residential address, building number, post office, pin code or the full address etc. in Form 8B bill. Nowhere in the statute it is provided that bills should contain postal address of the buyer or that if buyer could not be served notice in the address given by them, it shall be ground to impose penalty.	Thomas Group is a single entity. All 6 dealers/ assessee are members of a common business group ‘Thomson Group’ and attempted evasion of tax in close cooperation. (Page 274 of the penalty order) Form 8 B bills (bills to be issued to end consumers under rule 58 of KVAT rules (page 100-103 of penalty order). 100 notices were sent to purchasers, referred to in Form 8B bills which were returned with an endorsement of postal authorities that such persons are “not known” Sales claimed to have been conducted is only a paper transaction to camouflage the actual transactions which have been revealed in the investigations conducted. There is no dealer to dealer sale of chicken and the entire turnover has been made only to unregistered dealers. Therefore it can be inferred that the Form 8 B bills are forged ones. All Form 8B bills show uniform sale value of below Rs. 5000 even though sales were effected to very faraway places. On scrutiny it is found that not even a single bill was issued by the dealers during 2008-09, 2009-10 and 2010-11 having sale value above Rs. 5000. Therefore the bills were issued to avoid scrutiny at the time of transport. (pg. 104 penalty order)	On a close reading of the findings of the Intelligence Officer it can be said that the Intelligence Officer has not collected any evidence to establish that the business of all the 6 assessee dealers are carried out by a single person or all of them are doing the business as common (Para 36) At any rate none of them can be made jointly liable for any offences committed by any of them especially when the registration obtained by them for running their business under the Act stands in the name of each of them (Para 37) The Intelligence Officer has not brought on record any materials to establish the managerial, administrative or monetary transactions between respondent assessees except for their blood relationship. De jural relationship alone is not sufficient. (Para 40) Relied on Vasantha Anirudhan v. State of Kerala (2008) 128 VST 97 (Ker) When considering the findings arrived at by the Deputy Commissioner (Appeals) with regard to 8B bills in the wake of the contention raised by both sides, we are constrained to concede with the finding of the Deputy Commissioner (Appeals) that “merely for the reason for the return of the notices send to certain buyers in the address given in Form 8B bills by the postal authorities with an endorsement as not known is not at all the circumstance to draw an inference that the buyers are bogus or non-existent persons, on the other hand the inference drawn in the intelligence officer from the endorsement made by the postal authority on the postal article as not known does not mean that the address is bogus or such persons did not exist in such a circumstance the inference drawn by the intelligence officer appear to be unrealistic and bad in law”. Over and above, we also concur with the finding of the Deputy Commissioner (Appeals) that no honest or a pain staking enquiry was done by the Intelligence Officer to ascertain whether the addressees shown in the 8B bills does exist or not and without considering these aspect, the Intelligence Officer has proceeded with the penalty proceeding. It is evident that no attempt was made by the Intelligence Officer to conduct a proper enquiry in this regard. The fact being so, we are fully constrained to uphold the findings arrived at by the Deputy Commissioner (Appeals) on this aspect. We find no impropriety or any illegality in the said findings. As such, we find no merit in the contention of the Revenue. (Para 57).
2.	Undervaluation The Group has deliberately adopted a novel pattern of tax evasion tactics by conceding only an undervalued minimum price thereby suppressing approximately half of the sales turnover. The dealers under quoted sale value of live chicken than the floor rate fixed by the Commissioner for the collection of advance tax. The dealers under quoted sale value of live chicken than the floor rate fixed by the Commissioner for the collection of advance tax. The estimated bills recovered from few institutions constitutes solid and indisputable piece of evidence suggesting illegal pattern of suppression tactics adopted by the Group for decisive evasion of tax under the KVAT Act by undervaluing the chicken rate. The prevailing market price gathered by the statics department from various markets on weekly basis for the period from 2008-09, 2009-10 and 2010-11.	The allegation of undervaluation is not supported by any evidence. The rate fixed by the Commissioner of Commercial Taxes is purely for the purpose of collecting advance tax and not for the purpose of assessment or for imposing penalty. Tax liability of the dealer under the statute is on the amount received or receivable as sale consideration. It cannot be on the estimated sale value or on the basis of the floor rate fixed for the purpose of collection of advance tax. The allegations based on certain recoveries and depositions collected from witnesses are wrong. The witnesses have deposed that they had purchased poultry meat from market. They do not have any direct transactions with the assessee. It is also pertinent to note that the assesses sells only live birds in their poultry farms. No enquiry conducted even to ascertain truth of statement of witnesses and to discredit the case. of dealers through cross examination of witnesses sought for by the dealers. The rate of live chicken supplied by the Economics and Statistical Department is retail market price. The dealer herein is selling the live chicken from own farm. It is everybody’s knowledge that farm rate would be less than the retail price because farm rate is excluding the after sale expenses incurred by the buyers. Retail price would include expenses for transportation from farm to the place of the end customer, loading and unloading charges, loss of weight, processing live bird to meat, mortality and expenses for feeding the birds in between these days, etc. The allegation of undervaluation is hence without realistic appraisal of the facts and circumstances of the case. 3. The examination of Statistical department officers would prove that the details of poultry meat are procured by them from market, the price governing the retail market would always be higher when compared to farm rate, the details collected from the Statistical department under RTI Act by the assesses substantially differs from the rate adopted for proposing the penalty..	Undervaluation (page 120-267) “The estimate bills to Ambilikkala hostel constitute solid and indisputable piece of evidence suggesting well thought and orchestrated pattern of suppression tactics adopted by group viz. Sri PT Jose, Sri PT Benny, Sri PT Davis, Smt. Gracy T homas, Sri. PT Varghese and Sri PT Johnson – for purposeful evasion of tax under the KVAT Act. (page 194). Several materials discovered including estimation slips reveal that dealers had supplied chickn to Hotal Joys Palace, Ambilikkala, Hostel Hotal Ashoka Inn, M/s. Harvest caterers etc. at market rate while accounting at lesser rate evading tax. Statement of Economic and Statistics Department showing the price in retail market of poultry meat on weekly basis is adopted to calculate the suppresses turnover.	There is nothing on record to make it appear that the Intelligence Officer had unearthed any materials to show that the assessees have factually collected more than the ostensible consideration shown in their accounts or bills (para 80) But a duty is cast on the Revenue to prove that the assessee has factually collected more than the ostensible consideration shown in the account. Such a finding is essential even for an assessment in case of undervaluation. But in the instant case, on a close reading of the impugned orders of the Intelligence officer we hod that though the Revenue had a case that the sales of chicken effected by the assessee dealers shown in their accounts are at a low prices. with a view to evade the payment of tax compared to the market price of such goods that too with a view to. evade payment of tax, but there is no such a finding to the effect that any of the assessee dealers have factually collected or obtained more than the amount shown in their accounts or in the 8B bills, or in the purchase order as claimed by the intelligence officer when considering the facts and circumstance of the case such a finding is essential to warrant an action u/s 67 of the Act in the cases on hand. In the absence of such a finding, the penalty imposed on estimation appears to be highly an erroneous and illegal one Especially when it is born out from the records that the data collected by the investigation team from the statistical department and the data collected by the respondent dealer from the very same department through Right To Information Act (RTI) show different rates. On the other hand, on a close reading of the datas supplied by the statistical department it can be said that the Intelligence Officer has considered only the ‘retail market price of the chicken whereas the assessees specific case is that they have sold chicken only from their farm and the Intelligence Officer did not consider the fact of ‘rate difference in the farm as well as in the open market and the materials available from the affidavits filed by the agents of the purchasers. (para 79) The dealers had specific case that all the sales effected by them are “sales to dealer” or to “retailers” from their farm. But this aspect was not even considered by the Intelligence Officer. Bills at a lower rate that prevailing market price is justifiable in cases of sales between dealers. (Para 82)

In the above background, we would refer to the clear and categorical findings recorded by the Deputy Commissioner (Appeals) on how the order of imposing penalty is vitiated in all fours. The relevant portion is excerpted hereunder:

“(154) Regarding denial of opportunity for examination and cross Examination of witnesses.

The appellant has raised a specific contention of denial of opportunity for examination of witnesses and thereby violation of principles of natural justice. The Intelligence Officer has discovered materials during the enquiry which will throw light into the transactions of appellants and other dealers. The Intelligence Officer has no case that any materials has been detected connecting clandestine sale done by the appellant in this case. Though certain estimate slips were recovered in respect of M/s. Rose Poultry Farm and M/s. Best Poultry Farm no such materials could be found in respect of the other dealers. The department witnesses in their deposition have stated that they have no business transaction with the appellant in this case. It is pertinent to note that all the Department witnesses have deposed that they had purchased chicken from shops in the market and the specific case of the appellant is that he does not have any shop either in the market or any other place. During the Cross Examination Sri.Muraleedharan and Sri. Radhakrishnan of Ambilikkala Hostel have deposed that they regularly purchased chicken from open market at Sakthan Thampuram Market at Thrissur. In such circumstances it was fair and proper to conduct a proper enquiry regarding the transactions. No suppression or irregularity is found in the case of the appellant as in the case of M/s. Rose poultry Farm and M/s. Best Poultry Farm. But the Intelligence Officer has imposed penalty by estimating turnover. More over the Intelligence Officer has relied on the materials unearthed in respect of the suppression of turnover by the other two dealers and came to an inference that all the dealers including the appellant uniformly follows the same pattern of suppression. The findings of the Intelligence officer that “The estimate bills constitute solid and indisputable piece of evidence suggesting illegal pattern of suppression tactics adopted by the groups. Viz. Sri. P.T. Jose, Sri. P.T. Davis, Sri. P.T. Benny, Smt. Gracy Thomas, Sri. P.T. Johnson and Sri. P.T. Varghese for decisive evasion of tax under the KVAT Act 2003, by undervaluing chicken rates”, shows that the nominal and trifle lapses detected by the Intelligence Officer in the case of a single dealer and a lone lapse detected in the case of another dealer, have been utilized as materials to add up huge turnover additions to other four dealers also, even though no similar defect have been found in their cases. This inference and uniform adoption of all the dealers is definitely against the principles of penalty and hence should have been avoided. Apart from the above the appellant has contended that his request for examination of certain witnesses on the basis of depositions primarily made by certain witnesses was rejected by the Intelligence Officer and thereby violated the principles of natural justice. I have meticulously looked into those contentions especially in view of the settled legal positions that denial of opportunity for examination and cross examination of witnesses would result in violation of natural justice which would make the order a nullity. In the present case the appellant had furnished a list of witnesses to be examined. On his behalf. The crucial question here arose is whether the appellant has a right to examine and cross examine and whether examination of the persons cited as witnesses are relevant for a adjudication in the matter. The Hon’ble Supreme Court has held in State of Kerala Vs. Shaduli Yusuf [39 STC 478] and Hon’ble High Court of Kerala in Jose Vs. Addl. STO have held that the assessee has a right to cross examine witnesses. The intelligence Officer has evaluated the facts and circumstances and also materials on record and found that there is no need for cross Examination of any of the witnesses. The appellants have contented that the examination of the witnesses cited are highly necessary to bring out the truth behind the presence of estimated slips as those persons had conducted the transactions in dispute. It is to be noted in this context, as pointed out by the learned counsel for the appellant, names of certain persons have come out in evidence during the cross examination of the departmental witnesses . It was also came out in evidence that those persons are very much related to the transactions involved and the Departmental witnesses have deposed that they have purchased live chicken from different persons in the market. More over some of the slips show the name of Mr. K.A. John (page 146 of the penalty order ) from whom the departmental witnesses had purchased live chicken. In such circumstances, it was just and proper to evidence by examining the said person by the appellants. The denial of such an opportunity was incorrect. On page 81 of the notice the Intelligence has stated that Sri. Aniljith, Manager, M/s. Harvest Caters (Pvt.) Ltd had deposed that from 2008, they effect purchase of chicken from Rose Poultry Farm. Consequent to purchase order given over phone to Rose Poultry Farm, chicken is supplied at Thrissur unit and for which purchase estimate slips superscribed as “John Chicken” is given and at the end of each week, Rose Poultry Farm will issue 8 B bills for said total amounts and payments are made accordingly. In the cross examination made by the appellant on 23.08.2012, Sri. Aniljith, Manager of M/s Harvest Caters (P) Ltd has deposed that whenever they required chicken, they place orders over phone for the quantity and size of the needed chicken to office of the “John chicken ” at Ollur, at Pillai Nada by the production Manager of the Company. Sri. John, Proprietor of the “John Chicken” is the corporation councilor of Thrissur corporation. Sri. John who accepts orders clean the chicken, cut them to the required sizes and supplies them at the specified time along with invoices of Rose Poultry farm and estimate slips for the extra works done by him. Sri. John himself receives the cheques due to Rose Poultry Farm and balance of cash due to him for his incidental work. This shows that the appellant has nothing to do with the estimate slips. In the light of the deposition of the Manager at the time of Cross examination the Intelligence Officer ought to have withdrawn his previous observations made in the notice, which have been proved totally incorrect. Apart from the above, the Intelligence Officer has decided to reject the affidavit of certain persons filed by the appellant by analyzing the contents of the same. It is settled law that if the affidavits are considered on merits, the same can be rejected/controverted only after examining the deponent on the statements averred in the affidavit. There is some force in the arguments of the appellant regarding denial of opportunity for examination of witnesses. The appellant had approached the Hon’ble High Court on two occasions seeking opportunity for adducing evidence by examining witnesses. The Hon’ble High Court in W.P. (C) No. 21795/2012 observed that “First of all, adjudication is only pending and final orders are yet to be passed. If as contented by the petitioners,evidence of seven witnesses is essential and the matter is finalized without affording them opportunity to cross examine those witnesses that will give rise to a case of violation of principles of natural justice. However such a plea can be raised by the petitioners only after final order is passed by the 2nd respondent, on conclusion of the adjudication which he is now seized of In this connection it is also relevant to note the observation of the Hon’ble High Court in C.O. Devassy Vs. State of Kerala [1991] 81 STC 2.” we are aware of the legal positions that the sales tax officer when he hold an enquiry and effects the best judgment assessment is not functioning as a court. The proceedings before him are not judicial but only quasi judicial. But he should proceed to decide the matter before him in a fair and reasonable manner upon properly ascertained facts and circumstances. In exercising the quasi judicial function, the assessing authority should conform to the principles of natural justice. He should act fairly and reasonably and afford proper and effective opportunity to the assessee to rebut the case of the Department “. The above observation of the Hon’ble High Court with regard to the assessing authority is equally applicable to the Intelligence officer. On going through the Order and reasons stated herein, for rejecting the opportunity of examination and cross Examination of witnesses, I am of the opinion that the denial was improper and an opportunity for examination and cross examination of witnesses should have been granted, particularly when the amount of penalty imposed was a substantial one.

xxx               xxx                            xxx

(162) In V. S. Narayan Nair V. Sales Tax officer 1971 KLT (1972) 29 STC 37 the Hon’ble High Court held that ” an assessment cannot be based on the entires found in the books of accounts of a third party without giving to the assesse an opportunity to cross examining that party with reference to those books if so required and that this is a requirement of natural justice “. The Intelligence officer and the team have conducted intensive enquiry in the matter and collected voluminous documents and records relating to the transactions of the appellant. Hence it will be improper to cancel the order for the reason of improper appreciation of evidence and also for not fixing the appellant with cognet evidence to impose penalty. Proper enquiry should have been conducted to establish whether the appellant had actually suppressed any turnover with materials. The appellant should have been provided with opportunity to rebut the case of the department with ample opportunity .It is to be noted that giving of opportunity for adducing evidence will not affect penalty proceedings, on the other had it would give the findings more transparency and authoritativeness. considering the entire facts of the case the order of the penalty is set-aside and remitted back to the Intelligence officer for fresh disposal taking into consideration the above observations. The Intelligence Officer shall conduct proper enquiry with regard to all the points with proper appreciation evidence gathered raised by the appellant in the replies filed by him before passing fresh orders. The appellant shall be given proper opportunity for adducing evidence, to cross examine witnesses and of being heard and pass orders. In accordance with law. Common order shall be incorporated in each file.”

9. The Revenue except raising general grounds on the circumstances considered and concluded against the Revenue by the Appellate Authority and the Tribunal, failed to demonstrate,  either perversity  or that presumptuous conclusions        are drawn by the Authorities and/or extraneous material or views led to recording conclusions in favour of the dealer. Since we are in agreement with the view expressed by the Deputy Commissioner (Appeals) on the procedure followed by the Primary Authority and denial of reasonable opportunity to the dealer, vitiates the order in Annexure-A, we sustain the findings recorded both by the Appellate Authority and the Tribunal on the violation of principles of natural justice and/or denial of reasonable opportunity to the dealer, including the right to cross-examine the persons whose statements the Revenue is relying on in support of its case against the dealer, for initiating and concluding penalty proceedings. The above conclusions take us to the next argument of Mr.Mohammed Rafiq.

10. The Special Government Pleader contends that Section 55 is part of Chapter VII of the Act. Chapter VII deals with the Appeals, Revisions, and Settlement of cases under the Act. Right of appeal is a statutory remedy and is inherent in a litigant to file appeal. The Act provides the right of appeal, the forum of appeal, and the procedure to be followed by the Appellate Authority. According to him, the Deputy Commissioner (Appeals), while making the order in Annexure- B, did not conform to the jurisdiction conferred on Deputy Commissioner (Appeals) by subsection (5) of Section 55 of the Act, which reads thus:

[55. Appeals to the Deputy Commissioner (Appeals) and Assistant Commissioner (Appeals).- (1) Any person aggrieved by any order issued or proceedings recorded other than those under Section 16, section 19, sub-sections (8) and (9) of section 44, section 49, section 67, section 68, section 69 and section 70 passed by an authority empowered to do so under this Act not being an authority above the rank of an Assistant Commissioner may, within a period of thirty days from the date on which the order was served on him, appeal against such order,

xxx                       xxx                           xxx

(5) In disposing of an appeal, the Deputy Commissioner (Appeals) and Assistant Commissioner (Appeals) may, after giving the appellant a reasonable opportunity of being heard,-

(a) in the case of an order of assessment or penalty, either confirm, reduce, enhance or annul the assessment or the penalty or both;

(b) set aside the assessment and direct the Assessing Authority to make a fresh assessment after such further enquiry as may be directed;

(c) or pass such other orders as he may think fit; or

(d) in the case of any other order, confirm, cancel or vary such order:

Provided that at the hearing of any appeal against an order of the assessing authority, the Assessing Authority or the officer empowered by the Commissioner in this behalf shall be heard.”

Second proviso to subsection (5) of Section 55 of the Act has been inserted by the Kerala Finance Act, 2014 (Act 29 of 2014),

which reads thus:

“Provided that the power of the Deputy Commissioner (Appeals) to remand a case is limited to ex-parte orders only.”

10.1. In a nutshell, the argument of the Special Government Pleader is that the order of remand by Deputy Commissioner (Appeals) in Annexure-B to Primary Authority is unavailable; beyond the jurisdiction of the Appellate Authority and illegal.

11. Senior Advocate Mr. K.Srikumar, argues that the objection raised on the power of the Deputy Commissioner (Appeals) to remand the case to the Primary Authority is an objection without substance. According to him, subsection (5) (c) provides, viz. pass such other orders as he (the Appellate Authority) may think fit is. Read along with clause (a) which reads; in the case of an order of assessment or penalty, the Appellate Authority either confirm, reduce, enhance or annul the assessment or the penalty or both. The power of remand follows from one or the other exigencies contemplated by subsection (5)(a). The proviso introduced through Act 29 of 2014 is not applicable to the case on hand. He relies on a few precedents to bring home his argument that the power of remand is inherent in the power of adjudication by the Appellate Authority. The phraseology of subsection (5) is wide enough to expressly confer the power of remand in the Appellate Authority. We are not preferring to advert to all the decisions relied on by him, however, except the following:

Union of India Vs. Umosh Dhaimode¹

“8.   In view of the above, we are of the considered opinion that, without properly understanding the judgment of the Tribunal, the appellant has framed second question of law in both these appeals, viz., ‘Whether a single Member Bench can overrule a decision of the larger Bench on the same issue.’ There is no question of overruling the judgment of the larger Bench. As stated earlier, the learned single Member has held that the judgment of the larger Bench of the appeal per incuriam in view of the judgment of the Hon’ble Supreme Court and he is bound by the Hon’ble Supreme Court judgment and not by the judgment of the larger Bench of the Tribunal.

Once, we accept the judgment of the single Member of the Tribunal taking view against the Department, then the Commr. (A) continues to have the power of remand even after the amendment of Section 35A(3) of the Central Excise Act, 1944 by Finance Act, 2001, then the first question does not remain to be decided as substantial question of law.

9. We must also state that even after amendment, which has come into force w.e.f. 11th May, 2001, powers of remand by allowing the appeal of the Commr.(A) have not been taken away specifically. In that view of the matter, we are of the considered opinion that the Appellate Authority, viz., Commr. (A) was vested with the power while deciding the appeal as he deemed fit by confirming, modifying or annulling the decision or order appealed against him. In our considered opinion, order of remand necessarily annuls the decision, which is under appeal before the Appellate Authority. Therefore, we entirely agree with the view taken by the learned single Member of the Tribunal that even after amendment of Section 35A of the Central Excise Act, the Appellate Authority has the power to set aside the decision, which is under appeal before it and it has power to remand the matter to the authority below for its fresh consideration. In view of the above discussion, both these appeals fail and are hereby dismissed.”

Kochukunju Pillai v. RDO and Others²

“2. We find it difficult to sustain the judgment of the learned Judge on the ground that the proceedings for settlement of record of rights had been rendered infructuous by certain separate proceedings before the Land Tribunal in regard to the purchase of landlord’s rights under S.72B of the Act. To so bold in the appellant’s writ petition to quash the order of remand made by the Appellate Authority, seems to us to require examination. But we do not pursue this line of enquiry, as we are satisfied that even dealing with the appellant’s writ petition on the merits, there are no grounds to allow it and it has only to be dismissed.

3. The only grievance that the appellant had in his writ petition was that the Revenue Divisional Officer had no power of remand in dealing with the appeal from the order of the Tahsildar allowing an application for preparation of record of rights. Counsel drew our attention to R.28, sub-r.(3) of the Kerala Land Reforms Tenancy Rules, which deals with the procedure for disposing of an appeal, against an application to settle the record of rights. We think it unnecessary to extract the rule. It was argued that the rule contemplates only a dismissal of the appeal or a direction to the Tahsildar to make such additions, alterations, deletions or modifications as are deemed necessary by the Revenue Divisional Officer. We find it a little difficult to understand how this latter power of direction to the Tahsildar can be exercised except by or through an order of remand. But that apart, there is enough authority to hold, and we have no hesitation to hold, that a power of remand is inherent in the power of the Appellate Authority. Were authority needed for the proposition, we have it in the Full Bench decision of this Court in Dharmadas v. State Transport Appellate Tribunal (1962 KLT 505). In view of the said principle, the appellant can have no grievance against the order of the Revenue Divisional Officer and his writ petition had only to be dismissed. The learned Judge was wrong in quashing the whole proceedings to settle record of rights.”

12. The Revenue argues that the First Appellate Authority/Deputy Commissioner (Appeals) upon recording the finding that the order of the primary authority in Annexure-A is vitiated on account of denial of reasonable opportunity, such as cross-examination of witness whose statements are relied on; violation of principles of natural justice in any form; ought to have completed the assessment in accordance with subsection (5)(a) which provides for confirming, reducing, enhancing or annulling the assessment or the penalty or both as the case may be. Therefore, there is no explicit power or inherent power of remand conferred on the Appellate Authority by Section 55 of the Act while dealing with penalty orders. The argument is unsustainable for the following reasons: Subsection (5) begins with words, in disposing of an appeal, the Appellate Authority after giving the appellant a reasonable opportunity of being heard, in the case of an order of the assessment/penalty, either confirms, reduces, enhances or annuls the assessment/penalty or both. Another option is, set aside the assessment and direct the Assessing Authority to make a fresh assessment after such further enquiry as may be directed. The third option is, pass such other orders as he may think fit.

12.1. Mr. Mohammed Rafiq further argues that the discretion available to the Appellate Authority in clause (a) viz., it provides for both assessment and penalty orders. Clause (b) limits only to assessment order. The order under challenge, in the case on hand, before the Appellate Authority is an order of penalty made under Section 67 of the Act. Therefore, per se the order of remand is unavailable.

13. We have difficulty in reading subsection (5) in the manner canvassed before us. The procedure prescribed by the Act for disposing of the appeal in the manner now commended to us by Mr.Rafiq stifles the expression used in the clause (a) as well. In the case on hand, we would like not to confer or deny the power of the Appellate Authority on general principles of law viz., the Appellate Authority has inherent power of remand etc. The appeal being a statutory remedy under the Act, we may endeavour to trace whether such power is available to the Appellate Authority or not under the scheme of subsection (5) of Section 55. We would like to read subsection (5) of Section 55, as follows: “In disposal of the appeals (filed questioning the order of penalty) the Deputy Commissioner (Appeals) may, after giving the dealer a reasonable opportunity of being heard; in the case of order of penalty, annual the penalty and pass such other orders as he may think fit”. In case on hand, the Appellate Authority once is convinced that the penalty order imposed needs to be annulled on the ground of violation of principles of natural justice, then instead of deciding the case on merits the Deputy Commissioner can certainly invoke the power under Clause (c), viz. pass such other orders he may think fit, and complete the adjudication of appeal filed before him. The argument of Revenue denies this functional proprietary conferred by clause (a) of subsection (5) of Section 55. The Deputy Commissioner, on a case-to-case basis, either does the assessment/decides the penalty himself or calls upon the Primary Authority to redo the procedure in accordance with law. In the case on hand, the table, read with the findings of the Deputy Commissioner shown in paragraph 8 supra, justify the remand to the Primary Authority. A conjoint reading of clauses (a) and (c) of subsection (5) of Section 55 would necessarily give wide discretion and power to the First Appellate Authority to consider ordering remand in terms of the language of Section. Annulment of an assessment/penalty proceedings could be on merits, likewise annulment of assessment/penalty proceedings could be for deviation of principles of natural justice, denial of reasonable opportunity etc, to the dealer or any other ground justifiable in the circumstances of the case. The latter exigency needs something more to make the adjudication complete at the hands of the Appellate Authority, and remand certainly is the option. The Appellate Authority notices, in deciding the appeal, the procedural safeguards in the manner noted above, are not followed, even thereafter, examining the merits of the issue decided by the Primary Authority is incorrect. Therefore, parties are relegated to the stage where the Appellate Authority has interdicted the decision of Primary Authority. In our considered view, the interpretation placed by the Revenue on the power of remand by the Deputy Commissioner (Appeals) is without merits and rejected.

14. In view of the above consideration, as matter of fact, there is violation of principles of natural justice and denial of reasonable opportunity to the dealer, thus warranting setting aside the penalty order in Annexure-A, and, as a corollary to the above finding, the Appellate Authority has rightly, within its powers and jurisdiction, remitted the matter to the Primary Authority for consideration and decision afresh. The power of remand is available and no exception to the findings recorded by the Tribunal and the Appellate Authority on the remand is warranted. However, the Tribunal by referring to the principle enunciated in U.K Monu Timbers v. State of Kerala³ made a few observations. In our view the remand to Primary Authority ought to be open-ended and the Primary Authority is given discretion to proceed in accordance with law. Hence, it is made clear that the remand is open and all contentions/objections of both the parties are left open for decision. The application of U.K Monu Timbers case is premature to the remand ordered by the First and Second Appellate Authorities. The proviso, in our considered view, introduced through Act 29 of 2014, need not be considered for deciding the power of the Appellate Authority in the year prior to the amendment or in the year 2013.

Revision fails, accordingly dismissed. No order as to costs.