Colourable device in the name of a society justified penalty and clubbed turnover for joint liability.

Transactions routed through a co-operative society to conceal the petitioners' real business and secure tax exemption were treated as deliberate evasion through a colourable device, attracting penalty under section 45A of the Kerala General Sales Tax Act, 1963. The society was described as having no genuine business activity, no returned turnover, and no supporting banking or fund records, while merely collecting commission for use of its name. The article also states that individual turnover below the non-taxable limit did not defeat liability, because section 19C imposed joint and several responsibility where business was carried on in association with another person and the turnover could be clubbed for liability and penalty.

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Issues: (i) Whether penalty under section 45A of the Kerala General Sales Tax Act, 1963 was rightly levied for transactions carried on in the name of a co-operative society to evade sales tax. (ii) Whether the plea that the turnover in individual cases was below the non-taxable limit defeated liability for penalty.

Issue (i): Whether penalty under section 45A of the Kerala General Sales Tax Act, 1963 was rightly levied for transactions carried on in the name of a co-operative society to evade sales tax.

Analysis: The transactions were found to have been deliberately routed through the society only to camouflage the real business of the petitioners and to secure exemption. The society had no real business, no sale turnover was returned, no funds or bank account were produced, and it merely received commission for permitting its name to be used. On these facts, the conduct amounted to deliberate evasion of tax through a colourable device, attracting the principle that tax avoidance by camouflage is impermissible.

Conclusion: Penalty under section 45A was rightly levied and is sustainable against the petitioners.

Issue (ii): Whether the plea that the turnover in individual cases was below the non-taxable limit defeated liability for penalty.

Analysis: Liability was held to arise under section 19C on the basis of joint and several responsibility where business is carried on in the name of or in association with another person. Since the transactions were carried on collectively in the name of the society and the turnover was liable to be clubbed for the purpose of determining tax liability, the individual turnover of each petitioner could not defeat penalty. The separate breakup in the penalty order was only for recovery and did not alter the underlying liability.

Conclusion: The plea based on the individual non-taxable limit failed and did not bar penalty.

Final Conclusion: The petitions were found to lack merit, and the penalty orders were upheld on the basis of joint and several liability for evasion carried out through the society's name.

Ratio Decidendi: Where business is carried on in the name of another person or entity as a device to evade tax, the persons involved are jointly and severally liable, and the turnover may be clubbed for determining liability and penalty.

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