2018 (6) TMI 1620 - HC - VAT and Sales Tax

Imported goods non-declaration upheld under Kerala VAT Act, emphasizing tax compliance to prevent evasion.

M/s. MIL CONTROL LIMITED Versus STATE OF KERALA,

The Court upheld the penalty imposition on the assessee for non-declaration of imported goods under the Kerala Value Added Tax Act, emphasizing that the ... Imposition of penalty - import of three packets of “Metso Positioners” - assessee had not declared the goods before the Commercial Taxes Department under Form 8F(A) as has been provided in Section 46(3) (e) - Evasion of tax - HELD THAT:- The provision mandates that where goods are imported into the State, on arrival of such goods the assessee has to file a declaration before the Commercial Tax Officer having jurisdiction over the place of import. The further transport of the goods within or across the State has also to be accompanied by the declaration so submitted before the CTO and endorsed by the said officer. The measure has been introduced in the Act to ensure that there is no import made which is not disclosed in the books of account and later used; as in the present case in the manufacture and/or sale within the State. There is a lack of declaration of imported goods used in manufacture, the value of which is added on to the sale price of the final manufactured product; which is taxable. The production of documents, evidencing subsequent sale of the machinery, in which the goods imported were embedded, cannot necessarily dispel the suspicion of attempt to evade tax, since the sale occurred subsequent to the detection of offense. The presumption regarding the evasion for reason of non-declaration of goods persists and it is this offense which is sought to be penalised. The further sale made cannot absolve the assessee from the liability for penalty especially when there could have been an attempt to evade tax if the offense was not detected. The presumption insofar as an attempt to evade tax cannot be dispelled on mere surmises and conjectures and it has to be noticed that the burden to prove that there is no attempt to evade tax is squarely on the assessee. The burden cannot be discharged merely on the ground that subsequently it is shown that there has been no evasion of tax on the sale of the machinery, in which the imported item was embedded. Whether the Tribunal was right in affirming the penalty especially when there was no tax evaded in the import of the goods and the import was evidenced by the bill of entry as also the other documents executed before the Customs Authority? - HELD THAT:- It cannot be said that the bill of entry before the Customs authorities would by itself negative any allegation of attempt to evade tax on sale of goods after import. The mandate to file a declaration of the import before the CTO alone would be valid intimation to the department assessing the sale of goods. The first question is answered against the assessee and in favor of the Revenue. Whether Tribunal was correct in confirming the penalty when the assessee had produced sufficient documents to prove that the tax in fact was paid on sale of the goods manufactured; in which the imported goods was an essential component? - Ought not the Tribunal have held that the defalcation if at all was a technical one not necessarily leading to any attempt to evade tax? - HELD THAT:- The sale of a manufactured product subsequent to the detection of an offense relating to a component in the final product, cannot efface the suspicion of evasion of tax. The defect cannot be said to be a mere technical one and raises a presumption of attempt to evade tax; which the assessee, on whom the burden is, failed to disprove or dispel in the adjudication. The only plea was that the defect was technical and the subsequent sale did suffer tax; which has been found to be grossly irrelevant and insufficient - Questions are answered against the assessee and in favor of the Revenue. Revision rejected. Issues:1. Imposition of penalty for non-declaration of imported goods under Kerala Value Added Tax Act.2. Whether the Tribunal was correct in affirming the penalty despite no tax evasion in the import transaction.3. Whether the Tribunal should have considered the lack of declaration as a technical defalcation not necessarily leading to tax evasion.Analysis:1. The revision pertains to the imposition of a penalty on the assessee for not declaring imported goods under the Kerala Value Added Tax Act. The assessee imported three packets of 'Metso Positioners' valued at Rs. 20,63,324 for use in manufacturing machinery. The issue centers around the non-filing of Form 8F(A) as required under Section 46(3)(e) of the Act. The Tribunal affirmed the penalty order, leading to the framing of questions regarding the correctness of the penalty imposition.2. The Court emphasized that the absence of tax effect in the import transaction does not negate the attempt to evade tax, as the subsequent sale of the machinery incorporating the imported goods would attract tax. The failure to declare the imported goods could lead to tax evasion on the subsequent sale, justifying the penalty under Section 47(3)(e) of the Act. The Court cited precedents to highlight that technical defects in documentation do not absolve the assessee from potential tax evasion charges.3. The Court rejected the argument that the subsequent sale of the machinery should absolve the assessee from penalty, as the offense of non-declaration persisted even after the sale. The obligation to declare imported goods is crucial to prevent undisclosed imports used in manufacturing from evading taxation. The burden of proving no attempt to evade tax rests on the assessee, and mere subsequent tax payment on the sale does not negate the initial offense of non-declaration. The Court upheld the Tribunal's decision, emphasizing the importance of compliance with declaration requirements to prevent tax evasion.