2022 (2) TMI 891 - HC - VAT and Sales Tax

High Court affirms Tribunal's decision on tax evasion case, penalizes dealer for deliberate misconduct

M/s P.I. Marketing (P) Ltd. Versus The State of Kerala

The High Court upheld the Tribunal's findings in a tax evasion case involving misclassification of goods, undisclosed sales turnover, and suppression of ... Suppression of tax - alleged unaccounted sales - scope of the word 'an estimate' - sales of exempted item 'suit length' - It is alleged that as against the sales of suit length, the profit claimed to have been achieved by the petitioner is abnormal - whether in a narrow conspectus or in a broad perspective, the Intelligence Officer had estimated or guessed what could be or what might be the suppressed turnover through apportionment of total sale price between taxable goods and exempt goods? - HELD THAT:- The complaint against determination must satisfy anyone of the meanings attributed to the word to vitiate the penalty proceedings. To answer the above poser, one need not dwell into all details furnished by the Intelligence Officer in Annexure-A order. It is not the case of dealer that the details, for any purpose, incorporated in the penalty order are incorrect, unrelated etc. The apportionment of profit, percentage, etc are again in line with the method adopted by the dealer. The Intelligence Officer has found out the suppression of sales turnover in a particular sale transaction through artificial and unacceptable apportionment of sale price between taxable item and exempt item. We have difficulty in appreciating or accepting that, in the circumstances of the case on hand and particularly having regard to the business module implemented by the dealer, the working of details by the Intelligence Officer could be termed as an estimate or guess work. A principle is followed in determining the suppressed turnover - the conclusions recorded by the Tribunal are correct and available in the circumstances of the case. The only ground raised by referring to estimation of suppressed turnover is equally untenable and accordingly rejected. Revision dismissed. Issues Involved:1. Misclassification of goods.2. Undisclosed sales turnover.3. Suppression of sales.4. Penalty based on estimation.Issue-wise Detailed Analysis:1. Misclassification of Goods:The dealer claimed an exemption of Rs. 3,11,70,760 for the period January to March 2010, representing sales of the exempted item 'suit length.' The Intelligence Officer found that the profit claimed on the sale of suit lengths was abnormal compared to other taxable items. The officer estimated the sales turnover of suit lengths at 15% profit and considered the balance as taxable sales at 12.5%, resulting in a tax effect of Rs. 37,27,885. The Tribunal confirmed the findings of misclassification, and the High Court agreed, noting that the dealer's method of apportioning profits to avoid tax was deliberate and unjustified.2. Undisclosed Sales Turnover:For the period January to March 2010, the Intelligence Officer alleged suppression of Rs. 3,45,94,350, with a tax effect of Rs. 43,67,537. The Tribunal and the High Court confirmed this finding, stating that the dealer's contentions did not point out any legal infirmity. The authorities found substantial evidence of undisclosed turnover, and the High Court saw no reason to interfere with these findings.3. Suppression of Sales:The Intelligence Officer detected unaccounted sales of Rs. 5,54,99,600 for the period prior to registration (26-06-09 to 30-11-09), with a tax liability of Rs. 70,06,825. The dealer argued that these were advances, not actual sales, but the authorities rejected this explanation. The Tribunal upheld the findings of suppression, and the High Court agreed, noting that the dealer's explanations were not maintainable and that the turnover was correctly apportioned between 4% and 12.5% taxable goods.4. Penalty Based on Estimation:The dealer challenged the penalty of Rs. 37,27,885, arguing it was based on estimation, which is impermissible under Section 67 of the Act. The High Court referred to the judgment in U.K. Monu Timbers, which stated that estimation cannot be the basis for imposing a penalty. However, the High Court found that the Intelligence Officer's determination was not an estimate but a calculation based on the dealer's own data. The Tribunal's findings were supported by evidence, and the High Court concluded that the penalty was justified and not based on estimation.Conclusion:The High Court dismissed the revisions, upholding the Tribunal's findings on all issues. The court found that the dealer's actions constituted deliberate tax evasion through misclassification, undisclosed turnover, and suppression of sales. The penalty imposed was deemed appropriate and not based on estimation, ensuring compliance with the statutory provisions of the Kerala Value Added Tax Act, 2003.