2023 (5) TMI 375 - HC - VAT and Sales Tax

Court dismisses writ petition, upholds Intelligence Officer's authority. Petitioner advised to pursue appeal remedy. Incomplete agreement not deliberate concealment.

PRODAIR AIR PRODUCTS INDIA PRIVATE LIMITED Versus STATE OF KERALA and STATE TAX OFFICER (IB), ERNAKULAM

The court dismissed the writ petition, affirming that the Intelligence Officer did not exceed their authority, and the penalty was imposed based on ... Jurisdiction of Intelligence Officer to levy penalty - penalty proceedings initiated under Section 67 of the KVAT, 2003 - Intelligence Officer in penalty proceedings initiated under Section 67 of the KVAT, 2003 can assume the role of Assessing Officer in imposing penalty on estimation or on the basis of correct figures or not - HELD THAT:- On verification of available books, it was convincingly found that BPCL did not effect any payment other than that of Fixed Monthly Charge towards the works executed by the petitioner for setting up production plant exclusively for BPCL and beyond doubt that BOO Operator had not received any consideration for setting up the new plant and machinery exclusively for BPCL until the supply of industrial gases started. BOO operator began to issue two type invoices one for FMC for BPCL on account of Hydrogen and Nitrogen without affecting any such supply, but, for actual supply effected invoice for VC by reading the metering equipment - No doubt, the Division Bench of this Court had culled out a ratio decidendi by holding that Intelligence Officer is not empowered while initiating the proceedings under Section 61 of KVAT Act and 45A of KGST Act 1963 on the basis of guess work and estimation. It is not the case where the petitioner failed to supply the documents in response to the notices reflecting the imposition of the penalty impelling the Intelligence Officer to arrive at a proceedings on estimation. The dictum laid down in M.K.Markar and others' case [2018 (12) TMI 481 - KERALA HIGH COURT] would definitely come into play, wherein it has been held that the role of Intelligence Officer is only to impose penalty prescribed in the Act and the matter was referred to the Assessing Officer, who would not be precluded from proceeding to arrive at best judgment on the basis of factors relevant to the activity of the dealer. On the basis of the extracted findings of the Intelligence officer it can irresistibly be concluded, it was not a case of estimation, but based on an actual calculation by reading the contents of the agreement and the invoices. That could not be a case falling in the ratio culled out in Markar's Case where Intelligence Officer was required to refer the matter to the Assessing Officer, nor would be any force in the argument that unless and until the Assessing officer embarks upon proceedings under Section 25 b penalty proceedings cannot be initiated. There are no force in the writ petition warranting interference under Article 226 of the Constitution of India. The petitioner, if so advised, is at liberty to assail the order impugned by filing appeal. The writ petition is accordingly dismissed. Issues Involved:1. Whether the Intelligence Officer in penalty proceedings under Section 67 of the KVAT Act, 2003, can assume the role of Assessing Officer.2. Interpretation of the terms and conditions of the agreement between the petitioner and BPCL.3. Competence of the Intelligence Officer to impose penalty based on estimation or correct figures.4. Availability of an alternative remedy of appeal.Detailed Analysis:1. Role of Intelligence Officer in Penalty Proceedings:The primary issue was whether the Intelligence Officer could assume the role of the Assessing Officer in imposing penalties. The court held that the Intelligence Officer is not competent to assess tax based on guesswork or estimation. The Intelligence Officer should only detect offenses under Section 61 and inform the Assessing Officer, who is responsible for determining tax liability and assessing any evasion.2. Interpretation of the Agreement:The agreement between the petitioner and BPCL was scrutinized. It was highlighted that the production plant and related systems would remain the property of the petitioner unless transferred or removed per the agreement's terms. The agreement also included provisions for BPCL to take over the plant if the agreement was not renewed, compensating the petitioner at a fair value. The court found that the Intelligence Officer misconstrued the terms of the agreement, leading to an erroneous conclusion.3. Competence to Impose Penalty:The court examined whether the penalty imposed was based on estimation or correct figures. It was argued that the Intelligence Officer's role is limited and does not extend to estimating tax liability. However, the court found that the penalty was not based on estimation but on actual figures derived from audited reports and the agreement's terms. The court referred to previous judgments, such as U.K. Monu Timbers vs. State of Kerala and M.K. Marakkar vs. State of Kerala, to emphasize that the Intelligence Officer should not engage in estimation.4. Availability of Alternative Remedy:The court noted that the petitioner had an effective and efficacious remedy of appeal. It was emphasized that interference under Article 226 of the Constitution of India is not warranted when an alternative remedy is available. The court concluded that the petitioner should pursue the appeal process to address their grievances.Conclusion:The court dismissed the writ petition, concluding that the Intelligence Officer did not act beyond their jurisdiction and that the penalty imposed was based on correct figures, not estimation. The petitioner was advised to file an appeal to contest the penalty order. The court also noted that the agreement presented was incomplete but did not see this as an intentional withholding of information.