Penalty for missing VAT declaration moderated where goods were later taken back outside the State without any local sale.

Non-compliance with the declaration requirement under Rule 66(6) of the Kerala Value Added Tax Rules, 2005 could justify an initial presumption of attempted evasion and the initiation of penalty proceedings under Section 67. However, where the consignment of jewellery brought from Mumbai was later taken back in full outside Kerala through Walayar and Coimbatore, and the check post authorities acknowledged that movement, there was no actual sale within the State. In that factual setting, the basis for completed evasion lost force, so the penalty could not be sustained in full and was reduced.

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Issues: Whether penalty under Section 67 of the Kerala Value Added Tax Act was sustainable where the goods were not covered by the prescribed declaration but were subsequently taken back out of the State without any actual sale within Kerala.

Analysis: The declaration requirement under Rule 66(6) of the Kerala Value Added Tax Rules, 2005 was admittedly not complied with at the time of entry. That circumstance could justify an initial presumption of attempted evasion and the initiation of penalty proceedings under Section 67. However, the subsequent material showed that the very jewellery consignment brought from Mumbai was taken back in its entirety outside Kerala through Walayar and Coimbatore, and the authorities at the check post acknowledged that movement. In that factual setting, there was no actual sale within the State, and the premise of completed evasion lost force. The penalty therefore required moderation.

Conclusion: The penalty under Section 67 was not to be sustained in full, and the amount was reduced to Rs. 1 lakh.

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