Penalty for alleged suppressed sales was unsustainable where goods were only sent for hallmarking and no tax evasion was shown.

Penalty under the Kerala Value Added Tax regime was found unsustainable where goods were carried by an employee only for hallmarking and were to be returned to the assessee's store after that process. The revenue failed to show that the goods were meant for sale within the State or in interstate trade, and no material established possible tax evasion. As the assessee was paying tax on a compounded basis, any alleged suppression of turnover in the relevant year did not affect that year's tax liability. In these facts, a penalty based on alleged suppressed sales was not justified, and confinement to the statutory minimum was upheld.

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Issues: Whether the penalty imposed under the Kerala Value Added Tax regime was justified when the goods were being taken by an employee only for hallmarking and there was no material to show that the goods were meant for sale or that there was any tax evasion; and whether the Tribunal was right in limiting the penalty to the statutory minimum.

Analysis: The goods were found in the possession of an employee who was carrying them to a hallmarking centre on behalf of the assessee and it was not in dispute that they were intended to be returned to the assessee's store after hallmarking. The revenue did not establish that the goods were meant for sale within the State or in interstate trade, nor was there material to show a possible evasion of tax. The assessee was also paying tax on compounded basis, so any alleged suppression of turnover in the year in question had no bearing on the tax liability for that year. In these circumstances, the Tribunal found no justification for a penalty calculated on alleged suppressed sales and restricted the penalty to the amount mandated under the statutory provision.

Conclusion: The penalty based on alleged suppressed turnover was not sustainable on the facts, and the Tribunal was justified in confining the liability to the statutory minimum.

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