TaxTMI 
TaxTMI 
2009 (7) TMI 1171
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....alty was levied at 50 per cent of the value of such goods under section 44(8) of the Act. The appellants challenged the constitutional validity of section 44(10) and the validity of follow-up penalty orders issued under section 44(8) of the Act before the learned single judge, who upheld the validity of the section but without going into the merits of the penalty orders, gave freedom to the appellants to file statutory appeal against penalty orders. It is against this common judgment of the learned single judge Reported as Far East Trading Establishment v. Intelligence Officer [2009] 25 VST 147 (Ker). the connected appeals are filed before us. We have heard counsel appearing for the appellants and the Government Pleader appearing for the respondents. The provision under challenge namely, section 44(10) and the provision under which penalty is levied, namely, section 44(8) are extracted hereunder for easy reference: "44. Power to order production of accounts and powers of entry, inspection, etc.- . . . (8) If any officer, while inspecting any place of business under subsection (2) or searching any place under sub-section (3) finds therein any goods not accounted for by t....
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....ng payment of tax. The validity of the provision has to be necessarily considered with reference to the object with which it is introduced and the other provisions of the Act relating to the discipline required to be maintained by registered dealers under the Act engaged in trade. We notice that a dealer applying for registration should provide in clause (6) of form 1, the address of all the godowns in which he proposes to store goods for sale, which is expressly provided in rule 17(28) of the KVAT Rules. The certificate of registration issued to the dealer contains the address of the approved godowns where dealer is permitted to keep the goods. From these it is very clear that it is mandatory for a dealer to store the goods only in declared godowns. Until the introduction of sub-section (10) of section 44 it was open to the dealer who is found to have stored goods in undeclared godowns to prove before the authorities that such goods are also accounted by him in the books of account maintained by him under section 40 of the Act. The effect of sub-section (10) of section 44 is such that goods seen in undeclared godown shall be treated as stock outside the regular books of accounts o....
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....n 44(10) is irrebuttable, there is no provision providing for absolute penalty for the violation. On the other hand, existing provision available namely, section 44(8) gives discretion to the officer to limit the penalty up to 50 per cent of the value of goods. In other words, quantum of penalty is a matter of discretion to the officer and it is for the dealer to explain the circumstances that led to storage of goods in the undeclared godown if the goods were accounted, with the proof of the same, so that he does not suffer maximum penalty. The discretion in regard to penalty in the context of section 28(8) of the KGST Act was explained by this court in the decision in St. Michael's Oil Mills v. State of Kerala [1988] 68 STC 360. As already found by us, the proviso to section 44(10) gives permission to the dealer to store goods in undeclared godowns with prior intimation to the officer and the discretion in regard to penalty contained in section 44(8) of the Act, mitigates much of the rigour of the main clause. We, therefore, hold that the provision is not intended to harass any dealer engaged in bona fide business, but is intended to act as a deterrent against tendency in deal....
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....ction 40 of the Act. The inspection referred to in sub-clause (8) read with sub-clause (3) of section 44 certainly covers inspection in place of business including godown of the dealer and any other place which includes an undeclared godown. The Government Pleader pointed out that after introduction of section 44(10), no amendment is required to section 44(8) because the said sub-section authorises levy of penalty for the stock treated as unaccounted goods as contemplated under section 44(10). Penalty provided under section 44(8) is "for any goods not accounted for by the dealer in his accounts and other records required under section 40". When a deeming provision is introduced in the Act by section 44(10) which says that the goods seen in the undeclared godown shall be treated as unaccounted goods or goods kept outside the books of accounts of the dealer, then the words "any goods not accounted for" in sub-section (8) will take in goods treated as "not accounted" under section 44(10) of the Act also. So much so, section 44(8) applies to a case falling under section 44(10) also. As already stated, even though penalty under section 44(8) read with section 44(10) is mandatory, by vir....