Goods Transported For Own Use, No Intention To Evade Tax, Kerala High Court Deletes Penalty

The Kerala High Court has held that the assessee, immediately after the goods were detained, produced the statutory declarations in Form 16 to demonstrate that the goods that were being transported were for the own use of the assessee.

The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M., while upholding the Tribunal's order, observed that there was no intention on the part of the assessee to evade payment of tax, which is legally sustainable. At the time of receipt of the consignment of goods from Bangalore, the respondent assessee had also suffered the CST at the higher rate of 5.5%, which is applicable for unregistered dealers. While obtaining the goods from outside the state, the assessee did not get the benefit of a lower rate of tax.

The respondent/assessee was engaged in the business of IT technical support and software development during the years 2012-2013. The assessee had not taken registration under the KVAT Act, 2003, during the year, and the registration was applied for and obtained only in 2014, when the assessee became a unit situated in the special economic zone. The penalty proceedings were initiated in respect of a consignment of computers, peripherals, and parts, which the assessee had obtained from a dealer in Bangalore. Although it was the case of the respondent assessee that the consignment was accompanied by valid invoices and check post declarations in Form 8F as well as by a declaration in Form 16 that was subsequently produced before the detaining authority to show that the goods were intended for own use and not for resale. The intelligence officer found that the transportation was with an intent to evade tax and consequently imposed a penalty on the respondent assessee.

In an appeal preferred by the assessee before the First Appellate Authority, the authority dismissed the appeal and sustained the order of the intelligence officer. The assessee preferred a further appeal before the Appellate Tribunal.

In the meantime, the assessment proceedings were also completed against the assessee by the assessing authority, who relied on the penalty order passed by the intelligence officer to sustain additions to the declared turnover of the assessee. The appeal proceedings against the assessment order also culminated in an order that was the subject of an appeal before the Appellate Tribunal against the additions made against the assessee.

The Appellate Tribunal considered both the appeals together and found on facts, after examining the assessment records as well as the penalty files, that during the return period 2012-2013, Form 8F declarations signed by the consignor were available at page 39 of the records produced by the Department. The Tribunal also found that the assessee had also produced the necessary Form 16 before the intelligence officer, after the detention, to demonstrate that the goods that were transported were for the own use of the assessee and not for the purposes of resale. Taking note of the said documentary evidence before it, the Tribunal came to the conclusion that the necessary documents mandated by Section 47(2) of the KVAT Act had been produced before the authority, and inasmuch as there were no findings based on any material to show that there was an attempt at evasion of tax by the assessee, the penalty order could not be legally sustained. It was on this basis that the Appellate Tribunal found that the penalty imposed by the intelligence officer at the first instance and sustained by the First Appellate Authority in appeal had to be cancelled.

Based on the finding with regard to the non-sustainability of the penalty, the Appellate Tribunal also found that the additions made in the assessment, based on the penalty order of the intelligence officer, could not also be sustained. The assessment order based on the penalty order was also set aside.

The court noted that the finding of the Appellate Tribunal, based on the documents available before it, that there was no intention on the part of the assessee to evade payment of tax is legally sustainable. At the time of receipt of the consignment of goods from Bangalore, the respondent assessee had also suffered the CST at the higher rate of 5.5%, which is applicable for unregistered dealers.

The court upheld the order of the tribunal setting aside the penalty order and assessment order.

Counsel For Appellant: V.K.Shamsudheen

Counsel For Respondent: R.Jaikrishna

Case Title: State Of Kerala Versus Petrolink Data Services (P) Ltd.

Citation: 2024 LiveLaw (Ker) 478

Case No.: OT.REV NO. 125 OF 2020

Click Here To Read The Order