Kerala HC deletes Penalty under KVAT Act as Goods Transported was for Own Use [Read Order]

In a recent case, the Kerala High Court deleted the penalty under Kerala Value Added Tax (KVAT) Act, 2003 as goods transported were for own use. It was viewed that there was no intention to evade tax.

Petrolink Data Services (P) Ltd, the respondent/assessee was engaged in the IT technical support and software development business from 2012 to 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 concerning a consignment of computers, peripherals, and parts, which the assessee had obtained from a dealer in Bangalore.

The respondent assessee submitted 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.

The First Appellate 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 Appellate Tribunal considered both the appeals together and found that during the return period 2012-2013, Form 8F declarations signed by the consignor were available 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

The Tribunal concluded 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.

The Government Pleader submitted that there was in fact an attempt at evasion of tax as evidenced by the findings of the Intelligence Officer. Also stated that the attempt at tax evsion was evident from the very fact that the assessee had not taken out a registration under the KVAT Act at the time of receipt of goods from the consignor in Bangalore.

The division 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 a higher rate of 5.5%, which is applicable for unregistered dealers. While obtaining the goods from outside the state, the assessee did not benefit from a lower tax rate.

The court noted that the finding of the Appellate Tribunal 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 a 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.

To Read the full text of the Order CLICK HERE

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