M/S. P.I.MARKETING (P) LTD. V. COMMERCIAL TAX OFFICER, THRISSUR & ORS

WP(C)/14632/2010

AI Insights

The case involves M/S. P.I. Marketing (P) Ltd., which challenged the notices issued by the Commercial Tax Officer, Thrissur, that froze their bank accounts under Section 35 of the KVAT Act. The petitioner argued that the notices were issued without quantifying any tax or penalty liabilities, which is a requirement under the KVAT Act as clarified by a previous division bench ruling. The respondents contended that the petitioner was involved in significant tax evasion and other illegal activities, which justified the freezing of accounts. The court decided to lift the freeze on the condition that the petitioner provides a bank guarantee and additional security, emphasizing the need for due process and legal substantiation in such actions.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 727075 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 25-05-2010
• Assessment Year: misc
• Other Referred Cases: Intelligence Officer I, Office of the Inspecting Assistant Commissioner (INT.). Agricultural Income-Tax and Sales Tax Vs. E.J. Peter and another (1999 116 STC 254)
• Laws Referred To: KVAT Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K CHANDRAN
• Assessee Lawyers: HARISANKAR MENON
• Keywords: Bank account freeze; KVAT Act; Money Circulation Scheme; Tax Evasion
• Section: 35; 67(3)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON TUESDAY, THE 25TH MAY 2010 /4TH JYAISHTA 1932 WP(C).No. 14632 of 2010(D) -------------------------- PETITIONER: --------------- M/S. P.I.MARKETING (P) LTD., 1ST FLOOR, PENTA WORLD BUILDING, POOTHOLE, THRISSUR, REPRESENTED BY A.NARAYANANKUTTY, MANAGING DIRECTOR. BY ADV. MR. HARISANKAR V. MENON RESPONDENTS: --------------- 1. COMMERCIAL TAX OFFICER, 3RD CIRCLE, THRISSUR. 2. INTELLIGENCE OFFICER-II, DEPARTMENT OF COMMERCIAL TAXES, THRISSUR. 3. THE MANAGER, AXIS BANK, CITY CENTRE, THRISSUR. 4. THE MANAGER, SOUTH INDIAN BANK LTD., MAIN BRANCH, ROUND SOUTH, THRISSUR. 5. THE MANAGER, IDBI BANK LTD., EAST FORT, THRISSUR. 6. STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT.SECRETARIAT, THIRUVANANTHAPURAM. BY SPECIAL GOVERNMENT PLEADER FOR TAXES MR. K. VINOD CHANDRAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 25/05/2010, THE COURT ON 25/05/2010 DELIVERED THE FOLLOWING: P.R. RAMACHANDRA MENON J. ~~~~~~~~~~~~~~~~~~~~~~~ W.P. (C) No. 14632 of 2010 ~~~~~~~~~~~~~~~~~~~~~~~ Dated, this the 25th day of May, 2010 JUDGMENT The correctness and sustainability of Exts.P8 to P10 notices issued by the second respondent under Section 35 of the KVAT Act, causing to freeze the bank accounts of the petitioner, without quantifying the tax, if any or by passing any order fixing up penalty, forms the subject matter of challenge in this Writ Petition. 2. The sequence of events as narrated in the Writ Petition shows that, the petitioner who is stated as an assessee under the KVAT Act before the first respondent is engaged in the marketing of various commodities and was regularly filing the returns. However, In the course of inspection at the premises of the petitioner on 30.04.2010., some incriminating circumstances were stated as unearthed as revealed from Exts. P4 to P6 shop inspection reports. Pursuant to this, the second respondent issued Ext.P7 notice dated 6.5.10 under Section 67 (3) of the KVAT Act, proposing to impose penalty upon the petitioner; for which, it is stated that, the petitioner has preferred necessary explanation. Simultaneously, on the very same date, i.e. 6.5.2010, the second respondent issued Exts.P8 to P10 notices under Sections 35 of the KVAT Act, whereby the bank accounts of the W.P. (C) No. 14632 of 2010 : 2 : petitioner maintained with the three respondent Banks have been caused to be frozen, which is under challenge. 3. The learned counsel for the petitioner submits that, the course pursued by the 1st respondent is not at all correct or sustainable for the fact that the impugned notices (Exts. P8 to P9) are not legally sustainable, as a proceeding under Section 35 will lie only subject to the quantification of liability passing necessary orders in respect of tax, penalty or such other liability, as made clear by the division bench of this Court in Intelligence Officer I, Office of the Inspecting Assistant Commissioner (INT.). Agricultural Income-Tax and Sales Tax Vs. E.J. Peter and another (1999 116 STC 254) 4. The learned Special Government Pleader (Taxes), with reference to the contents of the statement filed submits that, the course and conduct of the petitioner was actually revealed only during the course of inspection and there was huge evasion of tax amounting to more than 1.5 crores, which made the authority concerned to issue necessary proceedings, also causing to freeze the accounts of the petitioner. The facts and figures brought to light during the inspection have been explained in the statement, asserting that the petitioner is engaged in some 'money circulation scheme' in the capacity as a 'Promotor' of different boards such as 'primary and express boards', W.P. (C) No. 14632 of 2010 : 3 : whereby the public are given member ship subject to the satisfaction of the requirements, where an element of sale is also involved, evading the tax as well. Referring to copies of the relevant proceedings produced along with the statement, the learned Special Government Pleader submits that, the business, as now being conducted, is not reflected any where in the application submitted for the purpose of registration. It is also stated that the Managing Director of the petitioner Company as well as the other Directors had filed affidavits in support of the application for registration stating that they did not have any asset in the form of any immovable properties, whereas the factual position as now conceded from the part of the petitioner is something else, particularly as revealed from the affidavit dated 18.5.2010, filed in support of the case. 5. It is to be noted that the petitioner has filed the affidavit dated 18.5.2010 before this Court, referring to the particulars of the directors of the company and the assets, owned, possessed and enjoyed by them. It is also stated that, the petitioner is prepared to face any sort of enquiry and further that 25 % of the amounts in the above Bank accounts could be retained as fixed deposit or to offer bank guarantee for the said amount till the matter is settled pursuant to Ext.P7 notice issued by the second respondent. A reply affidavit dated 21.5.10 has W.P. (C) No. 14632 of 2010 : 4 : also been filed from the part of the petitioner. 6. The basic question to be considered in this case is, whether : whether any legal sanctity is there, for having issued Exts. P8 to P10 notices invoking the power and jurisdiction under Section 35 of the Act. Section 35 says as follows: 35. Further mode of recovery :- (1) The assessing authority may, at any time or from time to time by notice in writing (a copy of which shall be forwarded to the dealer at his last address known to the assessing authority) require any court or any officer of the Central Government or of the Government of any State or Union Territory or any other person (other than an individual) from whom money is due or may become due to the dealer or any court of any such officer or any other person (other than an individual) who holds or may subsequently hold money for or on account of the dealer, to pay to the assessing authority, either forthwith if the money has become due or is so held of within the time specified in the notice (not being before the money becomes due or is held), so much of the money as is sufficient to pay the amount due by the dealer in respect of arrears of tax, fee or penalty or the whole of the money when it is equal to or less than the arrears of tax, fee or penalty (2) The assessing authority may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. (3) Any court, officer or other person making any payment in compliance with a notice under this section shall be deemed to have made the payment under the authority of the dealer and the receipt by the assessing authority shall constitute a good and sufficient discharge of the liability of such court, officer or other person to the extent of the amount referred to in the W.P. (C) No. 14632 of 2010 : 5 : receipt. (4) Any court or person other than an officer of the Government making any payment to the dealer after receipt of the notice referred to in this section shall be liable to the assessing authority to the extent of the payment made or to the extent of the liability of the dealer for the amount due under this Act, whichever is less. (5) Where any court or person other than, an officer of the Government to which or to whom a notice under this section is sent objects to it on the ground that the sum demanded or any part thereof is not due by it or him to the dealer or that such court of person does not hold any money for or on account of the dealer, then nothing contained in this section shall be deemed to require such court or person to pay the sum demanded or any part thereof to the assessing authority. (6) Any amount which a court or person other than any officer of the Government is required to pay the assessing authority or for which it or he is liable to the assessing authority under this section shall, if it remains unpaid, be a charge on the properties of such court or person, as the case may be and may be recovered as if it were an arrear of public revenue due on land. 7. The very scope and ambit of the provisions reveals that such course is intended in the course of steps for realization of the amount either in the form of tax or penalty and not as a preventive measure. The position stands clear as explained by this Court in Intelligence Officer I, Office of the Inspecting Assistant Commissioner (INT.). Agricultural Income-Tax and Sales Tax Vs. E.J. Peter and another (1999 116 STC 254). . Now, the question is whether the steps being W.P. (C) No. 14632 of 2010 : 6 : taken are correct or sustainable. It is also brought to the notice of this Court that, the proceedings pursuant to Ext.P7 are being finalized in view of the hearing scheduled today. 8. Taking note of the contents of the affidavit filed by the petitioner, that the petitioner is prepared to offer Bank Guarantee, to the extent specified and also taking note of the submission/undertaking made by the learned counsel for the petitioner before this Court that necessary security in the form immovable property will also be furnished by the petitioner, till the proceedings pursuant to Ext.P7 are finalized, this Court finds that the adverse circumstances resulted by virtue of Exts. P8 to P10 notices, causing the accounts of the petitioner frozen, could be done away with, subject to the condition that, the petitioner offers Bank Guarantee to an extent of Rs. '25 lakhs' and furnishes security in the form of immovable property as undertaken today, to the satisfaction of the authority concerned, till Ext.P7 proceedings are finalized. On satisfying the requirements as above, the ban imposed on the bank accounts of the petitioner as per Ext. P8 to P10 proceedings will stand lifted forthwith. The proceedings pursuant to Ext.P7 shall be finalized after hearing the petitioner, as expeditiously as possible, at any rate within 3 weeks from the date of receipt of a copy of this judgment. W.P. (C) No. 14632 of 2010 : 7 : 9. With regard to the other aspects as projected from the part of the respondents in the statement, referring to the activities being pursued by the petitioner involving 'money circulation', this Court finds that, it does not come within the purview of the second respondent as conceded by them. Respondents are liberty to pursue appropriate action and this judgment will not preclude them or such other authorities from proceeding against the petitioner in accordance with law. It is also made clear that, the first and second respondents are also at liberty to proceed against the petitioner in accordance with law, with regard to the registration of the petitioner as well, if the same was caused to be obtained by virtue of any fraudulent exercise, by concealing the material facts from the concerned authority or carries out the operations contrary to the provisions of law. 10. This Court does not express anything as to the merits involved or as to the relative submissions from either sides and the Writ Petition is disposed of, on the basis of the limited submissions, as referred to above. P. R. RAMACHANDRA MENON, JUDGE kmd "