CASE LAWS
2015-TIOL-2510-HC-KERALA-VAT
Flipkart Internet Pvt Ltd Vs State of Kerala : KERALA HIGH COURT (Dated: October 20, 2015)
Kerela VAT Act - Sections 16(13), 20, 22, 40 & 67.
Keywords: penalty - inter state sales - registered seller - issue of invoice - show cause notice - turnover - commission - sale transactions - evasion of taxes.
Whether in case there is no indication in the show cause notice as to why the revenue authorities considered the petitioner a dealer, or why the transactions in question had to be treated as local sales as against inter-state sales, penalty can be levied - NO: HC
Whether show cause notices issued by statutory authorities, more so when they propose the imposition of penalty on an assessee, can pre-determine the guilt of an assessee - NO: HC
The assessee is an online service provider, registered as such under the Finance Act, 1994, as amended, governing the levy of service Tax. In the writ petition, the petitioner is aggrieved by orders of penalty that have been passed against it by the authorities under the Kerala VAT Act. The said orders had been passed u/s 67 on the finding that assessee had breached the provisions of sections 20 and 40 of the KVAT Act in not getting itself registered as a dealer under the KVAT Act and further, not filing returns and maintaining true and correct accounts as mandated under the said Act. Assessee contended that it was a service provider who was not engaged in the business of sale or purchase of goods. It was pointed out that it merely facilitates transactions of sale and purchase through its online portal and, after an online customer identifies a product of his choice, the seller of the particular product was notified of the choice of the customer and he, in turn, raised an invoice on the customer and makes arrangements for the delivery of the product to the customer. Further, depending on the nature of the sale transaction, whether intra-state or inter-state. the seller of the product pays tax either under the local VAT Act or under the CST Act, and the fact of payment of tax was indicated in the invoice issued to the customer. The assessee contended it had absolutely no role to play in the transaction of sale and purchase and hence it could not have been proceeded against under the penal provisions of the KVAT Act. It was further contented that even if the Revenue authorities were of the view that it ought to had fired returns and paid tax under the Act, an opportunity ought to have been first afforded to it in terms of section 22 before proceeding to issue a notice u/s 67. Referring to the orders impugned in the writ petition, it was also contended that the findings therein, that the assessee had effected sales within the State of Kerala, was factually incorrect, and the transactions were, in fact, sales effected by WS Retail and other sellers, who were registered sellers on its web site. According to the assessee, the said sales were all inter-state sales as the sale transactions occasioned a movement of the respective goods from outside the State to various locations within the State of Kerala.
Held that,
++ the challenge in the writ petitions, against the impugned orders of penalty imposed on the petitioners, must necessarily succeed. It is relevant to note that the proposal for imposition of penalty in both the cases was premised on the contention that the petitioners had occasioned a breach of the provisions of Section 20 and Section 40 of the KVAT Act dealing with the filing of necessary returns and maintenance of true and correct accounts. A mere perusal of the said notice would indicate that rather than stating the reasons that prompted the revenue authorities to suspect an evasion of tax, and calling for the explanation of the assessee to those reasons, the notice proceeds to draw definite conclusions as regards the commission of an offence by the assessee. There is no indication in the notice as to why the revenue authorities considered the petitioner a dealer, or why the transactions in question had to be treated as local sales as against inter-state sales. The notice adopts the figure furnished by the petitioner, representing the total turnover in respect of sale transactions completed through its online portal to customers in Kerala during the relevant period, as the total sales turnover of the petitioner for the purposes of quantifying the tax liability and penalty against the petitioner. The notice does not, however, spell out how the said figure could be taken as representing the sales turnover of the petitioner, or how the said sales could be seen as intra-state sales for the purposes of the KVAT Act. The tenor of the notices issued to the petitioner gives ample indication that the authority had, more or less, made up his mind to impose a penalty on the petitioner. It is by now well settled that show cause notices issued by statutory authorities, more so when they propose the imposition of penalty on an assessee, cannot pre-determine the guilt of an assessee. The notices issued cannot confront an assessee with definite conclusions as regards the commission of an offence by him as, otherwise, it would make a mockery of the process of quasi-judicial adjudication. In Oryx Fisheries Private Limited v Union of India and Ors - [(2010) 13 SCC 4271, the SC found that a show cause notice that was served on the appellant in that case was one that confronted him with definite conclusions of his alleged guilt;
++ the said orders are more or less verbatim reproductions of the notices issued to the petitioner. While this would fortify my observations as regards the manner in which the notices themselves were issued, I find that in the impugned orders, the authority concerned does not enter a specific finding, supported by reasons, as to whether there was any sale effected by the petitioner at all. The impugned orders only find that there were transactions of sale that resulted in goods being delivered to customers in Kerala, but do not go further and find that it was the petitioner who effected those sales. Further, there is no consideration of the specific contention of the petitioner that the sales in question were effected by sellers who were registered on its online portal, and that all the said sales were inter-state sales on which the respective sellers had paid applicable tax under the CST Act. A specific finding on the above issues, in my view, was necessary to clothe the authority concerned with the jurisdiction to proceed against the petitioner under the penal provisions of the KVAT Act, and the absence of a finding on these issues, denudes the authority concerned of such a jurisdiction. Although the Government Pleader sought to justify the orders impugned on various other grounds, I do not propose to deal with those grounds in this judgment since it is trite that the legality of the orders impugned can be sustained only on the reasons to be found in the said orders and not through reasons that are sought to be supplied later through a counter affidavit of the respondents in the writ petitions. [See: Mohinder Singh Gill v. Chief Election Commissioner, New Delhi (1978) 1 SCC 4O5]]. As regards the finding in the impugned orders, that the situs of the virtual shop can be traced to Kerala on an analogy with the decision of the Karnataka HC in Antrix Corporation Limited v Assistant Commissioner of Commercial Taxes and Ors - [2011 (19) KTR 182 (Kar)], the said finding is legally flawed because, it is well settled that the situs of a sale is wholly irrelevant to a determination of the issue of whether a sale is an inter-state sale or not [See: Union of India v K.G.Khosla & co. Ltd - [(1979) 2 SCC 2421; Oil India Limited v Superintendent of Taxes & Ors - ([1975) 1 SCC 7331; English Electric Company of India Ltd v DCT & Ors - [(1976) 4 SCC 460]]. The most perplexing aspect of the instant case, however, is that WS Retail, the seller responsible for effecting majority of the sales to customers in Kerala, through the online portal of the petitioner, is registered as a dealer under the KVAT Act and, in the returns submitted by the said dealer for the relevant period, they had conceded NIL taxable turnover under the KVAT Act, on the contention that their entire sales turnover pertained to inter-state sales effected by them. Under the said circumstances and, in the absence of any material to suggest that the returns filed by the said seller were rejected by the revenue authorities, one fails to understand how the revenue authorities could proceed to levy tax, or impose penalty, on the petitioner in respect of the same turnover. The findings in the impugned. orders reflect a patent non-application of mind by the authority concerned and also smack of arbitrariness. I therefore quash Exts.P11 and P12 orders, Exts.P13 and P14 Demand Notices as also Exts.P8 and P9 show cause notices that are impugned in W.P.(C).No.5348 and allow the said writ petition.
Assessee's appeal allowed
2015-TIOL-2509-HC-MUM-IT
DHIMANT HIRALAL THAKAR Vs CIT: BOMBAY HIGH COURT (Dated: October 28, 2015)
Income Tax - Sections 37(1), 143(3) & 256(1).
Keywords - business expenditure - personal nature expense - eye treatment - preoperative treatment - foreign tour.
Whether an assessee is entitled to claim deduction in respect of the expenditure incurred by him on foreign tour undertaken for the purpose of preoperative treatment of his eyes as normal business expense u/s 37(1) - NO: HC
The assessee is a Solicitor by profession. During the AY 1986-87, assessee incurred an expenditure of Rs.43,600/- on a foreign tour in connection with a preoperation investigation of his eyes while determining his total income. This claim was disallowed by AO in the assessment order passed u/s 143 (3) on the ground it was personal expenditure. Therefore, it did not arise in the course of the profession nor was it incidental to the profession. On appeal, CIT(A) upheld the order of AO disallowing the said expenditure on the ground that if the logic of the assessee was stretched, it would mean that even expenditure incurred on food to preserve oneself should also be treated as allowable u/s 37(1), as being incurred for business or profession. On further appeal, Tribunal concurred with the findings of AO and CIT(A) disallowing the expenditure incurred for investigation of the eyes and relied upon the decision of SC in case of State of Madras vs. C.J.Coelho (53 ITR 186) to hold that the correct connotation of the words "personal expenses" would mean only expenses on the person of the assessee or to satisfy his personal needs such as clothes, food etc or for the purposes not related to business. On the above basis, Tribunal observed that eyes are an important organ for an effective living of every human being and in case of any defect in the eyes the medical treatment thereof is very much necessary for the effective living of a human being. This irrespective of the business, profession or vocation carried on by the person. In the alternative, the Tribunal held that if the expenditure was attributable to both personal and professional as contended by the applicant, yet it cannot be allowed as a deduction. This was so as the expenditure had an element other then business or profession, therefore, it cannot be said to have been incurred wholly and exclusively for the purpose of profession. Therefore, the expenditure of medical treatment on eyes was disallowed under Section 37. The assessee thereafter moved a reference application u/s 256 (1) to the Tribunal seeking a reference.
Held that,
++ the Supreme Court in the case of "CIT, Delhi vs. Delhi Safe Deposit Co.Ltd., 2002-TIOL-899-SC-IT" considering as to what would be the true test of the expenditure laid out wholly and exclusively for the purposes of trade or business held that it would be an expenditure incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than of a trader. It could not be said that the expenditure incurred by the assessee was either gratuitous or one incurred outside the trading activities of the assessee and thus the assessee was entitled to claim deduction under section 37. It is thus clear that the requirement to claim a deduction under Section 37 which is a residuary provision is quite clear, which is that the expenditure must not be of the nature described in section 30 to 36; secondly the expenditure must not be capital in nature; thirdly the expenditure must have been laid down wholly and exclusively for the purpose of business/profession of the assessee; and fourthly the expenditure must not be personal in nature. Applying these requirements of the statutory provision and the settled position in law as noted by us in the above decisions, we have no hesitation to reach a conclusion that the applicant is not entitled to claim deduction in respect of the expenditure incurred by him on foreign tour undertaken by him in the assessment year in question for the purpose of preoperative treatment of his eyes. It cannot be disputed that the expenditure of Rs.43,600/- on foreign tour claimed to be undertaken by the appellant is for the purpose of preoperation investigation of his eyes. We are not persuaded to accept the submission on behalf of the applicant that eyes are required to be exclusively used for the purpose of profession by the applicant. As observed above eyes are an important organ of the human body and is essential for the efficient survival of a human being. Eyes are thus essential not only for the purpose of business or profession but for purposes other than these which are so many. It is therefore clear that the said expenditure as claimed by the applicant is not in the nature of the expenditure wholly and exclusively incurred for the purposes of the profession of the applicant and thus this expenditure cannot be claimed by the applicant to be allowed as deduction in computing the income chargeable under the head profits and gains from business or profession in case of the applicant as per the provisions of Section 37. We do not agree with the contentions as raised on behalf of the applicant, we are in agreement with the submissions as made on behalf of the revenue and we answer the question as referred to us in the affirmative that is in favour of the revenue and against the assessee. Reference Application is accordingly disposed of in the above terms.
Assessee's appeal dismissed
2015-TIOL-2317-CESTAT-MUM + Story
JET AIRWAYS INDIA LTD Vs CST: MUMBAI CESTAT (Dated: October 21, 2015)
