Kerala High Court
The Kozhinjampara Service ... vs The Intelligence Officer (Ib) on 5 August, 2025
2025:KER:58540
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE S.MANU
TUESDAY, THE 5TH DAY OF AUGUST 2025 / 14TH SRAVANA, 1947
WP(C) NO. 40889 OF 2016
PETITIONER/S:
THE KOZHINJAMPARA SERVICE CO-OPERATIVE BANK
KOZHINJAMPARA, PALAKKAD,
REPRESENTED BY ITS SECRETARY, M. SOBHANA
BY ADV SMT.MEERA V.MENON
RESPONDENT/S:
1 THE INTELLIGENCE OFFICER (IB)
DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD - 678001
2 THE INSPECTING ASST. COMMISSIONER,
DEPARTMENT OF COMMERCIAL TAXES, CHITTUR - 678101
BY ADV GOVERNMENT PLEADER
OTHER PRESENT:
ADV NIRMAL KRISHNAN
ADV SAYED M THANGAL, GP TAX
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
05.08.2025, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C) NO. 40889 OF 2016
2025:KER:58540
2
JUDGMENT
Petitioner is a Service Co-operative Bank. On failure of the borrowers to clear the dues arising from gold loans the petitioner conducts public auction of the pledged gold ornaments. During 2013-2014 an amount of Rs.1,60,600/- was obtained by the petitioner Bank by auction of gold. During 2014-2015, an amount of Rs.17,27,900/- was obtained. The 1 st respondent issued notices under Section 67(1) of the KVAT Act, 2003 to the petitioner Bank on 28.11.2015 proposing to impose penalty for non-payment of tax. Petitioner submitted detailed reply explaining that this Bank was under the impression that, the sale of gold ornaments in auction by the Bank was covered under the provisions of the KVAT Act, 2003. 1st respondent thereafter, passed orders dated 27.07.2016 imposing penalty of Rs.16,060/- and Rs.1,72,790/-. Challenging the orders issued by the 1st respondent, this writ petition was filed.
2. According to the petitioner imposition of penalty by the 1st respondent is illegal and arbitrary. Petitioner contended that, it is not engaged in the sale of gold ornaments on a regular basis. It conducts sale of gold ornaments in auction only when the borrowers failed to clear the dues under gold loan transactions. WP(C) NO. 40889 OF 2016 2025:KER:58540 3 Petitioner further contended that the provisions of the Act are attracted only in cases were the party concerned is regularly effecting sales of the articles. Further, the petitioner states that the tax with interest component was remitted by way of demand draft dated 26.09.2016.
3. Counter affidavit was filed on behalf of the 1 st respondent. It is stated in the counter affidavit that the petitioner is a registered dealer under the KVAT Act, 2003. On scrutiny of records it was revealed that the petitioner had conducted sale of gold in auction in the assessment years 2013-2014 and 2014- 2015. No tax was remitted in respect of the auction sales. The gold auction conducted by the petitioner is a sale squarely covered under Section 2(xliii) of KVAT Act, which is exhigible to tax @ 5% as per Section 6 of the Act. Moreover non-payment of tax by the petitioner is an offence under Section 67(1) of the KVAT Act. Hence, it was proposed to impose penalty and notices were issued to the petitioner. Though opportunity of personal hearing was provided, the petitioner did not turn up for personal hearing. Thereafter, Exhibits P3 and P3(a) penalty orders were passed and served on the petitioner along with demand notices on 03.09.2016. On 27.09.2016, petitioner remitted an amount of WP(C) NO. 40889 OF 2016 2025:KER:58540 4 Rs.94,425/- as per Demand Draft dated 26.09.2016. In the letter dated 26.09.2016, submitted along with the Demand Draft it was stated that, the said amount was paid towards tax. 1 st respondent accepted the said amount towards part payment of penalty with intimation in writing to the petitioner on 28.09.2016. It is further pointed out that the auction amounts were not included in the returns filed by the petitioner and no tax was remitted. Hence the 1st respondent justified the actions taken.
4. I have heard the learned Counsel appearing for the petitioner and also the learned Government Pleader. The learned Counsel for the petitioner submitted that, the non- remittance of tax and non-inclusion of the sale of gold in auction in the returns file was on account of a bonafide belief that the auction sale of gold ornaments by the C-operative Bank was not covered by the definition of sale under the KVAT Act, 2003. He also pointed out that, the Bank stated in Exhibit P2 reply submitted on 31.12.2015, that the auction of gold by the Bank was not taxable under the KVAT Act, 2003 for the reasons which were specified in paragraph No.4 of the said letter. The learned Counsel submitted that, there was no intention to evade payment of tax and hence the imposition of penalty was highly unjust. WP(C) NO. 40889 OF 2016 2025:KER:58540 5
5. The learned Government Pleader on the other hand submitted that, the sale of gold ornaments in auction by the Bank is well covered under the definition of sale under the KVAT Act, 2003. He submitted that, the Bank was liable to disclose the sale in the returns submitted and to pay tax also. On finding that the Bank conducted auction sales and failed to remit tax, notices were issued and sufficient opportunity was offered for personal hearing. Though the personal hearing was scheduled on three different occasions, the Bank did not turn up. Thereafter, the orders imposing penalty were issued. The learned Government Pleader further pointed out that, the omission to include the sale of gold ornaments in the returns and non-payment of tax is an offence under the Act and hence imposition of penalty is perfectly justified.
6. I notice that in almost identical circumstances, in W.P.(C) No.23582 of 2016, this Court in the case of another Co- operative Bank held that, the imposition of penalty was justified. In the said case also non-payment of tax for sale of gold ornaments in auction was involved. However, in view of the fact that, the petitioner in the said case was a co-operative society doing banking operations, this Court held that there was no reason to WP(C) NO. 40889 OF 2016 2025:KER:58540 6 impose the maximum harsh penalty on the petitioner. This Court noted that the petitioner in the said case had paid penalty equal to the amount of tax. Taking note of the said payment, this Court held that the same shall be treated as sufficient compliance of the order imposing penalty. Further, it was held that the petitioner shall be under obligation to file necessary return and pay tax in accordance with the procedure prescribed. In view of the similar circumstances arised in this writ petition, I am of the view that, this writ petition can also be disposed of on the same lines.
I therefore, dispose of this writ petition, taking note of the payment of Rs.94,425/- by the petitioner - Bank. The payment of the said amount shall be treated as sufficient compliance of the notice of demands impugned in this writ petition. The total amount of penalty imposed shall stand modified to Rs.94,425/-. It is clarified that petitioner shall be under obligation to file necessary return and pay tax, in accordance with law.
Sd/-
S.MANU JUDGE ANK WP(C) NO. 40889 OF 2016 2025:KER:58540 7 APPENDIX OF WP(C) 40889/2016 PETITIONER'S EXHIBITS EXHIBIT P1 COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT 28.11.2015 EXHIBIT P1 (A) COPY OF NOTICE ISSUED BY THE 1ST RESPONDENT 28.11.2015 EXHIBIT P2 COPY OF REPLY FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT EXHIBIT P3 COPY OF ORDER ISSUED BY THE 1ST RESPONDENT 27.07.2016 EXHIBIT P3 (A) COPY OF ORDER ISSUED BY THE 1ST RESPONDENT 27.07.2016 EXHIBIT P4 COPY OF DEMAND DRAFT NO. 195824 DRAWN ON STATE BANK OF TRAVANCORE 26.09.2016 RESPONDENT'S EXHIBITS EXHIBIT R1(A) TRUE COPY OF THE LETTER DATED 28.09.2016.