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:
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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.
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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
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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.
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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
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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
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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.
