KGN Enterprises Ltd Vs State of Gujarat (Gujarat High Court)

Gujarat High Court heard two applications seeking to quash an FIR filed against KGN Enterprises Ltd. and its directors under the Gujarat Value Added Tax (GVAT) Act, 2003, and the Indian Penal Code (IPC). The FIR, registered at Danilimda Police Station, alleged that the company engaged in fraudulent transactions by issuing bogus bills to claim Input Tax Credit (ITC) without actual movement of goods. The Sales Tax Department contended that the company collected tax without legitimate transactions and sought to penalize it under GVAT Act provisions. The petitioners challenged the FIR, arguing that the matter was already under review before the Gujarat Value Added Tax Tribunal and that criminal proceedings were unwarranted.

During the proceedings, the Additional Public Prosecutor (APP) admitted that there was no document on record that could be classified as false under Section 464 of the IPC, which defines forgery. The APP further clarified that while the Investigating Officer believed that creating false bills constituted forgery, no substantial evidence supported this claim. Additionally, the Court noted that the Tribunal had already ruled in favor of the company in certain aspects of the case, indicating that the matter remained unresolved at the administrative level.

The High Court relied on its prior decision in Rakesh Trilok Chand Gupta vs. State of Gujarat & Anr., where it ruled that criminal prosecution under the IPC cannot proceed when the primary allegations fall under a special statute like the GVAT Act. The Court reiterated that tax-related offenses should be handled within the framework of the tax laws, and police investigations into such matters must align with statutory provisions. Furthermore, under Section 88 of the GVAT Act, tax-related investigations should be conducted by designated tax officials rather than law enforcement agencies.

The Court observed that the Sales Tax Department had prematurely lodged the FIR while the Appellate Tribunal had yet to finalize the case. The Tribunal had also directed the Deputy Commissioner of Commercial Tax to reassess the matter before taking any further action. Given the pending status of the case at the Tribunal level, the Court found it inappropriate to allow criminal proceedings to continue.

Accordingly, the Gujarat High Court quashed the FIR while granting liberty to the department to initiate prosecution if the Tribunal’s final decision established liability. The ruling reinforced the principle that tax disputes should first be adjudicated by the relevant statutory authorities before criminal charges are considered.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1.  As the issues raised in both the captioned applications are the same and the prayer is also to quash the selfsame first information report, those were heard analogously and are being disposed of by this common judgment and order.

2. For the sake of convenience, the Criminal Misc. Application No.26923 of 2017 is treated as the lead matter.

3. By this application under section 482 of the Cr. P.C., 1973, the applicants seek to invoke the inherent powers of this Court praying for quashing of the first information report being I-C.R. No.45 of 2016 registered before the Danilimda Police Station for the offence punishable under sections 85(1)(b)(c)(e)(f), 85(2)(j) and 85(4) of the Gujarat State Value Added Tax Act, 2003 and sections 406, 420, 467, 468 and 471 of the Indian Penal Code.

4.1 The case of the department of Sales Tax may be summarized as under;

4.1  The applicant No.1 is a company registered under the Companies Act, 1956. The applicants Nos.2, 3 and 4 are the directors of the applicant No.1-Company. The Company is engaged in the business of petro products and castor oil and its packaging. The officials of the Sales Tax Office, Ahmedabad visited the godowns/offices of the Company, situated at Ahmedabad for the purpose of search on 11.11.2009. The allegations are that the Company has shown the bills of sales and purchases of the castor oil during the assessment period 2009-2010 in its books of accounts. On verification of the documents, it was found that the Company had purchased the castor oil from the Biotar Industries Ltd and sold to the K.G.N. Industries Ltd. The transactions were found to be suspicious and doubtful. The sales and purchases bills were seized by the officials. The Company claimed ITC of Rs.2,59,66,226/- on the purchases made from M/s. Biotar Industries Ltd. On verification of the bills, it was found that all the sales and purchases were effected without the actual movement of the goods. It is alleged that the bogus bills were prepared. It is alleged that only with a view to claim ITC, bogus billing transactions were carried out by the Company. The allegations are that without making any actual movement of the goods and without entering into the transaction of sales and purchases, the Company carried out the billing transactions and after claiming ITC, the tax was paid only on the differential amount. Thus, according to the department, the Company unauthorizedly collected the tax and paid the same along with the returns which were liable to be forfeited under section 31(3) of the Act and the penalty under section 31(4) of the Act.

4.2  On 06.11.2017, the following order was passed;

“Let Notice be issued to the respondents, returnable on 21/11/2017. Ms. Moxa Thakkar, the learned Additional Public Prosecutor waives service of notice for and on behalf of the respondent no.1-State of Gujarat. Direct service for respondent no.2.

The investigation may proceed further in accordance with law, however, no coercive steps be taken against the applicants.

Ms. Thakkar, the learned APP shall take instructions from  the Investigating Officer, more particularly, how the Investigating in the present case. Second aspect, which needs consideration is the two orders of the Tribunal. On the returnable date, notify the matter on top of the board. Direct service is permitted.”

5. Mr. Patel, the learned counsel appearing for the applicants submitted that the first information report has been lodged after a period of seven years from the initial search which was undertaken on 11.11.2009. It is submitted that, in such circumstances, the demand raised by the department in the year 2010, has been set aside by the Tribunal. The learned counsel submits that even if the entire case of the prosecution is believed or accepted to be true, there is no forgery. Even, assuming for the moment, without admitting that the bogus bills were created, the same would not constitute forgery. The learned counsel submitted that the entire issue, which is made the subject matter of the prosecution, is at large before the Tribunal and the orders passed by the Tribunal, time to time, makes it very clear that no case is made out, prima facie, against the applicants for prosecuting them.

6. Mr. Patel submitted that when a special statute is created by the legislature to deal with a particular type of offence, even if, for the similar Act, an offence is created in a general statute, i.e, the Indian Penal Code, a provision of the general statute cannot be invoked. Mr. Patel also submitted that under section 88 of the Act, 2003, the investigation of the crime in question cannot be entrusted to the police machinery. Mr. Patel, in support of his submissions, placed reliance on a Supreme Court decision in the case of Sharat Babu Digumati vs. Govt. of NCT of Delhi (2017) 2 SCC 18 and one decision of the Punjab & Haryana High Court in the case of (2007) Cri.L.J. 429.

7. On the other hand, Ms. Thakkar, the learned APP appearing for the respondents submitted that pursuant to the order passed by this Court dated 06.11.2017, referred to above, the Investigating Officer was called for the purpose of taking appropriate instructions. Ms. Thakkar, the learned APP very fairly pointed out that there is not a single document on record, which can be termed as a false document within the meaning of section 464 of the IPC. The learned APP submitted that the understanding of the Investigating Officer is that if a false bill is created, then the same would constitute an offence of forgery. Ms. Thakkar, the learned APP submitted that there is nothing, on the basis of which, it could be argued that the applicants have committed the offence of forgery.

8. Ms. Thakkar, the learned APP also very fairly pointed out that the entire issue, which is sought to be made the subject matter of prosecution, is pending before the Gujarat Value Added Tax Tribunal at Ahmedabad. According to Ms. Thakkar, the learned APP, despite the fact that the entire issue is at large before the Tribunal and the orders have been passed in favour of the applicant No.1-Company, the police should be permitted to continue with the investigation.

9. Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether the first information report should be quashed.

10. Let me deal with the first submission of the learned counsel appearing for the applicants as regards the invocation of the offences under the IPC when the main allegations are with regard to the offence under the special statute, i.e., the Gujarat Value Added Tax Act, 2003. Let me also answer the second contention that in view of section 88 of the Act, 2003, the investigation of the crime cannot be entrusted to the police machinery. Both these issues, referred to above, are squarely covered by the judgment of this Court in the case of Rakesh Trilok Chand Gupta vs. State of Gujarat & Anr., Criminal Misc. Application No.8925 of 2017, decided on 10.04.2017. The very same arguments were canvassed before me and while negativing such contentions, this Court holds as under;

“9 Section 85 of the Act provides for offences and penalties. It reads as under:

85. Offences and penalties.

(1) Whoever,-

(a) not being a registered dealer, falsely represents that he is or was a registered dealer at the time when he sells or purchases goods;

(b)  knowingly furnishes a false return where the amount of tax, which could have been evaded if the false return had been accepted as true, exceeds Rs. 1000;

(c) knowingly produces before the Commissioner, false tax invoice, bill, voucher, cash-memorandum, declaration, certificate or other document for claiming deduction or tax credit, the value of which exceeds Rs. 1000

(d) fails to pay tax as per the returns filed by him;

(e) knowingly keeps or produces false account;

(f)  issues to any person certificate or declaration under this Act, or a invoice, bill, cash-memorandum, voucher or other document which he knows or has reason to believe to be false;

(g) willfully attempts, in any manner whatsoever, to evade tax leviable under this Act; shall on conviction, be punished with imprisonment for a term which shall not be less than six months but which may extend to three years and with fine of rupees twenty thousand.

(2) Whoever-

(a) carries on business as a dealer without being registered in contravention of section 21; or

(b)  fails without sufficient cause to furnish any information required by section 26; or

(c)  fails to surrender his certificate of registration as provided in subsection (9) of section 27; or

(d)  fails without sufficient cause to furnish any returns as required by section 29 by the date and in the manner prescribed; or

(e)  without reasonable cause, contravenes any of the provisions of section 31; or

(f)  fails without sufficient cause, when directed so to do under section 62 to keep any accounts or record, in accordance with the directions; or Offences and penalties.

(g)  fails without sufficient cause, to comply with any requirements made of him under section 67, or obstructs any officer making inspection or search or seizure under that section; or

(h)  obstructs or prevents any officer performing any function under this Act; or

(i)  being owner or in-charge of a goods vehicle fails, neglects or refuses to comply with any of the requirements contained in section 67 or 68,

(j)  issues to another registered dealer tax invoice, retail invoice, bill or cash memorandum with the intention to defraud the Government revenue or with the intention that the Government may be defrauded of its revenue, shall, on conviction, be punished with imprisonment for a term which may extend to one year and with fine of rupees twenty thousand.

(3) Subject to the provision of section 97, if any Government servant discloses any particulars referred to in sub-section (1) of section 92, he shall, on conviction, be punished with imprisonment for a term which may extend to six months and with fine.

(4)  Whoever aids or abets any person in commission of any act specified in sub-sections (1) or (2) shall on conviction, be punished with rigorous imprisonment which shall not be less than three months but which may extend to one year and with fine of rupees twenty thousand.

(5)  Whoever commits any of the acts specified in sub-sections (1) to (3) and the offence is a continuing one under any of the provisions of these sub-sections, shall, on conviction, be punished with daily fine which shall not be less than rupees five hundred during the period of the continuance of the offence, in addition to the punishments provided under this section.

(6)  Where a dealer is guilty of an offence specified in sub-sections (1) and (2), the person to be the manager of the business of such dealer under section 65 shall also be deemed to be guilty of such offence, unless he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission thereof.

10 Section 87 of the Act is with regard to the cognizance of offences. It reads as under:

87. Cognizance of offences.

(1) No court shall take cognizance of any offence under this Act or the rules except with the previous sanction of the Commissioner, and no court inferior to that of a Metropolitan Magistrate shall try any such offence.

(2)  Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences punishable under this Act or the rules shall be cognizable and bailable.

11 Section 88 of the Act is with regard to the investigation of offences. It reads as under:

88. Investigation of offences.

(1)Subject to such conditions as may be prescribed, the Commissioner may authorise either generally or in respect of a particular case or class of cases any officer or person subordinate to him to investigate all or any of the offences punishable under this Act.

(2) Every officer or person so authorized shall, in the conduct of such investigation, exercise the powers conferred by the Code of Criminal Procedure, 1973 upon an officer in-charge of a police station for the investigation of a cognizable offence.

12. The plain reading of Section 85 of the Act referred to above would indicate that some of the offences with which the applicant herein has been charged is found both in Section 85 of the Value Added Tax Act and also under the Indian Penal Code. However, from the record, it can clearly be seen that in addition to the offences which are common in both the statute, the F.I.R. is also registered for certain offence under Sections 406, 409, 420, 465, 468, 471, 474, 477(A) and 120B of the Indian Penal Code.

13.  A similar question fell for consideration before the Supreme Court in the case of State of West Bengal (supra). In the said case, under the West Bengal Sales Tax Act, a provision was made that the investigation under the said offence was to be carried out by the Bureau of Investigation. In the said case also, a complaint was presented by the Assistant Commissioner of Commercial Taxes to the Deputy Superintendent of Police, who in turn, forwarded it to the officer in charge of the police station, for starting the investigation for the offences punishable under Sections 403, 409, 465, 468, 471, 419 and 420 read with Section 120-B of the Indian Penal Code and Sections 88(1) (b), (6) and (7) of the Sales Tax Act, 1994 treating as F.I.R. The registration of the said F.I.R. came to be challenged before the Calcutta High Court. The Calcutta High Court holding that the investigation could not have been carried out by anyone except the Bureau of Investigation, as constituted under the said Act, quashed and set aside the proceedings. The State of West Bengal went in appeal before the Supreme Court. The Supreme Court, while setting aside the judgment of the Calcutta High Court, has observed in paras 16, 17, 18 and 19 which read thus:-

“16. The offence envisaged in sub-section (6) is specifically created as supplemental to any other penalty provided by any law for the time being in force. This means, offences falling under the Indian Penal Code and committed by a person while committing the offence contemplated in sub-section (6) cannot get displaced for the sole reason that the accused has committed the offence falling under sub­section (6) of Section 88.

17. Section 7(1) of the Sales Tax Act empowers the State government to constitute a Bureau of Investigation for discharging the functions referred to in sub-section (3) thereof. It empowers the Bureau to carry on the investigation or hold enquiry into any case or alleged or suspected case of evasion of tax or malpractice created thereof and send a report of it to the Commissioner. A reading of Section 7 makes it clear that creation of Bureau of Investigation for the purpose of discharging the function envisaged in sub-section (3) which, of course, includes investigation also. But there is nothing in Section 7 that such investigation can be carried on “only” by the Bureau and not any other investigating agency. It is open to the Bureau to get the assistance of any other legally constituted investigating agency for effectively inquiring into all the ramifications of the offence. As in this case if offences falling under the Indian Penal Code or any other enactment are also detected during the course of investigation conducted by the Bureau there is no inhibition to pass over the investigation to the regular police.

18. If the view of the learned single judge gets approval it would lead to startling consequences. The consequences of such an interpretation would be that if the person who commits the offence under Section 88 of the Act also commits other serious offences falling under Indian Penal Code as part of the same transaction neither the regular police nor any special police force nor even the Central Bureau of Investigation can be authorised to conduct investigation. The accused in such cases would then be well ensconced insulated from the legal consequences of proper and effective investigation. Criminal justice would be the serious casualty then.

19. That apart, how could the FIR be quashed if the investigating agency should have been different? By lodging FIR alone no investigation is conducted by the police. It is the first step towards starting investigation by the police. If High Court was of the opinion that investigation has to be conducted by the Bureau then also there was no need to quash the FIR. Any way we take the view that as offences under the Indian Penal Code are also involved, efficacious investigation can be conducted by entrusting it to the police investigating agency. Inherent powers of the High Court as recognised in Section 482 of the Code are reserved to be used “to give effect to any orders under the Code, or to prevent abuse of the process of any court or otherwise to secure the ends of justice.” It is quite unfortunate that learned single judge overlooked the reality that by quashing the FIR in the case the High Court did not achieve any one of the above factors. On the contrary, the result of quashing the FIR had rendered the allegation of offences made against a person to remain consigned in stupor perennially. Hence, instead of achieving ends of criminal justice, the impugned order would achieve the reverse of it.”

14.  The facts of the present case are almost identical to the one with the facts of the case which were before the Supreme Court in the case of State of West Bengal (supra). Not only that, but in the present case, Section 88. does not provide that the investigation shall be  carried out only for the offences of the Value Added Tax Act. In that view of the matter, the present case, even on facts, is squarely covered by the judgment of the Supreme Court in the case of State of West Bengal (Supra).

15 The Supreme Court in State of West Bengal (supra) has in clear terms held that merely because the accused has committed an offence falling under the special statue would not mean that the offences under the Indian Penal Code would get displaced. As already discussed hereinabove, the applicant herein has been charged for the offence punishable under Sections 409, 420, 465, 471, etc. of the Indian Penal Code, which are not common with any of the offences, as provided under the Value Added Tax Act.

16 In the case of Institute of Chartered Accountants of India vs. Vimal Kumar Surana and another [(2011) 1 SCC 534], the Supreme Court considered the question whether the provisions contained in Sections 24, 24-A and 26 of the Chartered Accountants Act, 1949 would operate as a bar against the prosecution of a person who is charged with the allegations, which constitute an offence or offences under other laws, including the Penal Code. The Supreme Court, while taking the view that a person can be charged under the provisions of both the Chartered Accountants Act, 1949 and the Penal Code, observed as under:

20 In other words, if the particular act of a member of the Institute or a non member or a company results in contravention of the provisions contained in Section 24 or sub- section (1) of Sections 24A, 25 or 26 and such act also amounts criminal misconduct which is defined as an offence under the IPC, then a complaint can be filed by or under the order of the Council or of the Central Government under Section 28, which may ultimately result in imposition of the punishment prescribed under Section 24 or sub-section (2) of Section 24A, 25 or 26 and such member or non member or company can also be prosecuted for any identified offence under the IPC.

21 The object underlying the prohibition contained in Section 28 is to protect the persons engaged in profession of chartered accountants against false and untenable complaints from dissatisfied litigants and others. However, there is nothing in the language of the provisions contained in Chapter VII from which it can be inferred that Parliament wanted to confer immunity upon the members and non members from prosecution and punishment if the action of such member or non member amounts to an offence under the IPC or any other law.

22 The issue deserves to be considered from another angle. If a person cheats by pretending to be some other person, or by knowingly substituting one person for another, or representing that he or any other person is a person other than he or such other person really is (Section 416 IPC), then he can be charged with the allegation of cheating by personation and punished under Section 419 for a term which may extend to 3 years or with fine or both. If a person makes any false document with the intent to cause damage or injury to the public or to any person, or to support any claim or title, then he can be prosecuted for an offence of forgery (Section 463) and can be punished under Section 465 with imprisonment which may extend to 2 years or with fine or with both. If a person commits forgery for the purpose of intending that the document forged by him shall be used for the purpose of cheating then he can be punished with imprisonment for a term which may extend to 7 years and fine (Section 468). If a person makes or counterfeits any seal, plate or other instrument for making an impression, intending that the same shall be used for committing any forgery which would be punishable under Section 467 or with such intent, in his possession any such seal, plate or other instrument, knowing the same to be counterfeit then he is liable to be punished with imprisonment for life or with imprisonment which may extend to 7 years. He shall also be liable to fine.

23 The provisions contained in Chapter VII of the Act neither define cheating by personation or forgery or counterfeiting of seal, etc. nor provide for punishment for such offences. If it is held that a person acting in violation of Section 24 or contravening sub-section (1) of Section 24A and 26 of the Act can be punished only under the Act even though his act also amounts to one or more offence(s) defined under the IPC and that too on a complaint made in accordance with Section 28, then the provisions of Chapter VII will become discriminatory and may have to be struck down on the ground of violation of Article 14.

24 Such an unintended consequence can be and deserves to be avoided in interpreting Sesctions 24A, 25 and 26 keeping in view the settled law that if there are two possible constructions of a statute, then the one which leads to anomaly or absurdity and makes the statute vulnerable to the attack of unconstitutionality should be avoided in preference to the other which makes it rational and immune from the charge of unconstitutionality. That apart, the Court cannot interpret the provisions of the Act in a manner which will deprive the victim of the offences defined in Sections 416, 463, 464, 468 and 471 of his right to prosecute the wrong doer by filing the first information report or complaint under the relevant provisions of Cr.P.C.

25 We may add that the respondent could have been simultaneously prosecuted for contravention of Sections 24, 24A and 26 of the Act and for the offences defined under the IPC but in view of the bar contained in Article 20(2) of the Constitution read with Section 26 of the General Clauses Act, 1897 and Section 300 Cr.P.C., he could not have been punished twice for the same offence.

17 I have to my advantage a decision of the Punjab and Haryana High Court rendered in the case of Sharanjit Singh vs. State of Punjab [Criminal Miscellaneous Application No.29107 of 2013 decided on 21^st December 2013]. In the said case also, the contention on behalf of the Bank was that the provisions of the VAT Act and the Indian Penal Code cannot be invoked simultaneously, in respect of the same offence. A learned Single Judge of the High Court, while rejecting such contention, observed as under;

14. Secondly, the issue itself, that just because a particular statute governs a particular issue and therefore, proceedings cannot be initiated for violation of any other statute, also does not hold good in my opinion, as what the Punjab Vat Act deals with, is only evasion of tax and the penalties etc. that are to be levied, in case such evasion is proved.

However, the fabrication of the documents itself being an offence punishable under the provisions of the IPC, in my opinion, there is no reason why, for the commission of such offence alone, proceedings under the IPC would not be maintainable against the petitioner.

18  In taking the aforesaid view, the learned Single Judge relied upon the decision of the Supreme Court in the case of Institute of Chartered Accountants of India (supra) referred to above.

19  Let me now deal with the two decisions relied upon by Mr. Nanavaty, in support of his submissions.

20  In Sharat Babu(supra), the appellant therein and others were arraigned as accused in an F.I.R. for the offence punishable under Sections 292 and 294 of the Indian Penal Code and Section 67 of the Information Technology Act, 2000. At the end of the investigation, chargesheet was filed for the said offence. The argument before the Supreme Court was that the Information Technology Act is a special enactment and has special provisions. Section 292 of the I.P.C. talks about the offence of sale, etc., of obscene books. The Supreme Court took notice of Section 81 of the I.T. Act which reads

81. Act to have overriding effect.- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

The Supreme Court, thereafter, proceeded to observe as under:

28. Having noted the provisions, it has to be recapitulated that Section 67 clearly stipulates punishment for publishing, transmitting obscene materials in electronic form. The said provision read with Section 67A and 67B is a complete code relating to the offences that are covered under the IT Act. Section 79, as has been interpreted, is an exemption provision conferring protection to the individuals. However, the said protection has been expanded in the dictum of Shreya Singhal (supra) and we concur with the same. Section 81 also specifically provides that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. All provisions will have their play and significance, if the alleged offence pertains to offence of electronic record. It has to be borne in mind that IT Act is a special enactment. It has special provisions. Section 292 of the IPC makes offence sale of obscene books, etc. but once the offence has a nexus or connection with the electronic record the protection and effect of Section 79 cannot be ignored and negated. We are inclined to think so as it is a special provision for a specific purpose and the Act has to be given effect to so as to make the protection effective and true to the legislative intent. This is the mandate behind Section 81 of the IT Act. The additional protection granted by the IT Act would apply. In this regard, we may refer to Sarwan Singh and Anr. V. Kasturi Lal [(1977) 1 SCC 750. The Court was considering Section 39 of Slum Areas (Improvement and Clearance) Act, 1956 which laid down that the provisions of the said Act and the rules made  thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. The Delhi Rent Control Act, 1958 also contained non-obstante clauses. Interpreting the same, the Court held:-

When two or more laws operate in the same field and each contains a non- obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration. A piquant situation, like the one before us, arose in Shri Ram Narain v. Simla Banking & Industrial Co. Ltd. [AIR 1956 SC 614], the competing statutes being the Banking Companies Act, 1949 as amended by Act 52 of 1953, and the Displaced Persons (Debts Adjustment) Act, 1951. Section 45-A of the Banking Companies Act, which was introduced by the amending Act of 1953, and Section 3 of the Displaced Persons Act, 1951 contained each a non-obstante clause, providing that certain provisions would have effect notwithstanding anything  inconsistent therewith contained in any other law for the time being in force ….

This Court resolved the conflict by considering the object and purpose of the two laws and giving precedence to the Banking Companies Act by observing:

It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions therein (p. 615) As indicated by us, the special and specific purpose which motivated the enactment of Section 14-A and Chapter III-A of the Delhi Rent Act would be wholly frustrated if the provisions of the Slum Clearance Act requiring permission of the competent authority were to prevail over them. Therefore, the newly introduced provisions of the Delhi Rent Act must hold the field and be given full effect despite anything to the contrary contained in the Slum Clearance Act.

29. In Talchar Municipality v. Talcher Regulated Market Committee [(2004) 6 SCC 178], the Court was dealing with the question whether the Orissa Municipal Act, 1950 or Orissa Agricultural Produce Markets Act, 1956 should apply. Section 4(4) of the 1956 Act contained a non-obstante clause. In that context, the Court opined:-

The Act, however, contains special provisions. The provision of Section 4(4) of the said Act operates notwithstanding anything to the contrary contained in any other law for the time being in force. The provisions of the said Act, therefore, would prevail over the provisions of the Orissa Municipal Act. The maxim generalia specialibus non derogant would, thus, be applicable in this case. (See D.R. Yadav v. R.K. Singh, 2004(1) S.C.T. 223 : (2003) 7 SCC 110, Indian Handicrafts Emporitum v. Union. of India, (2003) 7 SCC 589 and M.P. Vidyut Karamchari Sangh v. M.P. Electricity Board, 2004(2) S.C.T. 277: (2004) 9 SCC 755).

30. In Ram Narain (supra), the Court faced a situation where both the statutes, namely, Banking Companies Act, 1949 and the Displaced Persons (Debuts Adjustment) Act, 1951 contained non-obstante clause. The Court gave primacy to the Banking companies Act. To arrive at the said conclusion, the Court evolved the following principle:-

7. & It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions therein.

31. In Slidaire India Ltd. v. Fairgrowth Financial Services Ltd., 2001(2) R.C.R. (Civil) 198 : (2001) 3 SCC 71, this Court while dealing with two special statutes, namely, Section 13 of Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 and Section 32 of Sick Industrial Companies (Special Provisions) Act, 1985, observed as follows:-

Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply.

32. The aforesaid passage clearly shows that if legislative intendment is discernible that a latter enactment shall prevail, the same is to be interpreted in accord with the said intention. We have already referred to the scheme of the IT Act and how obscenity pertaining to electronic record falls under the scheme of the Act. We have also referred to Section 79 and 81 of the IT Act. Once the special provisions having the overriding effect do cover a criminal act and the offender, he gets out of the net of the IPC and in this case, Section 292. It is apt to note here that electronic forms of transmission is covered by the IT Act, which is a special law. It is settled position in law that a special law shall prevail over the general and prior laws. When the Act in various provisions deals with obscenity in electronic form, it covers the offence under Section 292 IPC.

33. In Jeewan Kumar Raut v. CBI 2009 (3) R.C.R. (Criminal) 586 : 2009(4) Recent Apex Judgments (R.A.J.) 336 : (2009) 7 SCC 526, in the context of Transplantation of Human Organs Act, 1994 (TOHO) treating it as a special law, the Court held:-

22. TOHO being a special statute, Section 4 of the Code, which ordinarily would be applicable for investigation into a cognizable offence or the other provisions, may not be applicable. Section 4 provides for investigation, inquiry, trial, etc. according to the provisions of the Code. Sub-section (2) of Section 4, however, specifically provides that offences under any other law shall be investigated, inquired into, tried and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, tried or otherwise dealing with such offences.

23. TOHO being a special Act and the matter relating to dealing with offences thereunder having been regulated by reason of the provisions thereof, there cannot be any manner of doubt whatsoever that the same shall prevail over the provisions of the Code.

And again:-

27. The provisions of the Code, thus, for all intent and purport, would apply only to an extent till conflict arises between the provisions of the Code and TOHO and as soon as the area of conflict reaches, TOHO shall prevail over the Code. Ordinarily, thus, although in terms of the Code, the respondent upon completion of investigation and upon obtaining remand of the accused from time to time, was required to file a police report, it was precluded from doing so by reason of the provisions contained in Section 22 of TOHO.

The Supreme Court, ultimately, took the view that the High Court had fallen into error in taking the view that although the charge had not been made out under Section 67 of the I.T. Act, yet the police could have proceeded under Section 292 of the Indian Penal Code.

21 What is important in the decision of the Supreme Court referred to above is the ratio that if the special Act has an overriding effect like the one under the Information Technology Act, then it makes all the difference. Once the special provisions having the overriding effect do cover a criminal act and the offender, he gets out of the net of the Indian Penal Code. The Supreme Court laid emphasis on the three provisions of the Information Technology Act i.e. Sections 67, 79 and 81. In the Gujarat Value Added Tax Act, 2003, there is no provision providing any overriding effect on any other law for the time being in force. What weighed with the Supreme Court was the fact that the provisions of the Information Technology Act deal with obscenity in electronic form and the same covers the offence under Section 292 of the Indian Penal Code.

22 It cannot be said, by any stretch of imagination, that Section 85 of the Gujarat Value Added Tax Act, 2003 covers the offences punishable under Sections 177, 406, 409, 419, 420, 465, 468, 471, 474, 477 and 120B of the Indian Penal Code.

23 In my view, the issue is squarely covered by the Supreme Court in the case of State of West Bengal (supra). The decision of the Punjab and Haryana High Court in the case of Mahalakshmi Spinners (supra) relied upon has also no application to the case on hand. In the said case, the accused was charged with the offence punishable under Section 135 of the Electricity Act i.e. for theft of electricity and also under Section 379 of the Indian Penal Code. Section 379 of the Indian Penal Code deals with punishment for a simple case of theft. The Punjab and Haryana High Court took the view that when there is a specific / special law covering the question of theft of electricity i.e. Section 135 of the Act, the general law contained in Section 379 of the Indian Penal Code will not be applicable. This ratio is not applicable to the facts of the present case. “

11. Thus, in view of the dictum of law explained in the case of Rakesh Trilok Chand Gupta (supra), referred to above, the first contention canvassed on behalf of the applicants that in a prosecution for the offence under the Gujarat Value Added Tax Act, 2003, the IPC offences would not be attracted, fails and is hereby rejected.

12. Let me now consider whether any forgery could be said to have been committed by the applicants. So far as this issue is concerned, the learned APP very fairly submitted that there is no forgery within the meaning of section 464 of the IPC. Mere raising of fake or false bills, by itself, will not amount to forgery. What amounts to forgery has been very succinctly explained by the Supreme Court in the case of Ibrahim & Ors. vs. State of Bihar & Anr., 2010 Cri. L.J., 2223.

13. Let me now look into the orders, which have been passed by the Appellate Tribunal so far as the subject matter of the first information report is concerned. The applicant-Company preferred the Second Appeal No.671 of 2010 before the Gujarat Value Added Tax Tribunal at Ahmedabad questioning the legality and validity of the order passed by the Deputy

Commissioner of Commercial Tax Appeal-2, Ahmedabad on 09.07.2010, whereby the appeal filed by the Company came to be dismissed for non-payment of the pre-deposit amount of 25% of the total amount, which came to about Rs.65,03,101/-In this regard, on behalf of the department, manifold contentions were raised. Those contentions have been noted by the Tribunal in paras-13 to 18. Paras-11 to 18, reads as under;

“11. Mr. R.S. Parmar, the learned Govt. Agent appearing for the respondent on the other hand has submitted that the appellant has been mainly dealing in the business of trucks and tankers given on rent as well as to hire trucks and tankers and to earn commission there from. The appellant has shown the details of sales and purchases of castor oil during the assessment period 2009-10 in its books of accounts. On verification of these details, it was found that the appellant has almost purchased the castor oil from Biotar Industries Ltd and sold to KGN Industries Ltd.  Since these transactions were found to be suspicious and doubtful, the sales and purchase bills files were seized by the Department. The appellant has claimed ITC of Rs.2,59,66,226/- on the purchases made from M/s. Biotar Industries Ltd. On further verification of the details, it was found that all these sales and purchases were effected without actual movement of goods. Along with the spot visit of the appellant’s. place of business, the spot visit was also ‘carried out in the business premises of’KGN Industries Ltd and it was found that there was no actual movement of goods and only bogus bills were prepared. There were several other irregularities pointed out by the assessing officer which clearly indicate that only with a view to claim ITC’ bogus billing transactions were carried out by the appellant. There assessing officer has ultimately come to the conclusion that without making any actual movement of the goods and without entering into transactions of sales and purchases, the. appellant has merely carried out the billing transactions and after claiming the ITC the tax was paid only on the differential amount. Thus the appellant has unauthorizedly collected the tax and paid the same along with the returns which were liable to be forfeited under section 31(3) of the Act and the penalty under section 31(4) of the Act was also levied equivalent to the amount of tax collected.

12. Mr. Parmar has further submitted that as a matter of fact the appellant’s case is also similar to one I.e. Madhav Steel Corporation wherein also ITC was claimed on the purchases made from the vendors who were indulged into bogus billing activities. The said decision has been confirmed by the Hon. Gujarat High Court. Here in the present case the appellant has claimed the ITC of Rs.2,59,66,226/- for which no goods were actually purchased. The assessing officer has in fact not disallowed the ITC but he has taken a view that, without effecting the sale the appellant has collected the tax unauthorizedly and he has therefore forfeited the amount of tax so collected and levied the penalty under Section 31(3) as well as 31(4) of the Act. He has, therefore, submitted that if this Tribunal is of the view that the provisions of Section 31(3) and 31(4) are not applicable looking to the facts of the case, in that case the ITC claimed by the appellant should be disallowed and the appellant may be directed to pay the tax, interest as well as penalty as a result of disallowance of said ITC Since the entire facts and evidences are on record, this Tribunal being final fact finding authority can certainly entertain and decide this alternative submission made by him.

13. Even after arguing this appeal along with other appeals in the group, Mr. Parmar has filed written submission in SA No. 646 to 649 of 2010 in one of the group matters namely, KGN Enterprise Ltd and submitted that these written submissions would equally apply to all other matters in the group. He has submitted that List II of the Seventh Schedule to the Constitution of India enumerates the matters with respect to which the Legislature of any State has the powers to make laws.

(a) Entry 54- Taxes on the sale or purchase of goods other than newspapers, subject to provision of Entry 92(A) ‘of the list I.

(b) 64 – Offences against laws with respect to any of the matters in this list.

(c ) Entry No.92A of the List 1 provides that taxes on the sale or purchase of goods other than newspaper, where such sale or purchase takes place in ‘the course of inter-State trade or commerce.

On the basis of these entries, Mr. Parmar has Submitted that the provisions of VAT Act are applicable in Gujarat for sale and purchase of goods and also for dealing with offences against the provisions of VAT Act in Gujarat. He has further submitted that as per the decision of the Hon’ble Bombay High Court in the case of Ramkrishan ‘Kulwantrai vs Commissioner of Sales Tax (supra), the assessee has delivered a part of his stock of iron and steel to certain persons under the directions and orders issued to him by the Iron & Steel Controller. He has Collected sales tax on such transactions under the bonaflde belief that the Sales Tax Authorities might treat these transactions as those of sales exigible to tax under the Act which were in fact not the transactions of the sales by the assessee himself. Thus in those transactions there was no bad intention on the part of the dealer to while in the present case, the dealer has , without entering into transactions of sale, issued, Tax Invoices to other dealers with intention to defraud the Govt. revenue and thereby committed an offence under sections 85(2) (e) 85(2′)(ee) and 85(2)(j) of the Gujarat Vat Act, 2003 which is punishable by virtue of powers given by Legislature under Entry 64 of List II of the Seventh Schedule of the Constitution of India. Thus, in Ramkrishan’s case tax was collected with bonafide belief by the dealer with no intention to defraud’ the Govt. revenue on transactions which were subsequently held to be those of non-sale by the Hon’ble Supreme Court. He has further submitted that there were no such transactions relating to offences/contraventions in the Bombay Sales Tax Act; 1959 as are there in the present  Gujarat T Act, while in the present case the appellant has knowingly and willfully made fake transactions of sales in which the appellant has collected the tax So this is different not only from factual point of view but also legal point of view. Thus, the judgment of Hon’be Supreme Court in the case of Ramkrishan Kulwantrai vs Commissioner of Sales Tax (supra) is distinguishable on facts.

14. Mr. Parmar further submitted that generally, as per the provisions of the VAT Act, tax is leviable on the goods. The tax payable is decided on value difference of the goods which are purchased and sold. While levying tax on difference of value, the department has to see that tax on the value of purchase is deducted from the tax collected on sales. The prevalent practice “in the market, as observed by this Tribunal in the case of Madhav Steel Corporation (SA No 451 of 2011), one of the practices for evasion of tax is that the goods are purchased from the grey market and are sold to regular customers. To obtain the benefit of tax on the value of goods only, the invoices are obtained for goods purchased from grey market from some registered dealers who further obtain invoices from other registered dealers and the chain goes on and on. The issuers of invoices are issuing the invoices for goods for which payment of tax on the value. Difference is sought but such transactions are fake. So the tax leviable’ on the purchase of. goods from grey market is evaded and also the said tax is illegally collected by the issuer of invoices. While assessing such transactions of such dealers, the department has no other way but to declare the transactions to be fake and, therefore, to forfeited the tax collected on such fake transactions of goods, qua these dealers. But it does not men that tax is not leviable on the goods purchased from grey market only on the ground that the goods are not in picture between these parties. Qua the said invoices, the existence of goods is a reality . Hence, the judgment of Hon’ble Bombay High Court in the case of Ramkrishan Kulwantrai vs. Commissioner of Sales Tax (supra) confirmed by the Hon’ble Supreme Court holding that the state is only entitled to levy/forfeit tax while the goods are in existence and if not so, levy/forfeit is contrary to the  provisions of Constitution o, is distinguishable in the resent circumstances. He has further submitted that in the present case, the dealer has issued the tax invoices and shown these transactions as those of sales in his returns filed with the department and thereby these fictitious transactions of sale given under the provisions of Gujarat Vat Act. Hence, the judgment of Bombay High Court in the case of Ramkrishan’s case is not applicable to the facts of the present case.

15. Mr. Parmar has further submitted that the appellant has collected the tax separately in his tax invoices and shown as tax payable in the returns filed with the department. The tax so collected and shown as payable has been adjusted by him against the input tax credit claimed in the return filed with the department. Since the appellant has simply received the tax invoices from his vendors, but input tax credit claimed in the returns is not admissible. In view of this, the assessing authority is justified in forfeiting the amount collected as tax by the appellant u/s 31(3) of the Act.

16. Mr. Parmar further submitted that the appellant has knowingly and willfully, without entering into transactions of sale, issued to several dealers tax invoices with an intention to defraud the Govt. revenue and thereby clearly committed the offence punishable u/s 85(1)(b), 85(1)(f), 85(1)(g), 85(2)(e), 85(2)(ee) of the Gujarat Vat Act.

17. Mr. Parmar has further submitted that without prejudice to his above submissions, the appellant is liable to pay the penalty u/s 31(4) of the Gujarat Vat Act, even after the application of the judgment of the Hon’ble Supreme Court in the caseof Ramkrishan Kulwantrai. Considering the undisputed facts of the present case, which has also been admitted by the appellant that the appellant has, without entering into transaction of sale, collected tax by issuing tax invoices u/s 60 of the Act for such fictitious transactions of sales and thereby, in view of the above sections, has contravened the provisions of Gujarat Vat Act. The assessing officer is, therefore, justified in imposing penalty u/s. 31(4) of the Act. Such imposition of penalty u/s. 31(4) is well within the powers of the State Legislature under Entry 54 read with Entry 64 of List II of the Seventh Schedule to the Constitution of India as held by Hon’ble Supreme Court in the case of R.S. Joshi vs. Ajit Mills Ltd. (supra), hence the penalty u/s 31(4) is invariably required to be confirmed. Collection of tax is made in contravention of the provisions of Gujarat Vat Act, irrespective of the facts whether or not goods were involved in such transactions.

18. Mr. Parmar has further submitted that since the appellant has received simply bills/invoices from his so called vendors with no goods, the input tax credit involved in such invoices would not be admissible and, therefore, the amount of penalty u/s.31(4) will be the amount of output tax collected by issuing tax invoices and not the amount of any input tax u/s 13 which is arrived at after adjusting the ITC. He has, therefore, submitted that the submissions of the appellant that the authorities could have imposed penalty u/s 31(4) only to the extent of net amount of tax should not be accepted. The penalty u/s. 31(4) has rightly been imposed as the appellant has collected the tax in contravention of provisions of the Gujarat Vat Act. He has, therefore, submitted that the present appeals filed by the appellant should be dismissed.”

18. The Tribunal, thereafter, noted the submissions canvassed on behalf of the applicant-Company herein in rejoinder as contained in paras-19 to 28. The same reads as under;

“19. Since the copy of the written submissions of Mr. Parmar was served on Mr. Sheath the learned advocate. appearing for the appellant, he has also filed his rejoinder to the written submission on 7/1/2014. He has further submitted that all these second appeals in the group were argued at length on 14/12/2010 and 15/12/2010. Thereafter, all these appeals were again fully argued by the appellant on 16/8/12. These appeals were also argued fully on 13/1/2013. While the. matters were so pending and the judgment of this Tribunal was awaited, all of a sudden the appellant was served with the written submissions dated 6/ /14 filed by the respondent and hence the appellant is required to file rejoinder to the written submission so filed by the respondent. Mr. Sheth has further submitted that the learned Govt. Agent has referred to certain entries of List II and List I of the Seventh Schedule to the Constitution of India and there was no dispute about such entries. He has further submitted that the judgement of Bombay High Court of Ramkrishan Kulwatrai vs commissioner of Sales Tax (Supra) has been distinguished by narrating the facts of that case on the ground that in that case there was no bad intention on the part of the dealer while in this case the dealer has without entering into: transactions of sale issued tax-invoice with a view to defraud the Govt. revenue and, therefore, it has committed an offence under section 85(2)(e) and 85(2)(j) of the VAT Act punishable under entry 64 of List II of the Seventh Schedule to the Constitution of India. He has raised strong objection against the submissions of Mr. Parmar to the effect that the bills were issued by the appellant with a View to defraud the Govt. revenue. The appellant has explained in his reply of show cause notice itself that these transactions were undertaken with a view to facilitate Jayant Oil and Derivatives Ltd. to procure finance from banks and other financial institutions. All the parties in the chain of these transactions have not only recorded these transactions in the books of accounts but have also admitted these transactions in the returns submitted under the VAT Act and have also paid tax as payable under the VAT Act. Thus these transactions were not made with a view to defraud Govt. revenue.

20. As a matter of fact since as such these transactions were not the sale transactions no tax was attracted under the VAT Act and yet all the parties had paid the tax as was applicable under the VAT Act. The very imposition of penalty u/s 31(3) of the VAT Act supports the submission of the appellant that it has paid more tax than what is payable under the VAT Act. Section 31(3) of the VAT Act provides for imposition of penalty of the amount of tax collected and deposited which is found as not liable under the VAT Act with a view to deny refund to the dealer. Thus the case. of the appellant is not of defrauding government revenue, but it is a case of paying more tax than what is leviable under the VAT Act, He has further submitted that whether the transactions were effected with a good intention or bad intention is not the basis for the decision in the case of Rarnitrishan Kulwantrai (Supra). The ratio of this decision according to the appellant is that if a transaction is not a sale transaction then to such a transaction penalty cannot be imposed by applying the provisions of the Act relating to imposition of tax on sales or purchases of goods taking place within the State of Gujarat He has therefore submitted that the submission canvassed by Mr. Parmar that the ‘transactions were effected with a view to defraud government revenue is totally baseless and hence it is strongly objected to. He has also reiterated what was orally submitted by him. However, the learned Assessing Officer has on the one hand imposed tax by treating that it is not leviable on the transactions effected by the appellant and on the other hand the penalty was imposed for the same transactions under the VAT Act which is objected to by the appellant.

21. Sheth has further submitted that the appellant has always maintained and still reiterates that the appellant may either be assessed or treating the transactions as of sales or purchases being made by appellant and whatever tax penalty that was imposed under the VAT Act may be imposed upon it. However, if any tax is imposed for treating the transactions as not of sales then no penalty can be imposed U/s 31(3) or 31(4) of the VAT Act. Thus the justification for the penalty On the ground of protecting government revenue is without any merits and deserves to be rejected.

22. Sheth has further submitted. that on behalf of the respondent, Mr Parmar has further raised the contention under the Bombay Sales Tax Act, 1959 that there was no provision for offence as is l’incorporated under the VAT Act and, therefore, decision in the case of Rarnkrishan Kulwantrai (supra) is distinguishable. Such a submission is also devoid of merits and is being made without properly verifying the provisions of the Bombay Act. In the Bombay Act also there were sections 63, 63(1),  63(3), 63A,64(1) and 66 for offences and penalties. He  here, submitted that there is gross misstatement on the part of these provisions of the respondent to contend that under the Bombay Act there was no provision for offences and hence the decision in the case of Ramkrishan Kulwantrai (supra) is not applicable to the VAT Act.

23; Mr. Sheth has further submitted that once any particular Act is considered to be an offence , then the State derives power under Article 64 of List II to the Seventh Schedule to the Constitution of India for taking action against the offender. He has further submitted that even Article 64(a) gives power to the State Legislature for punishment in the law permissible under List II for non compliance of provisions of that law. Under Entry 54 of the power to the State Legislature is for imposing tax on sales or purchases of goods and the VAT Act is enacted by exercising power under this entry. Therefore as per entry 64 of Seventh Schedule, offences relating to transactions of sales and purchases can be legislated by the State However, if the transactions are not the sales or purchase of goods then they cannot be legislated even by resorting to Article’64 of List II to the Seventh Schedule to the Constitution of India.

24. Mr. Sheth has further submitted that in the present case, the questtion of trying an offender for an offence is not an issue for consideration. Presuming without admitting that the act of the appellant amounts to an offence, then for that reason consequences are provided in section 85 itself about imprisonment and/or fine. Howeve, for the offence, if at all, committed by the appellant u/s 83 of the VAT Act penalty cannot be imposed u/s 31(3) and 31(4) of the VAT Act.

25. Mr Sheth has further submitted that reliance placed by Mr Parmar on the decision of this Tribunal in the case of Madhav Steel Corp is not at all justified. He has further Submitted that reference to the decision in the case of: Madhav Steel Corp has been made with a view to misdirect this Tribunal. The facts of the present case are very clear. The appellant is not purchasing goods from grey market and claiming input tax credit based on bogus bills. It is the case of the learned assessing authority itself that no goods were transacted and only bills were exchanged. Thus this is not the case of taking undue advantage of earning input tax credit with the help of bogus bills for the goods sold without tax being paid to the State..None of the parties to the transactions have tried to claim wrong input tax credit with a view to avoid tax payable by it. In fact as per the learned assesisng authority the appellant is not liable to pay tax in respect of these transactions for which in fact on differential sale price tax has been paid along with the returns though not payable under the VAT Act and therefore penalty has been mposed u/s 31(3) of the VAT Act. Thus, the decision in the case of Madhav Steel Corp. is not applicable at all to the facts of the case.

26. Mr. Sheth further submitted that if as per the act of the appellant of issuing invoices and showing these transactions in returns they are to be treated as covered by the VAT Act and they should be taxed also as applicable under the VAT Act, then instead of imposing tax as applicable on sales and purchases an attempt is made to impose penalty not leviable under the VAT Act in view of the decision of Hon’ble Bombay High Court in the case of Ramkrishan Kulwantrai. He has further submitted that the respondent has attempted a dual standard by not stating anything about imposition of tax on sales while denying input tax credit in order to demonstrate evasion of tax by the appellant. This is adopted as a reason for imposition of penalty u/s 31(3) of the VAT Act However, the very imposition of penalty u/s 31(3) of the Act supports the submission made by the appellant that it has paid more than what is payable under the VAT Act and hence the Collection of tax was not with a view to defraud the government revenue so as to justify the penalty imposed u/s. 31(3) and 31(4) of the Act.

27. Sheth further submitted that while penalty has been imposed u/s 31(3) of the VAT Act for the very disputed transaction which is leviable when tax is paid even though not leviable under the Act, the question of defrauding government revenue does not arise, but in fact, even as per the learned assessing authority’ it has resulted into more payment of tax being made to the State, the question of treating the same as an offence is bad and illegal. He has further submitted that if at all there is any contravention of section 60 of the VAT Act then this penalty is attracted u/s 61(3) of the Act. However, contravention of the section 60. of the Act cannot be the reason for imposition of penalty u/s. 31(4) of the Act aa was contended by the respondent.

28. While concluding it is submitted by Mr. Sheth that any penalty is leviable u/s 31(3) and 31(4) of the VAT Act as it has been accepted by the learned. assessing officer that the appellant has not made sale under the disputed transaction. He has further submitted that u/s 31(3) of the VAT Act, penalty is attracted only if amount is collected and deposited but not payable by the appellant. In other words, penalty u/s 31(3) of the VAT Act is not leviable only on the differential amount of tax actually deposited by the appellant. The learned assessing officer has however, in some of the cases imposed penalty u/s 31(3) of the VAT Act equivalent to the tax collected on sales which is absolutely illegal. He has therefore, submitted that the written submissions filed by Mr. Parmar have no substance or merits whatsoever and the appeals filed by the appellant as well as all other appeals in the group may be allowed. “

15. The Tribunal, thereafter, proceeded to deal with the submissions as contained from paras-29 to 22. It reads as under;

“29. We have heard at length Mr. Nayan Sheth, the learned advocate appearing for the appellant and Mr. R.S. Parmar, the learned Govt. Agent appearing for the respondent. All other group matters are also heard together. Based on the submissions oral as well as in writing, including the last submissions filed on 6.1.2014 and 7.1.2014 in one of the Group matters, namely, K.G.N. Enterprises Ltd., made by the rival parties, we are of the view that there is much substance in the submissions of Mr. Sheth that when there is no transaction of sales and purchase of goods, there is no question of levy of any tax and there is also of invoking provisions contained in section 31(3) and of the Act. All these matters, however, do not stop here. The appellants in this group including the present appellant have indulged themselves into a very systematic attempt of defrauding Govt. Revenue though apparently they have contended that there was no loss to the revenue and only with a view to get finance from the bank, all of them have supported to M/s Jayant Oil Mills and with that object in mind, they have participated in this chain of transactions. To understand and to appreciate this contention raised on behalf of the appellants in the group, it is necessary to have a close look at the transactions. It is true that the present appellant has paid an amount of Rs.46,176/- along with return which has been forfeited by imposing penalty u/s 31(3) of the VAT Act. It is also true that huge penalty u/s 31(4) of the VAT Act is imposed which is equivalent to the amount of tax collected by the appellant on the transactions effected by it. It is apparent from the record as well as the assessment order passed by the assessing officer that the appellant has disclosed in returns the transactions of sales and purchases as if they were real and genuine transactions. It is Only when the spot visit was made .by the departmental officers and show cause notice was issued to the appellant, the appellant has come forward with the aforesaid contention in its reply that no real sale or purchase transactions were undertaken by him. As a matter of fact, while issuing the show cause notice, the assessing officer has specifically asked the appellant to produce necessary documents in support of its claim regarding sale and purchase transactions and only on that stage, the appellant has admitted in the reply submitted by it that all transactions were entered into without actually transferred the goods. All through out the investigation was carried out and based on that the assessment order was passed wherein it was established by the assessing officer that the appellant had not done any sale or purchase of goods and after concluding the whole issue, the assessing officer has imposed penalty u/s 31(3) and 31(4) of the Act. The moot question therefore arises for consideration of this Tribunal that whether penalty u/s 31(3) and 31(4) of the VAT Act was rightly imposed by the assessing officer and if not so, what further action can be taken against the appellant.

30. There is no dispute about the fact that the appellant’ has explained in detail as to under which circumstances, the appellant has agreed to issue the bills. Apparently we agree with the submission of Mr: Nayan Sheth that the very acceptance of no sale or purchase being made by the appellant is sufficient and as such no further evidence is required. However, it is to be ascertained as to whether by entering into billing transactions the appellant had evaded any tax or not. It is true that all the dealers in the chain of transactions have recorded the transactions in their books of accounts and in the returns filed by them and they have also calculated the tax liability as per the provisions of VAT Act. However on the one hand, the purchasing dealer including the appellant have claimed input tax credit in their returns and they have claimed the adjustment of input tax credit against the liability tax on alleged sale of goods. While effecting the sale of goods all selling dealers including the appellant have collected the tax from purchasing dealers and after adjusting the input tax credit against the tax so collected, if there is any amount of tax payable they have accordingly paid the said tax. There is nothing wrong if such transactions are entered into real, genuine and in regular course of business. However, if it is forming part of a device, with a view to take advantage or to achieve some oblique ‘motive, in that case, such transactions are to be looked into with different angles. The appellant is therefore not right in contending that only with a view to deny the refund to the appellant, the penalty has been imposed u/s 31(3) of the VAT Act.

31. There is no denial of the fact that Hon’ble Bombay High Court in the case of Ramkrishna Kulwantrao vs. Commissioner of Sales Tax 44 STC 117 (Bom) has held that that under entry 54 in List II of the Seventh Schedule to the Constitution the power of the State to impose tax does not extend to a transaction which is not a transaction of sale or purchase of goods and therefore the State does not have the power to make any legislative provision with respect to any amount collected by a registered dealer in respect of such non-sale transactions. We have considered the facts under which this decision was rendered by the Hon’ble Bombay High Court. Facts of the case before the Hon’ble Bombay High Court were that the dealers delivered a part of their stock of iron and steel to certain other dealers under the directions and orders issued to them by the lron and  Steel Controller. Apprehending that the department might treat such transactions as sale, the dealers collected tax from these persons to whom the goods were delivered. On assessment, the learned assessing officer has accepted that the dealers were not making sales but penalty was imposed on the ground that tax was wrongly collected even then no sales. were made. The learned first appellate authority as well as the Tribunal dismissed appeals and, therefore, reference applications were preferred before the Hon’ble Bombay High Court wherein it is held that penalty was not leviable on the ground of illegal collection of tax, if the transactions were considered as not amounting to sale or purchase of goods. It true that the Special Leave Petition filed by the department against the said decision of the Hon’ble Bombay High Court which was converted into appeal after granting leave was dismissed by the Hon’ble Apex Court. However, one cannot deny the fact that the transactions entered into by the dealer before the Hon’bie Bombay High Court as well as Hon’hle Apex Court were genuine transactions and the dealers have in fact entered into such transactions. The department has however taken the view that such transactions may not have amounted to sale and hence tax collected thereon was treated as illegal collection of tax and accordingly the order was passed to forfeit such tax. It is in ‘this context, the court has taken the view that when there is no transaction of sale or purchase, there was no question of collection of any tax and if there was no collection of tax, there is no question of any forfeiture of such tax. The facts in the present case, are however, totally different. In the case of appellant, though there was no genuine transaction, .the appellant has shown in its returns and books of accounts, the transactions as if, they were real and genuine transactions. It is only when the department has taken the view that no genuine transactions were carried out by the appellant, the appellant has immediately agreed to the stand of the department only with a view to avoid further complictaions in the matter. The Hon’ble Bombay High Court while delivering the above said judgement has referred to the earlier decision of the Hon’ble Apex Court in the case of R S. Joshi, Sales Tax Officer, Gujarat vs Ajit Mills Limited & others 40 STC 497. It is observed by the Hon’ble Apex Court in the said judgement that it is elementary economic theory  thatwhile the legal burden of sales tax falls upon the the fiscal impact is eventually on the Consumer. A welfare State, with its logos and legend as social justice, has a sacred duty while it exercises its power of taxation to police the operation of the law in such manner as to protect the public from any extra burden thrown on it by merchants. under cover of the statute. It is further observed that a mere device cannot be permitted to defeat the provisions of the Constitution by clothing the claim in the form of a demand for depositing the money with the State’ which the dealer has collected; bot which he was not entitled to collect. It is in this context transactions entered into by the appellant along with other dealers will have to be appreciated

32. The decision of the Hon’ble Gujarat High Court in the case of Kathiawar Motors vs. V.T. Shah, Sales Tax Officer, Rajkot 70 STC 132 (Guj.) relied upon by Mr. Sheth is also required to be considered in light of peculiar facts. In that case, the said dealer has paid various amount to the sales tax department every quarter in the belief that the sale was complete when the agreement was entered into. During the course of assessment for the relevant years, the dealer has however brought to the notice of the sales tax officer that in view of the Hon’ble Supreme Court ruling, the sales were complete only on exercise of the option to purchase after payment of the last installment by the parties. The sales tax officer, instead of finalizing the assessment and taking the sales tax paid into consideration, issued notices for the three years to show cause why penalty should not be levied, and the amounts collected by way of sales tax in contravention of the provisions of Sec.46 of the Bombay Sales Tax Act, 1959 should not be forfeited u/s. 37 of the Act. The said dealer, therefore, filed a writ petition before the Hon’ble Gujarat High Court and while allowing the said petition it was held that if the amounts collected in the three years had really been inclusive of sales tax they would not have been wholly debited to the parties. The only possible conclusion was that even though the price was stated in the bill to be inclusive of sales tax and despite the entries in the books of account, no sales tax had actually been recovered from the purchasers and that it is a settled principle of law that a hire-purchase agreement is not a sale, which is a condition precedent for levy of sales tax and that simply because there was a  mention of sales tax collection, the authority concerned could not term such collection as sales tax collection to attract provisions of Sec 37 and 46 of the Bombay Sales Tax Act, especially when there was no sale. As such in that case, it was with the last installment the sales tax was collected by the dealer and there was no question of sales tax having been collected in advance by the said dealer and that the department is seeking on the one hand to forfeit the amounts paid and impose penalty and on the other hand to claim sales tax on completion of the transaction on payment of the last installment, was a travesty of justice, and that since the department’s approach was basically improper, no useful purpose could be served by directing the dealer to appear before the authorities concerned, and therefore, the notices initiating penalty and forfeiture proceedings were to be quashed and illegal. The facts in the present case are totally different and no support will be derived from the. above decision of Hon’ble Gujarat High Court.

33. The reliance placed by Mr. Sheth on the decision of Hon’ble Bombay High court in the case of Commissioner of Sales Tax vs Toshniwal Brothers Pvt. Ltd..,57 STC 198 (Bom) is of no assistance to the appellant. In that case the dealer collected certain amount by way of tax on sales taken place in the course of import of goods into the territory of India, such amount was not liable to forfeiture u/s 37(1) of the Act, the reason being that under Article 286 of the Constitution the State Legislature did not have the competence to enact a law for imposition of tax on the sales and purchase of goods where such sale or purchase took place outside the State or in the course of import into or export out of State. Consequently, the provisions of Section 37(1)of the Act relating to forfeiture must also be read down confining its operation to transactions of sale which were exigible to tax The Hon’ble Bombay High Court has, therefore, held that the forfetirue of the amount collected by the said dealer by way of tax on import sales was not valid. The facts of the present case are totally distinguishable and no reliance can therefore be placed on the said decision.

34. In view of the foregoing discussion, we are of the view that the assessing officer has committed a very serious mistake of law and fact, especially when the appellant has shown the sales and purchases in its return and the books of accounts were also maintained on the, basis that the appellant has entered into real and genuine transactions of sale .and purchases. The assessing officer should not have taken absolutely converse view and invoked the provisions of sec. 31(3) and 31(4) of the Act. Once having presented its case in the returns as well as books of accounts that the appellant has entered into real and genuine transactions of sales and purchases it is not open for the appellant to take altogether a different stand, simply because, the assessing officer has taken a different view during the course of the assessment proceedings and immediately the appellant concurred with the said view as it was to its benefit. Hence while not approving the stand of the department and deleting the penalty levied u/s 31(3) and 31(4) of the Act. We, however, do not absolve the appellant from its liability that may be really arising out of the transactions undertaken by the appellant. The Appellant has claimed huge amount by way of input tax credit on the purchases made from the so called registered dealers. If the transactions are not real and genuine and if such transactions are merely based on billing activities, the appellant is not entitled to claim any input tax credit as per the decision of this Tribunal in the case of Madhav Steel Corporation which is approved by the Hon’ble Gujarat High Court. Similarly, while disapproving the levy of penalty u/s 31(4) of the Act, we are also of the view that by disallowance of input tax credit, the huge liability of tax will arise and the appellant would also be liable to pay interest on that amount. Similarly, by entering into such false transactions and filing false returns, the appellant could be liable to penalty and prosecution Under the different provisions of Gujarat VAT Act. Even the appellant’s ‘case as well as all other cases in the group involved in this chain of fake transactions as per their own admissions, must be examined from the point of view as to whether their registrations are liable to be cancelled ab-initio. Admittedly they have not utilized the registration certificates obtained by them to carry out any real, genuine or bonafide business. Such registration certificates were used by them for some oblique motives. If the registrations of the dealers in the group are cancelled ab-initio the purchasing dealers are also not  entitled to claim input tax credit in their respective purchases. Since the assessing officer has not undertaken this exercise though in the order it was observed that the appellant is not entitled to claim input tax credit on such fake transactions it is however required to be examined these issues very minutely and thoroughly and hence this matter will have to go back to the assessing officer to pass de novo assessment order keeping in mind the observations made by this Tribunal herein above as well as in the case of Madhav Steel Corporation. We are not agreeable with the submission of Mr. Sheth that the decision of Madhav Steel Corporation is not applicable to the facts of the present case as well as other matters in the group. In concluding part of the said judgement, this Tribunal has observed in para 37 & 38 as under:-

“37-. In view of the above discussions since the sale transactions in respect or which the input tax credit is claimed by the appellant are not genuine and they are merely based on billing activities, the appellant is not entitled to input tax credit and the said claim has been rightly denied by the authorities below. The appellant is therefore liable to pay tax as well as interest as demanded from the appellant. So far as the levy of penalty is concerned, the assessing officer has not made any discussion nor he has explained as to why such exhorbitant penalty is levied despite the fact that discretion is given to him to levy any penalty between’ the minimum as well as maximum. The orders passed by the authorities below qua the levy of penalty are therefore set aside and the matter is remanded to the assessing authority to examine the’ issue regarding levy of penalty afresh n light of the observations made hereinabove, after giving an opportunity of being heard to the appellant and after considering the explanation that may be tendered by the appellant. Since this issue is required to be examined afresh the assessing officer shall take into consideration the provisions contained in section 85 of the Act more particularly sub-clause (c ) of Clause (1) of Section 85 which says that whoever knowingly produces before the Commissioner, false tax invoice, bill, voucher, cash memorandum, declaration, certificate or other document for claiming deduction or tax credit, the value of which exceeds Rs.1000/-, or sub-  clause(g) of Clause (1) of section 85 which says that  woollily attempts, in any manner whatsoever to evade tax leviable under this Act, or sub-clause (ee) of Clause (2) of Section 85 which says that whoever contravenes the provisions of Section 60 of the Act, such offender or the defaulter on conviction is punishable with imprisonment for a term which may extend to six months or with fine not exceeding Rs.20,000/- or, with both. If the assessing officer comes to the conclusion that the circumstances of the case warrant him to invoke these provisions, in that case specific notice must be given to the appellant or any other person who has acted in collusion or connivance with the appellant with an intention to defraud Government revenue and after considering such explanation, appropriate complaints may be filed in accordance with law.

38. Before parting, we issue certain directions to the VAT Department to take certain steps as were pointed out by the State of Maharashtra before the Hon. Bombay High Court, with necessary changes which are as under:

(1) The VAT Department will identify the defaulters viz. registered selling dealers who have not paid the- full amount of tax due in the Government Treasury either by not filing their returns at all or by filing returns but not paying the full tax due (i.e. short filing) or where returns are filed but sales to the concerned dealers are not shown, (i.e. undisclosed sales). .

(2) Input tax credit will be denied to dealers where at any stage in the chain of sales a tax invoice/certificate by a defaulter is or has been relied’ on:

(a) In the event of no returns having been filed by the defaulter, the dealer will be denied the corresponding input tax credit.

(b) In the case of short filing, the dealers who have purchased from the defaulter will be granted input tax credit pro rata to the tax paid.

(c ) In the case of undisclosed sales, the dealers will be denied the entire amount being claimed as input tax credit in relation to the undisclosed sale.

(d) To prevent a cascading effect, the tax will be As far as possible, the. VAT Department will recover the tax from the dealer who purchases from the defaulter. However, the VAT Department will retain the option of denying an input fax credit and/or pursuing all selling dealer in the chain until recovery is ultimately made from any one of them.

(3) The full machinery of the Act will be invoked by the VAT Department wherever possible against the defaulter with a view to recover the amount of tax due from them, notwithstanding the above. Once there is final recovery (after exhaustion of all legal proceedings) from the defaulter, in whole or part a refund will be given after the end of that financial year to the defaulter claiming input tax credit to the extent of the recovery. This refund will be made pro rata if there is more than one dealer who was denied input tax credit.

(4) Refund will be given by the sales Tax Department even without any refund application having been filed by the dealers since the VAT Department wil lreconcile the payments, inform the dealer of the recovey from the defaulter concerned and grant the refund.

(5) Details of defaulters will be uploaded on the. website of the VAT Department and dealers denied input tax credit will also be given the names of the concerned defaulters.

(6) The steps do not, however, apply to transactions by dealers where the certificate/invoice issued is not genuine (including billing transactions) . In such cases, no input tax credit will be granted to the dealer claiming to be a purchaser.

(7) The above should not prevent dealers from adopting such remedies as are available to them in law against the defaulters.

19. In the result we pass the following order:-

ORDER

20. This appeal is allowed for statistical purpose. The order passed by the learned assessing officer as well as  by the learned Deputy Commissioner of Commercial Tax  Tax shed and set aside and the matter is remanded to the assessing’ officer to pass fresh order by examining’ the whole issue in light of the appellant’s claim regarding input tax credit on the alleged purchase made by the appellant and other consequential issues such as levy of tax, interest and penalty and prosecution as well as the grant of registration as indicated above after according sufficient opportunity of being heard to the appellant and after considering the explanation that may be offered by the appellant

21. Since orders passed by the authorities below are set aside, the other issues will also be separately looked into by the assessing officer while passing a fresh order. The assessing officer is hereby directed to pass fresh order as expeditiously as possible preferably within the period of six months from today and if there is any delay In passing such order, the assessing officer shall be liable to offer his explanation to this Tribunal as well as to his superiors in the administrative hierarchy.

22. Till a fresh order is passed by the learned assessing officer and liability of the appellant is determined, an amount, if any, paid by the appellant and/or recovered from the appellant shall not be refunded to the appellant and it shall be adjusted and/or appropriated against the demand that may arise as a result of a fresh assessment order. There shall be no order as to cost.”

16. Thereafter, the second company, i.e., the M/s. K.G.N Enterprise Ltd preferred the Second Appeals Nos.646 to 649 of 2010 before the Gujarat Value Added Tax Tribunal at Ahmedabad questioning the orders passed by the Deputy Commissioner of Commercial Tax Appeal-2, Ahmedabad. The order passed by the Tribunal dated 09.01.2014, reads as under;

“The appellant has filed these four appeals against the orders passed by the learned Dy. Commissioner of Commercial Tax, Appeal-2 Ahmedabad on 09.07.2010  whereby all the four appeals filed before him came to be dismissed for non payment of the 25% of the total demand by way of pre-deposit amount and non furnishing of the Bank guarantee for the balance amount. As a result of the assessment orders passed by the learned Assistant Commissioner of Commercial Tax, Flying Squard, Unit-6, Ahmedabad, the total demand raised against the appellant for all the four years i.e., 2006-07, 2007-08, 2008-09 and for the period from 01.04.2009 to 11.11.2009 are as under

Particular	2006-07	2007-08	2008-09	1/4/09 to 11/11/09
Penalty u/s. 31(3)	25,000/-	9,68,830/-	10,13,830	12,44,931
Penalty u/s. 31(4)	5,06,353	9,78,41,257	3,43,56,383	2,74,45,448
Total	5,31,353	9,88,10,087	3,53,70,213	2,86,90,379
Tax paid	25000	9,68,830	10,13,830	12,44,931
Dues	5,06,353	9,78,41,257	3,43,56,383	2,74,45,448

2. It is the case of the appellant that the appellant is holding registration certificate under the Gujarat VAT Act and the appellant has been regularly filing its return under the Gujarat VAT Act. The officers of the‘ Commercial’ Tax Department visited the business place of the appellant on 11.1.2009. A ‘show cause notice was issued in which it was stated that the appellant had not made sales and purchases and therefore it was proposed to impose penalty u/s 31(3) and 31(4) of the VAT Act. The appellant gave written submission to the show cause notice in which it was explicitly admitted that the appellant and other dealers had actually not sold or purchased goods and yet had paid tax payable as per the provisions of the VAT Act. Thus, there was no evasion of tax. The learned Assistant Commissioner of Commercial Tax has passed assessment order wherein penalty has been imposed u/s 31(3) and 31(4) of the VAT Act.

3. The appellants main contention before the assessing officer was that penalty u/s.31 (3) and 31(4) of the VAT Act has been wrongly imposed. For this purpose, the has relied upon the decision of the Hon’ble Apex Count in the case of Commissioner of Sales Tax vs Ramkrishan Kulwantrao 117 STC 544 (SC). The appellant has also relied upon the decision of the Hon’ble Gujarat High Court in the case of Kathiawar Motors vs V.T.Shah Sales Tax Officer 70 STC 132 (Guj). The appellant has also raised the contention that since the appellant has paid tax to the vendors and differential tax payable after claiming input tax credit from the tax liability on sales was also paid, no penalty is leviable. In view of the decision in the case of Niranjan Mills Ltd. Vs State of Maharashtra 99 STC 587 (Bom) and in the case of State of Tamilnadu vs. Simpson & Co. Ltd. 99 STC 32 (Mad) and in the case of Hari Narain nand Gopal STR Nos.946 & 947 of 1993 dated 15.12.1997. Special Leave Petition filed against the said judgment of Hon’ble Allahbad High Court was dismissed as reported in 111 F.R.S, 5. As per the submission of the appellant based on the decision of the Hon’ble Bombay High Court in the case of Ramkrishan Kulwantrao vs Commissioner of Sales Tax 44 STC 117 (Born) under entry 54 of List II in Seventh Schedule to the Constitution, the power of the State to impose tax on a transaction which is not a transaction of sale or purchase of goods and therefore the State does not possess the power to make any legislative provision with respect to any amount collected by a registered dealer in respect of such transaction.

4. Being aggrieved by the said assessment orders passed by the assessing officer, the appellant preferred first-appeals before the learned Deputy Commissioner of commercial Tax which came to ‘be dismissed for non­payment of 25% of total dues and non-furnishing of bank guarantee for granting stay against recovery of outstanding demand. Since the appellant expressed its inability to make such payment or to furnish bank guarantee, the first appeals have been summarily dismissed against which the second appeal Nos. 646 to 649 of 2010 were filed before this Tribunal.

5. In all these four appeals along with other group matters, this Tribunal has passed an order on 4/10/2010 wherein it is observed that the common question of law arose in these appeals and that this Tribunal has pa

a.  detailed order in SA No. 671 of 2010 and the order herein granting interim relief would also be applicable to all other matters of the said group. This Tribunal has, therefore, directed the department not to take any coercive measures in all matters of the said group. This Tribunal has thereafter passed further order on 26/10/2010 wherein it is observed that on behalf of the appellant five judgments of Hon’ble High Court as well as Hon’ ble Apex Court cited and on behalf of the department, two judgements of Hon ble Apex Court in the case of R. S. Joshi vs. Ajit Mills Ltd. AIR 1977 SC 2279 and Mafatlal Industries Ltd. vs Union of India (1998) 111 STC 467 were relied upon. Thereafter, from time to time, entire group was listed for final hearing. However, no final order was passed by this Tribunal in any of the matters of this group. This Tribunal has therefore, ultimately taken up these matters for regular hearing along with the group and submissions of the learned Advocate Mr. Nayan Sheth appearing for the appellant and Mr. R. S .Pannar. the learned Govt. Agent were taken into consideration and considering the Second Appeal No 671 of 2010 filed by M/s KEG Industries Pvt. Ltd as a lead matter, a detailed speaking order is passed on the said appeal.

6. In the above view of the. matter and for reasons stated and finding recorded in SA NO. 671 of 2010 by this Tribunal and its order of’ even date, the orders passed by the authorities below i.e. the learned Assistant Commissioner as well as the learned Deputy Commissioner are hereby set aside, with a direction to pass a fresh order, in light of the observation made and directions issued in S.A.No. 671 of 201.0. In the result, the following order is passed.

ORDER

7. These appeals are allowed for statistical. purpose. The assessment orders passed by the learned Assistant Commissioner of Commercial Tax, Flying Squad, Unit-6, Ahmedabad on 30.4.2010 and the order passed by the learned Deputy Commissioner of Commercial Tax, Appeal-2, Ahmedabad on 09.07.2010 are hereby set aside and matters are remanded to the learned Commercial Tax Officer with directions to pass a fresh order within the period of six months from today in light of observations made and directions issued in Second Appeal No. 671 of 2010 filed by KFC Industries Pvt. Ltd. The learned Commercial Tax Officer is directed to examine the appellant’s claim with regard to ITC on the purchases made by the appellant in light of its own admission that no actual sales and purchases were undertaken by the appellant and that the appellant was indulged only in billing activities and hence considering the decision of this Tribunal in the case of M/s.Madhav Steel Corporation, which is duly confirmed by the Hon’ble Gujarat High Court, the. leaned assessing officer shall pass appropriate order and raise the demand of tax, interest as well as penalty and he may also consider the provision of the Act in relation to prosecution, Till a fresh order is passed by the learned assessing officer and liability of the appellant is determined an amount if any, paid by the appellant and/or recovered from the appellant shall not be refunded to the appellant and it shall be adjusted and/or appropriated against the demand that may arise as a result of a fresh assessment order.

8.  Since, the orders passed by the authorities below are set aside with direction to the assessing officer to pass a fresh order, we have not decided other issues involved in these appeals nor we have expressed any opinion on these issues. The assessing officer is therefore directed to re-decide the said issues after giving specific opportunity to the appellant and after considering the explanation that maybe offered by the appellant’ and to pass a speaking and reasoned order, in accordance with law.

9. There shall be no order as to cost. ‘

Pronounced open court on this ‘9^th day of January, 2017.”

17. It appears that, thereafter, the department filed an application before the Tribunal seeking extension of time to comply with the directions issued by the Tribunal in the aforesaid two orders. The application filed by the department came to be disposed of vide order dated 27.08.2014 in the following terms;

“All these miscellaneous applications are filed by the learned Deputy Commissioner of Commercial Tax and the Govt. Representatives on behalf of the State Govt. requesting this Tribunal to extend the time of six months in passing fresh assessment orders pursuant to the orders passed by this Tribunal on 9/ 1/ 14 in Second Appeal No. 671 of 2010 filed by M/s KFC Industries Pvt. Ltd. and also all other allied matters. Mr. R.S.Parmar, the learned government representative appearing for the applicants/original respondents have submitted that this Tribunal has decided all these appeals on 9/1/14 directing the respective assessing officers to pass fresh orders after examining the whole issue in light of the appellant’s claim regarding input tax credit on the alleged purchases made by the appellant and other consequential issues such as levy of tax, interest and penalty and prosecution as well as the grant of registration as indicated in the respective orders, after giving sufficient opportunities of being heard to the appellants and after considering the explanations that may be offered by the appellants. This Tribunal has also made it very clear that the assessing officer who passed fresh orders as expeditiously as possible preferably within the period of six months horn the date of said orders and if there was any delay in passing such orders, the assessing officer would be held liable to offer his explanation to this Tribunal as well as before administrative hierarchy. Mr. Parmar has further submitted that since orders were passed on 9/1/14, the assessing officers were required to pass fresh orders on or before 8/7/14, however, the orders could not be passed and hence the request was made by the assessing officers on 12/7/14 and thereafter, this Misc. Applications were filed before this Tribunal on 24/7/14. He has, therefore, submitted that considering the facts of the case and issues involved in all these appeals, six months time may be granted so as to enable the assessing officers to pass fresh orders in accordance with the directions issued by this Tribunal.

2 Mr. Nayan Sheth, the learned advocate appearing for the opponents/original appellants has no objection if time is granted to the department.

3. We have considered the rival submissions and the facts of the case. We have also gone through the facts stated and averments made in the miscellaneous applications as well as the request letters written by the assessing officer. It is very unfortunate on the part of the department that the assessing officers have sent request letters to the learned government representative for extension of time only after expiry of the period within which the assessing officers were supposed to pass fresh assessment orders. It is also very unfortunate that present miscellaneous applications were also moved after expiry of the time limit granted by this Tribunal for passing fresh assessment orders. No reason whatsoever is given’ in the miscellaneous applications as to why the orders could not be passed within the period of six months from the date of the order passed by this Tribunal in second appeals. It appears that the directions issued by this Tribunal are taken very lightly and despite the fact that the concerned officers are to be held responsible to offer an explanation if the orders are not passed within six months from the date of the order of this Tribunal, no such explanation has come forward from the concerned assessing officers. We are, therefore, of the view that no case is made out by the applicant department for extension of time, however, in the interest of justice and to enable the assessing officers to pass appropriate orders pursuant to our directions, we extend the time of six months for passing fresh assessment orders with the clear cut understanding that no further time will be granted. If the fresh assessment orders are not passed within the extended time i.e. upto 8/2/2015 and in that case the learned Commissioner of Commercial Tax is requested to take very serious view of the matter and take appropriate action for non­compliance of the orders passed by this Tribunal.”

18. Thereafter, the Deputy Commissioner of Commercial Tax preferred the miscellaneous applications, once again, to extend the time of six months for passing the fresh assessment orders. Those applications came to be disposed of by the Tribunal vide order dated 20.02.2015 in the following terms;

“(1) All these Miscellaneous Applications are filed by the  Learned Deputy Commissioner of Commercial Tax and the Government Representative on behalf of the State Government, requesting this Tribunal to extend the time of 6 months in passing fresh assessment orders, pursuant to the order passed by this Tribunal on 9/1/2014 in Second Appeal No.. 671/2010 filed by M/s. K.F.C. Industries Pvt. Ltd, and also all other allied matters.

(2) Mr. R.S. Partner, the Learned Government Representative appearing for the applicant and the original respondent has submitted that this Tribunal has decided all these Appeals on 9/1/2014 directing the respective Assessing Officers to pass fresh orders after examining the whole issue in light of the appellant’s claim regarding input tax credit on the alleged purchases made by the appellant and other consequential issues, such as levy of tax, interest and penalty and prosecution as well as the grant of Registration as indicated in the respective orders, after giving sufficient opportunity of being heard to the appellants and after considering the explanation that may be offered by the appellant. This Tribunal has also made it clear that, the Assessing Officers should pass fresh orders as expeditiously as possible preferably within the period of 6 months from the date of said order and if the there was any delay in passing such order, the Assessing Officer would be held liable to offer his explanation to this Tribunal as well as before the administrative hierarchy. Since this direction of the Tribunal given in respective Second Appeals were not complied with by the Department, several Miscellaneous Applications were filed before this Tribunal requesting the time of six months.. After considering the said Miscellaneous Applications, this Tribunal has passed a detailed order on 27/8/2014 extending the time up to 8th February, 2015. While extending the time, this Tribunal has observed in the said order that it was very unfortunate on the part of the Department that the Assessing Officer shall send request letter to the Learned Government Representative for extending of time, only after expiry of the period within which the Assessing Officer were supposed to pass fresh assessment orders. It was also observed that the said Miscellaneous Applications were moved after expiry of the time limit granted by this Tribunal for passing fresh assessment  order. No reason what so ever was given in the Miscellaneous Application as to why the order scould not be passed within the period of 6 months from the date’ of the order passed by this Tribunal in the Second Appeal. This Tribunal has also expressed its anguish as direction issued by this Tribunal were taken very lightly and despite the fact that the concerned Officers were held to be responsible to offer an explanation as to why the orders were not passed within 6 months from the date of the order of this Tribunal, no such explanation has come forward from the concerned Officers. This Tribunal has therefore clearly observed in the said order that no case was made out by the Department for extension of time. However, in the interest of justice and to enable the Assessing Officers to pass appropriate orders, within six months pursuant to the directions of this Tribunal 6 months for passing fresh assessment order with clear cut direction that no further time would be granted. It was also made very clear in that order that if the fresh assessment orders were not passed within extended time i.e. up to 8/2/2015 and in that case, the Learned commissioner of Commercial Tax was requested to take very serious view of the matter and take appropriate action for noncompliance of the orders passed by this Tribunal.

(3) It is in the above view of the matter, the present Applications moved by the department are required to be considered. By moving all these Applications the applicant has annexed a copy of the note prepared by the Learned Additional Commissioner of Commercial Tax (Enforcement), Gujarat State, Ahmedabad and for the reasons stated therein, the request was made to seek extension of time for further period of 6 months. It appears from the said Note that since the time limit was to expire on 8/2/2015 the Learned Additional Commissioner has called for the meeting of the Assessing Officers to make detailed inquiry, and investigation in the remand cases. Though the order was passed by this Tribunal on 9/1/2015, the said meeting was held by the Learned Additional Commissioner in January- February, 2015. As such in the earlier order passed in Miscellaneous Application filed by the Department, this Tribunal has requested the Learned Commissioner to initiate appropriate actions against the Assessing Officers for not passing the orders within  extended time. However, the Learned Additional Commissioner has now come forward seeking extension of time and hence it is too much to expect from the Learned Commissioner to take any action against the erring Officers who have not complied with the orders passed by this Tribunal.

(4) Be that as it may, the present applications will have to be considered on merits. Mr. Nayan Sheth, the Learned Advocate appearing on behalf of the Opponent-original appellant though earlier has not raised any objection against the extension of time, this time has raised very serious objection and submitted that the time limit should not be extended. He has submitted that the Department has already encashed the bank guarantee of Rs.7.5 crores and thereafter further guarantee of Rs.2.5 crores was also encashed by the Department. Thus amount of Rs.10.00 crores is lying with the Department, despite the fact that as on today there is no order against the appellant raising any demand. He has therefore submitted that if this Tribunal is inclined to extend the time in that case the Department may be directed to grant the refund of Rs.10.00 crores with interest. He has also submitted that there is no statutory provision which supports the retention of the amount collected by the Department after the orders raising such demand were quashed and set aside by this Tribunal. He has therefore strongly submitted that while passing any order on this Applications filed by the Department appropriate directions may be issued to the Department to grant refund with interest at the rate of 18% per annum.

(5) In the Rejoinder Mr. Parmar has submitted that time is required to make detailed and proper investigation in the matter. He has further submitted that the order passed by this Tribunal earlier by disposing off the Second Appeals was not challenged by the Appellant/present opponents and hence in the present applications filed by the Department, the appellant could not make any prayer with regard to grant of refund. He has therefore submitted that no such directions shall be issued to the Department.

(6) We have considered the rival submissions and the facts of the case. We have also gone through. the contents of the Note which is produced along with the Miscellaneous Applications. As such the Department appears to have not done anything pursuant to the order dated 9/1/2014. Nothing is produced before this Tribunal and what steps were taken by the Department for the last one year period. While extending the time for six months in earlier Miscellaneous Applications, this Tribunal has clearly observed that no case as made out for extension of time. Today also, nothing concrete is revealed from the Miscellaneous Applications except to the fact that the Department wants to make detailed inquiry and investigation in the matter. The  Department is therefore is not entitled to ask for the extension after expiry of the period of one our order the date of the assessment order. The fact still remains that this Tribunal has passed detailed order on 9/1/2014 while disposing of the Second Appeals with certain directions, which directions in  any case are required to be complied with by the  Department. The rejection of the Applications for extension would result into great injustice and hence keeping these facts in mind and very reluctantly the extension of time is restricted to 3  months only from 8/12/2015 only. The Department is therefore, directed to complete the proceedings  for fresh assessment orders and pass such orders  on or before 8^th May, 2015. No further time in any circumstance shall be given by this Tribunal. It is  also made very clear that if the fresh orders are  not passed within the extended period upto 8th May, 2015, in that case the Department is directed to grant the refund to all the Applicants within 15  days from the expiry of the said period and if such refund is not granted, in that case for the delayed period the interest will be given to the applicants at the rate of 18% per annum.

(7) With these observations and directions all these Miscellaneous Application are accordingly disposed off, without any order as to cost.”

19. Thereafter, the applicant-company preferred the Second Appeals Nos.790 and 791 of 2016 respectively challenging the order passed by the Deputy Commissioner of Commercial Tax, Ahmedabad dated 22.06.2016 with regard to the orders passed by the Commercial Tax Officer, Flying Squad Unit-9, Ahmedabad for the assessment year 2008-09 and for the assessment period 01.04.2009 to 10.11.2009. The order reads thus;

‘1 The appellant has preferred these Second Appeals and challenged the order passed by the Learned Deputy Commissioner of Commercial Tax (hereinafter referred to as the Learned First Appellate Authority), Appeal-1, Ahmedabad on 22.06.2016, against the orders passed by the Learned Commercial Tax Officer(hereinafter referred to as the Learned Assessing Authority), Flying Squad, Unit-9, Ahmedabad on 07.05.2015 for the assessment year 2008-09 and for the assessment period 01.04.2009 to 10.11.2009.

2. The Learned Advocate Mr Nayan Sheth for the appellant submitted that the business place of the appellant was visited by the officers of Commercial Tax Department and records were seized. He also submitted that on completion of investigation show cause notice was issued and the appellant gave reply to the show cause notice that tax had been paid on purchases to the vendors and differential tax after claiming Input-tax credit from the tax liability on sales was also paid and hence no amount of tax was retained by the appellant. He further submitted that the Assessing Authority passed provisional assessment order and imposed penalty under section 31(3), 31(4) of the Gujarat Value Added Tax Act (hereinafter referred to as VAT Act). The Ld. Advocate further submitted that against such orders First Appeals were preferred but the appeals were summarily rejected on account of nonpayment of pre-deposit amount and therefore the appellant preferred Second Appeals in the Tribunal. The Ld. Advocate further submitted that the Tribunal remanded the matters to the Ld. Assessing Authority with direction to pass fresh orders. The Ld. Advocate further submitted that the appellant appeared before the Ld. Assessing Authority and gave requisite evidence but the authority ignored the evidence and passed the assessment order. The appellant admitted  that in the chain of transactions sale and purchase of goods did not take place and yet the appellant had paid the tax payable under VAT Act. The Ld. Advocate further submitted that no penalty can be levied under section 31 (3) and 31 (4) of the Act but the Ld., Assessing Authority again imposed penalty after drawing a conclusion that there was as such no sale or purchase transaction affected by the appellant and therefore First Appeals were preferred against the said orders but First Appellate Authority insisted for pre- deposit of 20% of the dues raised against the appellant for admission of First Appeals and as the appellant failed to comply with the order, the appeals were summarily dismissed on the ground of nonpayment of pre-deposit amount. He further submitted that earlier Section 65 (4) of Gujarat Sales Tax Act, 1969 provided that appeal was not competent unless the appeal was accompanied by satisfactory proof of payment of tax with or without penalty but under section 73 (4) of VAT Act an appeal is competent if it is accompanied by proof of payment of tax and in the present case the demand raised by the department is only of penalty and hence the First Appellate Authority was not justified in imposing condition of pre-deposit of such penalty amount. He further submitted that in the earlier round of litigation the Tribunal admitted the Second Appeals without condition of pre-deposit and therefore the Tribunal cannot deviate and impose pre-deposit condition for admission of appeals. He also submitted that proviso to Section 73 (4) of the VAT Act cannot be read in to the provision and therefore the appeals are required to be admitted without condition of pre-deposit.

3. The Learned Advocate Mr. Sheth relied upon the decision of Rohitas Kumar and others v/s. Omprakash Sharma and others reported in JT 2012 (11) SC 219, S.R. & Company v/s. State of Panjab & Others. reported in Sales Tax Cases 1996 Vol. 100 page 260, M] Baba V/s. Sales Tax Appellate Tribunal, Additional Bench, Kozhikode and Another reported in (2012) 56 VST page 525 Kerala, Ambaji Physiotherapy College managed by Ambaji Education v/s. State of Gujarat and others reported in 2011 (3) GLR page 2492 2016 19(1) VST 231, Casio India Company Pvt Ltd v/s. State of Hariyana, Hussein Kasam Dada (India Limited) v/s.. State of         Madhya Pradesh & others reported in 1953 (Vol. IV) Sales Tax Cases, Page 114.

4. The Learned Government Representative submitted that the Assessing Authority has made the assessment after verification of books of account, forms etc. seized from the appellant and has recorded findings that the appellant has collected tax but there were no sale and purchase transactions and therefore the Ld. Assessing Authority was justified in passing the assessment order and the Ld. First Appellate Authority imposed condition of pre-deposit ‘of 20% of the amount but as the appellant did not comply with the order of pre—deposit, the Ld. First Appellate Authority was justified in dismissing the appeals and hence recovery proceedings be Stayed only on deposit of demand made in the assessment order.

5. The Gujarat Sales Tax Act, 1969 was enacted for the purpose of levy of tax on the sale or purchase of certain goods in State of Gujarat. The VAT Act repealed the said Act with effect from 01.04.2006. Section 65 of the Gujarat Sales Tax Act, 1969 provided for appeal. Section 65 (4) of the said Act provided that no appeal against an order of assessment with or without penalty or against an order of imposing penalty shall ordinarily be entertained unless such appeal is accompanied by satisfactory proof of payment of tax with or without penalty or the payment of the penalty in respect of which an appeal has been preferred. Section 73 of the VAT Act provides for appeal. Section 73 (4) of the VAT Act provides that no appeal shall ordinarily be entertained unless such appeal is accompanied by satisfactory proof of payment of the tax in respect of which an appeal has been preferred. On reading of these two provisions it becomes clear that in the earlier Act for entertainment of an appeal satisfactory proof of payment of tax with or without penalty or the payment of penalty in respect of which appeal was preferred was a precondition Proviso to the section provided for entertainment of appeal without payment of tax with penalty(if any) or of penalty whereas Section 73(4) but the VAT Act provides for satisfactory proof of payment of tax for entertainment of appeal. Proviso to Section 73 (4) provides that an appellate authority may entertain an appeal against assessment order without payment of tax with penalty (if any). In the decision of Casio India Company Pvt. Ltd (supra) the court observed that proviso should not be normally construed as nullifying the enactment or as taking away               completely a right conferred. In the decision of Ambaji Physiotherapy College managed by Ambaji Education (supra) similar observation is made. In the decision of M.J.Babu (supra) and S.R.and Company (supra) the court has observed that when a section mentions word “tax” and “penalty” and word “interest” is absent deposit of interest can not be made condition precedent for the entertainment of appeal. In the present case it appears that the demand made is largely of penalty. Therefore, pre-deposit of penalty amount cannot be made a condition for entertainment of appeals as such interpretation of proviso would nullify the enactment of Section 73(4) of VAT Act which provides for payment of tax only.

6. The assessment order indicates that Rs. 63,34,918/-have been realized against the total demand of Rs. 2,57,12,208/- for assessment year 2008-09 and Rs.9,57,381/- are deposited by the appellant against Rs.3,24,85,474/- for assessment period 01.04.2009 to 10.11.2009. It also appears that the demand raised by Ld. Assessing Authority is largely of penalty and the Ld. First Appellate Authority imposed condition of pre-deposit of 20% of that amount. Considering the amount recovered from the appellant against the demand raised, it is more than 10% of the total demand. Therefore also appeals are required to be entertained without condition of pre-deposit.

7. It is also required to be considered that in the earlier round of litigation the Tribunal had admitted the second appeals without any condition of pre-deposit. There is nothing to deviate from the stand taken by the Tribunal in earlier round of litigation.

8. In view of the above as the demand raised by the department is largely toward penalty and the appellant has made payment of about 10% of total demand of penalty and also considering the fact that in the earlier round of litigation the second appeals were admitted without condition of pre-deposit. Recovery proceedings are required to be stayed without any condition of pre-deposit.

9. The learned advocate for the appellant also relied upon several judgments in support of the contention that no penalty can be levied under section 31(3) and 31(4) of the VAT Act but these judgments are not relevant at this stage of admission of appeals as the first appellate authority has not decided the first appeals on merit. In view of the above discussion, the second appeals are admitted and recovery proceedings stayed till final disposal of these appeals without any condition of pre-deposit.

10. The Registry is directed to place the matter for regular hearing in due course.”

20. Having regard to the orders, referred to above, the learned APP appearing for the respondents very fairly submitted that the department should not have filed the first information report after a period of almost seven years. The department should have waited for the outcome of the proceedings before the Tribunal and, thereafter, the prosecution ought to have been initiated.

21. Thakkar, the learned APP pointed out para-20 of the Tribunal’s order, i.e., the operative part of the order, which reads as under;

“20.. This appeal is allowed for statistical purpose. The order passed by the learned assessing officer as well as by the learned Deputy Commissioner of Commercial Tax are hereby quashed and set aside and the matter is remanded to the assessing’ officer to pass fresh order by examining’ the whole issue in light of the appellant’s claim regarding input tax credit on the alleged purchase made by the appellant and other consequential issues such as levy of tax, interest and penalty and prosecution as well as the grant of registration as indicated above after according sufficient opportunity of being heard to the appellant and after considering the explanation that may be offered by the appellant.”

22. Thus, it appears that although the Appellate Tribunal directed the Deputy Commissioner of Commercial Tax to reconsider the entire matter and then decide the consequential issues such as levy of tax, interest and penalty and prosecution as well, yet, till this date, the Deputy Commissioner of Commercial Tax has not reconsidered the matter and passed an appropriate order. In such circumstances, the Appellate Tribunal has comedown very heavily and has also passed the strictures in this regard. All of a sudden, the department thought fit to lodge the first information report.

23. In the aforesaid, I am of the view that it will be open for the department to initiate appropriate prosecution in accordance with law once the departmental proceedings attain finality. Such is the stance of the State also in this matter. The learned APP submitted that the liberty be reserved for the department to initiate appropriate prosecution in accordance with law if, ultimately, the Deputy Commissioner of Commercial Tax holds the applicants herein guilty of their liability under the Act, 2003.

24. In the result, both the applications succeed and are hereby allowed. The first information report being I-C.R. No.45 of 2016 registered before the Danilimda Police Station is hereby quashed with liberty to the department to initiate appropriate prosecution in accordance with law after the departmental proceedings attain finality.