Electricity is not goods taxable under the Kerala Value Added Tax Act. The procedures for rejection of returns and providing an opportunity to produce documents and accounts should be exhausted before proceeding to a best judgment assessment. There must be an element of escaped assessment to sustain an order of assessment on best judgment basis.

JUDGMENT :

The petitioner is a partnership firm registered in Hyderabad. Due to fiscal incentives extended by the Government, the petitioner obtained all necessary approvals and registrations for the installation of a windmill at Ramakkalmedu in Idukki District in Kerala. Property was also identified and purchased and permission was obtained from the Agency for Non-Conventional Energy and Rural Technology (for short, 'ANERT'). Ext.P2 supply agreement was entered into with M/s.Vestas Technology India Limited for the supply of Wind Electrical Generator having a capacity of 750 KW for a total consideration of Rs.4,09,01,000/-.

2. The learned Senior Counsel for the petitioner submits that 'electricity' is not goods as per the definition of 'goods' provided in Section 2(xx) of the Kerala Value Added Tax Act, 2003 (for short, 'the KVAT Act'). It is submitted that though the petitioner had obtained registration under the KVAT Act and had installed the windmill in the year 2008-09, since electricity was not a goods exingible to tax under the KVAT Act, a nil return had been furnished by him and the closing stock inventory as on 31.3.2009 was also shown as ‘nil’ since the firm had no other business within the State of Kerala. However, by Ext.P19, a notice under Section 25(1) of the KVAT Act was issued to the petitioner on 25.2.2014 stating that on verification of the firm’s annual return, it was revealed that they had conceded total and taxable turnover as ‘nil’ for the year in question. It was further found that the dealer received three consignments of windmill and tower on 24.3.2008 from Puduchery, but the closing stock inventory revealed that there was no closing stock of any goods as on 31.3.2009. It was, therefore, assumed that the goods which were brought into the State, that is, the parts of the windmill and the tower were sold during the year in question, which is exingible to tax at 4% under Entry No.107(17) of the IIIrd Schedule to the KVAT Act as ‘Windmills and any special designated devices which runs on wind mills’. Hence, a best judgment assessment was proposed reckoning a total and taxable turnover of Rs.12,88,39,410/-and tax at 4% of the sale was proposed to be assessed. The petitioner was required to submit their reply within seven days and to avail the opportunity of personal hearing on 19.3.2014. It is contended that Ext.P19 was served on the petitioner by registered post on 4.3.2014 and though attempts were made to file reply before the time granted, he could not do so. The proposals were finalized ex parte and Ext.P20 proceedings were issued, which are under challenge.

3. It is submitted that since the assessment was made without considering the relevant aspects and was on clear error of fact and law, a rectification application was filed before the 1st respondent under Section 66 of the Act as Ext.P21. The petitioner produced Ext.P15 letter of the KSEB with photographs of the windmill, balance sheets for the assessment years 2007-08 to 2012-13 as well as the authenticated copies of the part invoices for despatch under the cover of which the supplier had brought the windmill into the State which are produced as Ext.P22 to P24. However, Ext.P21 application was also rejected by Ext.P26 stating that since electrical energy is goods taxable at 0% as per Entry No.17 of the 1st Schedule, the petitioner ought to have declared the turnover out of sale of electrical energy in their returns. It is further stated that consignments brought into the State were covered by one invoice but loaded on separate vehicles and separate declarations in Form 8F were issued. It is, therefore, assumed that the petitioner had brought three windmills and sold them in the State, which is stated to be the reason for the assessment.

4. The learned counsel for the petitioner submits that since the definition of ‘goods’ specifically excludes electricity, the contention that electrical energy is included under the 1st Schedule to the Act as exempted go