Penalties under Section 70B of the KVAT Act require proof that goods declared for personal use were used commercially, which was not established in this case.

JUDGMENT

(W.P(C) Nos.7094 and 13308 of 2017)

These two writ petitions are filed by the same petitioner challenging the proceedings finalised under the provisions of Section 70B and 25(1) of the Kerala Value Added Tax Act, 2003 (hereinafter referred to as the ‘KVAT Act’).

2. The short facts necessary for the disposal of these writ petitions, as culled out from WP(C) No.7094 of 2017 are as under:

The petitioner is a Private Limited Company registered under the provisions of the Companies Act, 1956. The petitioner with reference to the Memorandum of Association of the Company, points out that the main object of the Company is to manage and facilitate the running of Educational Institutions, Technical and non-technical through trusts or otherwise undertake to develop, build, construct, adopt, implement, operate, take on lease or lease, run, maintain, manage, education institutions of all types like nursery, pre-primary, primary, etc. The petitioner further points out that the Tolins World School Foundation is a Trust constituted by the Director of the petitioner company as the settlor, managed by a Board of Trustees consisting of not more than 11 members nominated by the settlor. A copy of the Trust Deed is produced along with the reply affidavit filed by the petitioner, as Ext.P14.

3. The petitioner further points out that it had imported various materials like roofing sheets, electrical items including fancy lamps, windows, UPVC doors, furniture, toys, artificial grass etc. from abroad as evidenced by Ext.P1 series invoices. It is further brought to the notice of this Court that the said imported items have been used in the construction of a School building and therefore, had formed part of an immovable property. As regards the materials like furniture, toys etc., they are used for furnishing the School building. On account of the above, the petitioner contends that the building/furniture remains the property of the petitioner even as of now, with reference to Ext.P2 balance sheet for the year 2013-14, and the balance sheet for the years 2015-16 to 2018-19 as evidenced by Exts.P15(a) to P15(d). With reference to such balance sheets, it is further pointed out that the items so imported from abroad have been capitalised and there have been no deletion of any portion of the items so imported from the assets, except the claim of depreciation permissible under law. It is further pointed out in these writ petitions that the building constructed as above, using the materials imported from abroad and the furniture used in the furnishing of the School have been leased out to the afore Trust for a period of 30 years as evidenced by Ext.P3. However, the 1st respondent proposed to impose penalty on the petitioner under Section 70B of the KVAT Act amounting to Rs.1,34,89,993/-, essentially alleging that the petitioner diverted the items imported as above, against the certificate of ownership furnished in Form No.16, to the Trust referred to above. The gravamen of the allegations contained in Ext.P4 show cause notice issued by the 1st respondent is in the following lines:

“M/s.Tolins World School Pvt.Ltd. and M/s.Tolins World School Foundation are different legal persons having separate legal entity. Hence it is clear that you have brought the consignment into the State under the guise of for own use and transferred the same to another institution for use under an agreement of lease for a period of 30 years. Most of the items so imported including toys and furnitures will not have a life of thirty years. Hence it is clear from the transaction that you have effected sale by receiving the consideration of the items so transferred.”

After making the above allegations, the 1st respondent has sought to impose a penalty of Rs.1,34,89,993/- on the petitioner and also to demand Rs.44,96,664/- towards tax by the said notice.

4. Though the petitioner has submitted Ext.P5 detailed reply pointing out that there was no sale involved of the items in question