The High Court of Kerala has directed the petitioner to deposit 10% of the penalty amount imposed under Section 67(1)(b) and (d) of the Kerala Value Added Tax (KVAT) Act, 2003 to stay the recovery proceedings initiated against them citing the amendment made to Section 55 of the KVAT Act. The petitioner, Nirapara Roller Flour Mills (P) Ltd, represented by its Managing Director, Sri. P. F. Joseph had approached the High Court challenging the penalty order and seeking a stay on the recovery notice issued by the State Tax Officer, State Goods and Services Tax (SGST) Department, Kottayam.
The penalty order was related to the assessment year 2009-2010 and involved alleged violations under Section 67(1)(b) and (d) of the KVAT Act. The petitioner is engaged in the business of manufacturing wheat products and trading in wheat and had previously approached the court through a writ petition challenging the penalty order for the assessment year 2009-2010. However, the court dismissed the petition, citing the availability of an alternative remedy of appeal. The subsequent writ appeal filed by the petitioner against the dismissal was also rejected by the Division Bench of the High Court.
The present writ petition challenges the recovery notice and penalty order issued against the petitioner by the State Tax Officer, Kottayam. The petitioner, represented by Aji V. Dev, Alan Priyadarshi Dev and S. Sajeevan challenged the penalty order and recovery notice, arguing that they have deposited 10% of the disputed tax but disputes the need to deposit 10% of the penalty amount. The petitioner seeks a stay on recovery proceedings and urges reconsideration of its appeal and stay application.
The respondent revenue, represented by Reshmita Ramachandran argued that the petitioner must deposit 10% of the penalty amount, Rs.2,09,86,160. Stressing compliance with the amended provision of Section 55, the respondent revenue asserted the necessity for the petitioner to fulfill the required deposit of 10% of the penalty amount for the recovery proceedings to remain stayed. The bench took note of the amended provision of Section 55 of the KVAT Act, 2003, which stipulates that if 10% of the disputed tax amount is deposited, recovery proceedings for the remaining tax amount would remain stayed. In this case, the disputed tax amount was Rs.1,04,93,080/-, and the penalty, which is double the tax amount, was Rs.2,09,86,160/-.
The petitioner had deposited only 10% of the tax amount (Rs.10,49,308/-), leading to the issuance of the recovery notice for the remaining amount. Since, in the penalty order passed under Section 67(1)(b) and (d) of the KVAT Act, 2003, wherein the demand is 200 % under penalty head only, the bench held that the petitioner has to deposit the balance 10% of the penalty amount so as to stay the recovery proceedings. Once the balance 10% of the penalty amount is paid, it means that the petitioner has paid an amount equal to 10% of the total demand made under the penalty order.
The bench asserted that, in penalty orders issued under Section 67(1) of the KVAT Act, 2003, the revenue recovery proceedings shall be stayed only if the petitioner pays an amount equal to 10% of the total demand. The bench directed the petitioner to deposit the remaining 10% of the penalty amount of Rs.2,09,86,160/-, which equates to Rs.20,98,616/-, within one month from the date of the judgment.
The bench clarified that if the petitioner complies with this directive and deposits the balance amount, the recovery notice shall remain stayed until the disposal of the appeal pending before the second respondent, the Joint Commissioner of State Tax, Appeals. In result, the single bench of Justice Dinesh Kumar Singh disposed of the writ petition with the above directions to the petitioner assessee and the respondent revenue stating that the pending interlocutory application, if any, in the writ petition shall stand dismissed.