Kerala HC held that the penal proceedings cannot be initiated in absence of determination of sales under the Kerala VAT Act

We are pleased to release a Tax Alert on the recent decision of the Kerala High Court regarding initiation of penal proceedings in absence of determination of sales under the Kerala Value Added Tax Act (KVAT).

The assessee was engaged in facilitating transactions relating to sale and purchase of the products through its online portal. Being an online service provider it was registered under Service tax law.

It was alleged that assessee had breached the provisions of Section 20 and 40 of KVAT by not registering as a dealer and further not filing the returns and maintaining true and correct accounts. In this regard, penalty orders had been passed under section 67 of the said act.

High court (HC) held that, the impugned orders only find that there were transactions of sale that resulted in goods being delivered to customers in Kerala, but it fails to find whether it was the assessee who affected those sales. HC thus quashed the impugned orders.

HC also ruled that, the notices issued cannot confront the assessee with definite conclusion of committing an offence by him.

The judgement highlights the fundamental constitutional principle under Article 265 that, no tax shall be levied or collected except by authority of law.