Transit Pass Surrender Not Conclusive Proof Of Goods Movement, Doesn't Bar KVAT Penalty: Karnataka HC

The Karnataka High Court on 15 July held that surrender of a transit pass under the Karnataka Value Added Tax (KVAT) Act does not conclusively establish genuine interstate movement of goods or prevent authorities from initiating penalty proceedings.

A Division Bench of Justices S.G. Pandit and Dr. K. Manmadha Rao dismissed an appeal filed by Sri C. Girish, proprietor of Jai Gurudev Road Carriers, and upheld the penalty imposed under Section 53(12) of the KVAT Act (which provides for penalty where goods are transported in circumstances indicating possible tax evasion). It observed:

“The mere issuance and surrender of a Transit Pass does not conclusively establish that the goods were in fact transported to the declared destination... the jurisdiction to invoke Section 53(12) KVAT Act is not excluded merely because the Transit Pass stood surrendered.”

The appellant, a transporter, was engaged to carry consignments of electrical appliances from Mumbai to Salem through Karnataka. Transit passes were issued at the entry check-post and later surrendered at the Attibele Exit Check-post after the goods were transferred to another vehicle.

A substituted vehicle was later intercepted while travelling back towards Bengaluru. During inspection, authorities found discrepancies between the transport documents and the goods carried, including shortages and missing lorry receipts. Based on these discrepancies, the authorities initiated penalty proceedings under Section 53(12) of the KVAT Act.

The Deputy Commissioner imposed a penalty after finding that the circumstances indicated an intention to evade tax. The First Appellate Authority later set aside the penalty after accepting the appellant's explanation that the vehicle had returned to Bengaluru only to retrieve registration documents.

However, the Additional Commissioner, while exercising revisional powers under Section 64 of the KVAT Act, restored the penalty. The revisional authority held that the First Appellate Authority had failed to consider the discrepancies in transport documents, shortage of goods and the vehicle's movement towards Bengaluru after surrender of the transit passes.

Before the High Court, the appellant argued that once the transit passes were surrendered, no presumption of tax evasion could arise. He further contended that penalty proceedings could not continue without proof that the goods had been unloaded or sold within Karnataka. The Revenue opposed the appeal, relying on the discrepancies in transport documents, shortage of goods and the movement of the vehicle after surrender of the transit passes. It argued that these circumstances indicated possible diversion of goods.

Rejecting the appellant's arguments, the Court held that surrender of a transit pass was only a relevant circumstance and not conclusive proof that goods reached their declared destination. It held that authorities could consider surrounding circumstances to determine whether goods were diverted. It observed:

“Where the material on record discloses discrepancies between the goods carried and the documents produced, absence of supporting transport records and other circumstances indicative of possible diversion, the authorities are entitled to draw appropriate inferences and initiate proceedings in accordance with law.”

The Bench also upheld the revisional authority's order under Section 64 of the KVAT Act, holding that it had rightly examined the relevant material overlooked by the First Appellate Authority.

Accordingly, the High Court dismissed the appeal, affirmed the revisional order and restored the penalty imposed under Section 53(12) of the KVAT Act.

For the Appellant: Sri K.G. Kamath, Advocate

For the Respondent: Sri Aditya Vikram Bhat, Additional Government Advocate