1. The petitioner, an assessee under the provisions of the Kerala Value Added Tax Act, 2003 (for short “KVAT Act”) and the Central Sales Tax Act, 1956 (for short “CST Act”) is burdened with a penalty under the provisions of the Section 67 of the KVAT Act with respect to the assessment year 2016-17, by the order at Ext.P27, issued by the 1st respondent. It is seeking to challenge the order imposing penalty as above, this writ petition has been instituted by the petitioner.

2. The short facts necessary for the disposal of the writ petition are as under:

The petitioner is stated to be a company having registration under the provisions of the Companies Act, 1956, with its registered office at Mumbai, with a branch in Kerala and other branches across the country. The petitioner is a manufacturer-cum-dealer of medical, electronic and electric equipments. It has also obtained registration under the KVAT Act and CST Act within the State of Kerala. The dispute in this writ petition essentially involves a transaction effected by the petitioner on the basis of certain purchase orders issued by the 4th respondent. The 4th respondent is a hospital at Changanacherry. The 4th respondent placed purchase orders at Exts.P4, P5 and P6 on the petitioner. Ext.P4 was a purchase order for the supply of medical equipments. Ext.P5 was a purchase order for the supply of accessories in connection with the medical equipment. Ext.P6 was a separate purchase order for the installation of medical equipments covered by the purchase order at Ext.P4. The petitioner, on the basis of the aforementioned purchase orders, in turn placed a purchase order on the foreign supplier – situated in Germany – as evidenced by Ext.P7. A reference to the purchase order at Ext.P4 would show that there are certain clauses contained therein that would bind the petitioner and as per the first clause, the petitioner was expected to procure the equipment ordered by the 4th respondent from “Siemens Germany”. The afore clause further states that the procurement as above has to be from Germany and from nowhere else. There is a separate clause which specifically says that under no circumstances the delivery can be affected by the petitioner of the equipment in question from any other source, including the stock-in-trade in India. On the basis of the afore purchase order, when the petitioner placed Ext.P7 purchase order on the German supplier, a reference was also made to the ultimate consumer – the 4th respondent herein. In turn, when the foreign supplier issued a confirmation as evidenced by Ext.P8, a reference had also been made to the order placed by the 4th respondent herein. On the basis of the afore, the foreign supplier issued Ext.P9 invoice with respect to the medical equipment in question. The equipment in question was consigned by sea as evidenced by Ext.P10 – Sea Way Bill. True, the petitioner filed the Bill of Entry for home consumption as evidenced by Ext.P11. Later, the goods in question have been sold by the petitioner to the 4th respondent on the basis of separate invoices raised by it, and the afore invoice did not visualise any collection of tax under the provisions of the KVAT Act. In Ext.P18 return filed by the petitioner for the period of May, 2016, the petitioner has disclosed the afore transaction; however, claiming exemption with reference to Article 286 of the Constitution of India read with the provisions of Section 5(2) of the CST Act – as a case of “sale in the course of import”. It also requires to be noticed that as regards the supply of accessories, the petitioner has raised Exts.P19 to P21 invoices; however, charging tax payable under the provisions of the KVAT Act. For the installation portion, a separate invoice has also been raised, as evidenced by Ext.P21. In the light of the afore, though it was the case of the petitioner that there were no taxable sale with reference to provisions of the KVAT Act, the 1st respondent sought to issue a show cause notice proposing imposition of a penalty. The petitioner objected to the afore proposal, also seeking to place reliance on the order issued by the Appellate Tribunal at Ext.P23 with reference to the assessment for 2005-06 and 2006-07, stated to be on the basis of the same set of facts, accepting the claim of exemption as above. However, in the impugned order at Ext.P27, the objection filed has been brushed aside, and the penalty imposed as proposed, amounting to Rs.87,87,000/-.

3. Heard Sri.Jose Joseph, the learned counsel for the petitioner, as well as Sri.Alan Priyadeshi Dev, the learned Government Pleader.

4. Sri.Jose Joseph, the learned counsel for the petitioner, would contend with reference to the factual situation noticed as above that the transaction in question does not attract any liability under the KVAT Act insofar as the sale was a sale in the course of import as provided under the provisions of Section 5(2) of the CST Act. He would also seek to rely on the order of the Appellate Tribunal at Ext.P23, as well as the Judgment in the assessee's own case, rendered by a Division Bench of this Court in State of Kerala v. Seimens Ltd. [(2017) 102 VST 157 (Ker)]. He would also add that the assessment for the year in question has since been completed by the assessing authority [Deputy Commissioner (Assessment) Special Circle – II, Ernakulam] dated 15.03.2021 with specific reference to the order of penalty impugned in this writ petition, accepting the case of the assessee that the transaction in question is an exempted one. Therefore, it is his submission that the penalty imposed by Ext.P27, requires to be set aside.

5. Per contra, Sri.Alan Priyadeshi Dev, the learned Government Pleader, would contend that the fact that the petitioner has cleared the goods, as evidenced by the Bill of Entry is a pointer to the effect that there is a break in the transaction, and therefore, the benefit of the provisions under Section 5(2) of the CST Act would not be available to the petitioner. He would also seek to rely on the Judgment of the Apex Court in M/s. Binani Bros. (P) Ltd. v. Union of India and Others [(1974) 1 SCC 459] to contend that there was no privity of contract between the 4th respondent and the supplier in Germany and therefore, the petitioner could not claim any exemption.

6. I have considered the rival submissions as well as the connected records.

7. It is the sustainability or otherwise of the imposition of penalty pursuant to Ext.P27 order that arises for consideration in this writ petition. The facts, noticed above, are not in dispute. On a perusal of the purchase order issued by the 4th respondent, it is clear that the petitioner was interdicted from making any supply of the item ordered by the 4th respondent from its stock-in-trade in India. The purchase order specifically provided that the petitioner is to obtain the item in question from its counterpart in Germany and none else. It is on that basis, the petitioner placed the purchase order on the foreign supplier, as evidenced by Ext.P7. In the confirmation issued by the foreign supplier also, as noticed earlier, the order placed by the customer in India is specifically referred to. From this, in my opinion, there is an inextricable link between the purchase order placed by the 4th respondent herein and the ultimate importation effected by the petitioner, which has ultimately resulted in the sale being effected by the petitioner to the 4th respondent. The only contention taken by Sri. Sri.Alan Priyadeshi Dev, the learned Government Pleader, as noticed earlier, is to the effect that insofar as the petitioner has cleared the goods from the customs by filing a Bill of Entry, there is a break in the chain, and therefore, the petitioner would not be entitled to the benefit.

8. However, this Court notices that almost on the very same set of facts, a Division Bench of this Court in Seimens Ltd. (supra) has considered the claim with reference to the provisions of the CST Act in the case of the petitioner itself. There also, the petitioner was required to obtain the goods specifically from Germany, and in the confirmation issued by the foreign supplier at Germany, it was specifically shown that the purchase order issued by the customer in Kerala is the reason for the importation into India. On that basis, this Court has found as under:

                  “14. The documents produced before the appellate authority, copies of which were also made available to us, show that in the pro forma invoice issued by the respondent-company to the managing director of MMDC contained various terms and conditions, among which, one is that the imported equipment is manufactured by Siemens concerns in Germany/China/USA and that the company shall be importing the equipment in order to fulfil the obligation specifically in the event purchase order is placed on Siemens Ltd. It is also stated that since the equipment is being imported to comply with the purchaser's requirement, the supplier proposes to sell the same during the course of import as envisaged under section 5(2) of the CST Act.

                  15. The purchase order issued by MMDC also contained various terms among which it is stated that the respondent had procured the equipment from Siemens, Germany and none else and that they shall import the equipment for the purpose of delivery thereof to MMDC at the address specified in the purchase order. It is also provided that the respondent shall not deliver the equipment of the above type from any other source or from their stock in India or otherwise and that it was specifically and mutually understood that the above equipment is imported from abroad into India solely and specifically for the purpose of the present contract. There is a specific provision that the equipment imported shall be delivered to MMDC and shall not be diverted for any other purpose.

                  16. The purchase order issued by the respondent to M/S.Siemens, Germany also contained a term requiring the foreign company to put a foot note on the order confirmation and invoice that the equipment is despatched against order from the respondent client whose details are also given in the purchase order. The order confirmation issued by Siemens, Germany, the supplier, shows that it is in compliance with the purchase order placed on them. The purchase order to MMDC also states that the sales tax charged is nil as the transaction is sale in the course of import covered by section 5(2) of the CST Act.

                  17. The genuineness of the aforesaid documents are undisputed. Once the genuineness of these documents are accepted, it could definitely be concluded that in the import of the goods by the respondent, there exists a bond between the contract of sale and the actual importation and each link thereof is inextricable connected with one immediately preceding it. This, therefore, shows that in the transaction in question leading to import and the sale of the equipment to MMDC, all the requirements that are laid down by the apex court and this court in the judgments referred to above are satisfied. Therefore, the order of the Tribunal concluding that section 5(2) of the CST Act is attracted to the case in hand is perfectly legal and does not merit any interference.”

9. On a perusal of the principles laid down by this Court as above, the only question to be noticed is as to whether there is an inextricable link between the transactions. As noticed earlier, there is a link between the purchase order placed by the 4th respondent, import effected by the petitioner, and the ultimate sale effected by it. This Court also notices the Judgment of another Division Bench of this Court in BPL Telecom Ltd. v. State of Kerala [(2009) 23 VST 264 (Ker)], wherein also an almost similar circumstance has been considered and the claim of exemption under Section 5(2) of the CST Act extended, even in a situation where the importer had filed the Bill of Entry with the customs.

10. With reference to the Judgment of the Apex Court in M/S. Binani Bros. (P) Ltd. (supra) relied on by Sri.Alan, this Court notices that in paragraph 14, the Apex Court categorically found that there was no privity of contract between the ultimate customer in India and the foreign supplier. It is on that basis the Apex Court found that the benefit of the provisions of the CST Act could not extended. But in the case at hand, as already been noticed, there is a privity of contract. This Court also notices that the Judgment of the Apex Court has also been referred to by the Division Bench of this Court while rendering the judgment in the petitioner's case reported in Seimens Ltd. (supra).

11. Furthermore, as rightly pointed out by the learned counsel for the petitioner, the assessment of the petitioner has already been completed by the order dated 15.03.2021 extending the benefit of exemption, even on the face of the penalty order impugned in this writ petition. True, the afore order has not been placed on record. However, a copy of this order has been circulated, on the basis of which this Court notices that the contention raised has been accepted with reference to the Division Bench Judgment in Seimens Ltd. (supra).

12. This Court is also of the opinion that the penalty under Section 67 of the KVAT Act cannot be imposed for an additional reason. Admittedly, as noticed earlier, in the return filed at Ext.P18, the transaction has been declared; however, an exemption is claimed. In other words, there was no suppression whatsoever from the side of the petitioner. It is on the bona fide belief that it was entitled to exemption that such a return was filed. When that be so, with reference to the principles laid down by a Division Bench of this Court in M/S.U.K. Monu Timbers v. State of Kerala [2012 (3) KHC 111 (DB)], the imposition of penalty cannot be sustained.

                  In the light of the afore, I am of the opinion that Ext.P27 order requires to be set aside. Resultantly, this writ petition would stand allowed, setting aside Ext.P27 order passed by the 1st respondent.