Cosmopolitan Hospital Pvt. Ltd. v. Commercial Taxes
In the Kerala High Court
W.P. (C) No. 17294/2015
Before Justice A. Muhamed Mustaque
Decided on June 25, 2015

Relevancy of the case: Reliance on electronic records for maintaining books of accounts

Statutes & Provisions Involved

• The Information Technology Act, 2000 (Section 2)
• The Indian Evidence Act, 1872 (Section 3)
• Kerala Value Added Tax Act, 2003 (Section 40, Rule 58)

Relevant Facts of the Case

• The petitioner impugns exhibits P8 to P8(b) orders of penalty under the Kerala Value Added Tax Act (KVAT), 2003. They are maintaining accounts in Tally software. The authority noted in the proceedings that the dealer could not produce correct and complete books of accounts. They even failed to produce purchase bills relating to medicine and surgical goods. 
• Therefore, it was found that the non-maintenance of correct and complete books of accounts intended to evade payment of tax. In fact, it was in violation of Section 40 of the KVAT Act. The petitioner produced the statements in a Compact Disk (CD). They requested to cross-verify the contents in the CD with invoices available on the computer. They also expressed their willingness to take a print out from the CD.

Prominent Arguments by the Advocates 

• The learned counsel for the petitioner, Sri. S. Anil Kumar contended that the dealer is permitted to use electronic billing and accounting under the proviso to Section 40 of the KVAT Act. However, non-verification of the accounts produced in electronic means has resulted in the imposition of penalty. He submitted that the entire procedure is vitiated on account of brushing aside electronic records.

Opinion of the Bench 

• The court observed that electronic means of accounting have to be accepted for any proceedings in terms of Section 40 of the KVAT Act. Sub Rules 20 and 20A of Rule 58 of the KVAT Rules lay down the safeguards for relying on electronic means of accounting. However, it is to be noted that dealers have to intimate Assessing Authority in advance along with the password for any reliance on electronic means of accounting. 
• In the absence of any such intimation, the authority need not place any relevance on electronic means. The CD is only a copy of the records maintained by electronic means. It can be compared with the accounts maintained by the electronic means in the computer. The CD is admissible as a piece of evidence under the general provision of law. However, the amended definition of ‘evidence’ u/s 3 of the Indian Evidence Act, 1872 has to be read with Section 2(t) of the Information Technology Act, 2000. 

Final Decision

• The court observed that the petitioner had been shut out in proving the accounts through electronic means. Thus, the impugned orders are vitiated. Accordingly, the same is set aside. The authority is directed to verify whether the petitioner has maintained electronic means of accounting in the manner prescribed under the Rules. 
• It shall also confirm whether the petitioner had intimated about the use of electronic means in advance before the Assessing Authority. If the petitioner has not maintained the accounts as above, the authority shall allow the petitioner to produce in standard form. The petitioner shall appear before the respondents on 20.07.2015 at 11.00 a.m. This writ petition is disposed of as above.