2008 (10) TMI 605 - HC - VAT and Sales Tax

Court rules sales as local, not inter-State due to lack of proof. Penalty unjustified. Assessment order set aside.

The court ruled in favor of the petitioner, determining that the sales were local and not inter-State, as the goods were not transported to other states ... Local sale v/s inter-State sale - Held that:- In the absence of any positive materials evidencing interState sale, the stray sales as found in the assessment order cannot be termed to be a sale in the course of inter-State trade warranting payment of tax under the Central Sales Tax Act. Therefore the assessing authority clearly erred in assessing the transaction as an inter-State sale and as such the said finding is liable to be set aside. Whether the transaction was a second sale or an inter-State sale was a matter to be decided by the assessing authority and the petitioner has produced the entire documents and on the basis of the said documents only, the assessing authority came to the conclusion that the sale was not a second sale, but a sale in the course of inter-State sale and therefore it cannot be said that the petitioner was liable for penalty. Therefore the levy of penalty is also necessarily to be set aside. W.P. allowed. Issues Involved:1. Classification of Sales as Inter-State or Local Sales2. Burden of Proof for Movement of Goods3. Imposition of Penalty under Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959Issue-wise Detailed Analysis:1. Classification of Sales as Inter-State or Local Sales:The primary issue was whether the sales made by the petitioner to purchasers from other states were inter-State sales or local sales. The petitioner argued that the sales were local since the goods were delivered at the business premises in Chennai and not transported to other states. The assessing authority, however, classified these as inter-State sales because the bills were raised in the names of purchasers from other states and claimed that the goods were moved from Chennai to those states.The court examined the principles governing inter-State sales, emphasizing that for a sale to be classified as inter-State, there must be a contract stipulating the movement of goods from one state to another. The court found no evidence that the petitioner was responsible for transporting the goods to other states. It was concluded that the sales were made at the petitioner's business premises in Chennai, and the purchasers themselves transported the goods to their respective states. Therefore, the sales were local and did not attract Central Sales Tax.2. Burden of Proof for Movement of Goods:The appellate authorities held that the burden of proof lay on the petitioner to show that the goods were delivered locally and not transported to other states. The petitioner failed to discharge this burden, leading to the classification of sales as inter-State. However, the court noted that the assessing authority did not provide concrete evidence of the petitioner's involvement in the transportation of goods to other states. The court emphasized that mere issuance of bills to out-of-state purchasers did not constitute inter-State sales without proof of the petitioner's role in moving the goods across state lines.3. Imposition of Penalty under Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959:The assessing officer imposed a penalty on the petitioner for filing incorrect returns, claiming exemption on the grounds of second sales. The court examined the conditions under which penalties could be levied, referring to the Supreme Court's ruling in State of Madras v. S.G. Jayaraj Nadar & Sons. It was held that penalties could only be imposed if the assessment was made to the best of the authority's judgment due to incomplete or incorrect returns.The court found that the petitioner had provided all necessary documents, and the dispute was purely about the classification of sales. There was no evidence of an attempt to evade tax. Consequently, the imposition of the penalty was deemed unjustified and was set aside.Conclusion:The writ petition was allowed, and the assessment order dated December 8, 1995, treating the transactions as inter-State sales, was set aside. The court ruled that the sales were local, and no Central Sales Tax was applicable. The penalty imposed was also annulled. No costs were awarded.