2009 (3) TMI 953 - HC - VAT and Sales Tax

High Court overturns Tribunal's sales tax assessment orders, remands for fresh assessment. Intelligence officer's estimates not binding.

State of Kerala Versus Molly Babu

The High Court set aside the Tribunal's orders directing the acceptance of books of account for sales tax assessments and remanded the matter to the ... Acceptance of books of account for sales tax assessments challenged - Held that:- Agreeing with the contention of the assessee that if the transactions can be co-related from the seized records and if it is proved that entire business carried on in the clandestine manner are covered by entries in the seized records, then there is no scope for further addition. However, it is for the assessee to establish and co-relate entries in the business slips, bill books, note books, purchase bills, sales bills, etc., and in the absence of any co-relation it is for the officer to reject books of accounts as incomplete and estimate turnover based on relevant materials. Therefore set aside the orders of the Tribunal and that of the first appellate authority and remand the matter back to the assessing officer for giving opportunity to produce the books including the seized records if released to the assessee and to make fresh assessment based on the above observations. However, since the assessee has closed the business and since the Department has not filed second appeal against the orders of the first appellate authority we give an option to the assessee to accept the first appellate authority's order and on the assessee's acceptance the assessing officer shall complete the assessment by making an addition equal to the turnover in terms of the first appellate authority's order. Issues:1. Challenge to acceptance of books of account for sales tax assessments by the Tribunal.2. Whether estimates made by the intelligence officer during compounding proceedings bind the assessing officer.3. Contention regarding turnover estimation and addition by the assessing officer.4. Liability of the assessee for purchase tax under section 5A on diamonds and precious stones sold in studded ornaments.Analysis:1. The High Court heard the tax revision cases filed by the Revenue challenging the Tribunal's orders directing the acceptance of books of account for sales tax assessments of the respondent-assessee for the years 2002-03, 2003-04, and 2004-05. The respondent had engaged in business without registration or payment of sales tax, which was discovered during a search operation. The Department found evasion of sales tax for the years 2003-04 and 2004-05. The respondent applied for compounding under section 47, which was accepted, and the tax was remitted to avoid prosecution and penalty.2. The main issue raised was whether the estimates made by the intelligence officer during compounding proceedings bind the assessing officer for assessment purposes. The Department contended that compounding is different from assessment, and the assessing officer is entitled to make his own estimate based on seized records. The respondent argued that since seized records were the only materials available, the assessing officer should follow the intelligence officer's findings.3. The Court disagreed with the respondent's contention that the turnover estimated by the intelligence officer should be accepted without any addition by the assessing officer. The compounding process is distinct from assessment, and the assessing officer has the authority to determine the actual tax liability. The Court held that if the seized records do not cover the entire transactions, the assessing officer can estimate the turnover based on available materials.4. Another issue raised was the liability of the assessee for purchase tax under section 5A on diamonds and precious stones sold in studded ornaments. The Court noted that if these items were separately billed during the sale of studded jewelry, there would be no scope for levy under section 5A as the tax is already imposed at the sale point under section 5(1). This aspect was left for verification during re-assessment by the assessing authority.In conclusion, the High Court set aside the Tribunal's orders and remanded the matter to the assessing officer for fresh assessment based on the observations made. The Court provided an option to the assessee to accept the first appellate authority's order. Additionally, the liability for purchase tax under section 5A on diamonds and precious stones was to be verified during re-assessment.