2014 (5) TMI 29 - HC - VAT and Sales Tax

High Court rules compensation for damaged goods not taxable, overturns penalty, rejects deemed sale decision

M/s. Sanjay Trading Corporation Versus The State of Tamil Nadu rep. By the Commercial Tax Officer

The High Court ruled in favor of the petitioner in a tax case revision, determining that the compensation received for damaged goods should not be treated ... Includability in the taxable turnover – Value of damaged goods in absence of actual sale value - No documentary evidence available - Held that:- The assessee had placed the materials in the form of correspondence between the petitioner and the Principal - In the absence of any evidence to show the actual sale consideration and in the absence of any material to substantiate that the assessee had to be treated as purchaser of the goods - No justifiable grounds to accept the plea of the revenue that there was a sale omission to the tune of Rs.2,87,493/- - Admittedly the assessee, being the consignment agent of the principal, was entitled to get commission or any monetary benefits from the principal - Going by the facts that the sales of the damaged goods were finalised by the Principal and that apart from the commission, the assessee received expenses for taking the damaged goods into its possession, it is difficult to conclude that there was a sale omission to the tune of Rs.2,87,493/-- Thus no justifiable reason to accept the plea raised by the revenue - Revision is allowed – Decided against Revenue. Issues involved:1. Whether the amount received by the petitioner as compensation for damaged goods can be treated as a sale amount and taxedRs.2. Whether the Tribunal was correct in sustaining the penalty when there is no suppression of any turnover and only compensation was received by way of a debit noteRs.3. Whether the transaction in question should be considered a deemed sale and taxed based on the initial cost price and selling price fixed by the Principal to the AgentRs.Detailed analysis:Issue 1: The petitioner acted as a consignment agent for a company and sold damaged goods at a lesser price after being assured of compensation by the principal. The assessing officer estimated a sales omission, but the petitioner argued that the compensation amount received should not be treated as a sale amount for taxation. The High Court found that the correspondence between the petitioner and the principal, along with the lack of evidence on the actual sale consideration, did not support the revenue's claim of a sales omission. The Court ruled in favor of the petitioner, allowing the Tax Case Revision.Issue 2: The Tribunal had sustained a penalty imposed on the petitioner, despite no suppression of turnover and only compensation being received through a debit note. The High Court considered the facts of the case, including the nature of the transaction and the absence of evidence supporting a sales omission. It concluded that the penalty was not justified, leading to the allowance of the Tax Case Revision.Issue 3: The Tribunal had treated the transaction as a deemed sale, determining the sale price based on the initial cost price and selling price fixed by the Principal to the Agent. The petitioner argued that the transaction was genuine, supported by correspondence with the principal and the compensation received. The High Court analyzed the details of the transaction, the role of the petitioner as a consignment agent, and the lack of evidence on the actual sale consideration. It found no grounds to support the revenue's claim of a sales omission, leading to the allowance of the Tax Case Revision without costs.