2008 (11) TMI 68 - SC - VAT and Sales Tax

Professional services deemed 'sale' under Sales Tax Act, burden of proof emphasized, appeal allowed.

The Supreme Court held that the professional services provided by the appellant did constitute a 'sale' under the Kerala General Sales Tax Act, despite ... Service tax vis-à-vis sales tax - dealer of ceramic tiles providing services to various exporters as regards inspection/certification of quality of the items sought to be exported - HC confirming addition to taxable turnover of the commission received for professional services – held that element of transaction of sale is perquisite for levy of sales tax – impugned professional services not constitutes sales - impugned services are liable to service tax, not to sales tax – HC’s order set aside Issues Involved:1. Whether the professional services rendered by the appellant constitute a 'sale' under the Kerala General Sales Tax Act, 1963.2. Whether the burden of proof was correctly applied by the appellate authorities.3. The distinction between assessment under the Income Tax Act and the Sales Tax Act.Issue-wise Detailed Analysis:1. Professional Services as 'Sale':The appellant, an assessee under the Kerala General Sales Tax Act, 1963, operates two concerns: M/s. Tropical Traders (dealing in ceramic tiles) and M/s. Poseidon Food Company (providing inspection and certification services for exporters). The Assessing Authority added Rs.45,80,168.09 to the taxable turnover, considering it as commission from M/s. Poseidon Food Company. The appellant argued that these services do not constitute a 'sale' and are thus not taxable under the Act. The first appellate authority agreed, noting that the professional services involving skill and knowledge did not constitute a 'transfer of property'. However, the Sales Tax Appellate Tribunal and the High Court disagreed, holding that the amount could be considered unaccounted sales due to the appellant's failure to provide sufficient documentary evidence.2. Burden of Proof:Section 12 of the Act places the burden of proof on the assessee to show that any transaction is not liable to tax. The Tribunal and the High Court held that the appellant failed to discharge this burden. The appellant contended that the burden was met by producing income-tax returns, orders of assessments, and certificates from MPEDA, Cochin. The Supreme Court emphasized that the burden of proof in a taxing statute must be construed carefully, and the primary duty of the assessing authority is to verify the correctness of the figures furnished by the assessee. The Court noted that the appellant had produced significant documents and that the High Court failed to consider these adequately.3. Distinction Between Income Tax and Sales Tax Assessments:The Supreme Court highlighted the fundamental difference between income tax and sales tax. Income tax is levied on income irrespective of its source, whereas sales tax is levied on the quantum of sales, necessitating a transaction of sale. The Court referred to the precedent set in Girdhari Lal Nannelal v. The Sales Tax Commissioner, M.P., which established that unexplained money could be treated as income for income tax purposes but not necessarily as sales for sales tax purposes without additional material indicating sales transactions. The Court found that the High Court erred in not distinguishing between these two types of assessments.Conclusion:The Supreme Court set aside the impugned judgment and remitted the matter to the assessing authority for fresh consideration based on the materials provided by the appellant, including income tax returns, assessment orders, and certificates from MPEDA, Cochin. The Court allowed for the possibility of the State filing additional documents and emphasized that the foundational facts must be established for Section 12 of the Act to be applicable. The appeal was allowed with no costs.