2023 (10) TMI 492 - HC - VAT and Sales Tax

High Court Upholds Assessment Order on Stock Discrepancies, Overturns Inter-State Sales Treatment

Berger Paints India Ltd. Versus Commissioner Of Trade And Taxes Delhi

The High Court upheld the assessment order directing payment due to variations in physical stock compared to stock records. The court found the appellant ... Challenge to assessment and levy of tax - application for supply of documents - variations in physical stock in comparison to the stock in record - goods transferred from the Delhi branch to the Faridabad and Ghaziabad branches on receiving orders from certain dealers - demand of Central Sales Tax computed by treating 10% of the stock transfer as inter-State sale. HELD THAT:- There are no illegality, perversity or incorrect approach adopted by the Assessing Authority in its order dated 31 December 1999 as regards unaccounted sales as also variations in the physical stock. The findings on merits in so far as the conclusion which was drawn with regard to transactions at pages 14 and 15 of the diary that was seized at the time of search cannot be re-appreciated at this stage particularly when the learned DVATT has taken a balanced view of the matter that the Assessing Authority was not justified as regards taking into consideration the entry at page No. 35 of the diary as transaction of sale in the absence of better evidence. There is no gainsaying in pointing out that as per Section 6 of DST Act, the burden of proving that sale was not effected and that no tax was liable to be paid, was upon the appellant. The assessing authority took a fair, just and reasonable view of the matter in proceeding to carry out a best judgment assessment thereby enhancing sales by 10% of the net GTO after deducting the stock transfer figure of GTO, and accordingly, the levy of tax with interest cannot be said to be unpalatable or an unconscionable exercise of powers. On a conjoint reading of the provisions of Section 2(g) of CGST Act, it is clearly brought out that sale is transfer of property in goods from one person to another for cash or deferred payment or for any other valuable consideration. In other words, sale is transfer of ownership in the goods as per any contract between seller and the buyer, and it is pursuant to a contract of sale that when goods move from one State to another that Section 3 of the CST Act comes into play - no presumption in law is invited merely because the goods moved from Delhi to the depots/warehouses or storage facilities of appellant outside Delhi. There are no hesitation in holding that the impugned order dated 02 May 2022 insofar as it pertains to second limb of demand, namely, the levy of tax under CST Act, cannot be sustained in law. However, there are no legal infirmity, perversity or incorrect approach adopted by the learned DVATT in dismissing the application under Section 73(8) read with Section 75 of the DVAT Act read with Regulation 21 of the DVAT (Appellate Tribunal) Regulation, 2005 as we find that there was no prejudice caused to the appellant and objections with regard to non supply or sharing of documents were not taken at the opportune time before the Assessing Authority. The appeal partly dismissed thereby sustaining the demand for local tax insofar as it is levied by the impugned order under Section 3 read with Section 23 of the DST Act. Issues Involved:1. Variations in physical stock vs. stock in records.2. Purported stock transfers treated as inter-State sales.3. Non-supply of seized documents to the appellant.4. Dismissal of application under Section 73(8) of the DVAT Act.Summary:1. Variations in Physical Stock vs. Stock in Records:The appellant company challenged the assessment order dated 31 December 1999, which directed the payment of Rs. 59,49,503/- due to variations in physical stock compared to the stock records. The High Court upheld the assessment, noting that the appellant failed to explain discrepancies in the stock registers and sales figures. The Assessing Authority's decision to enhance sales by 10% of the net GTO after deducting the stock transfer figure was deemed fair and reasonable.2. Purported Stock Transfers Treated as Inter-State Sales:The appellant contested the assessment order under Section 9 of the CST Act, which treated 10% of the stock transfers as inter-State sales, resulting in a demand of Rs. 58,43,131/-. The High Court found that the DVATT failed to appreciate that there was no substantial evidence, except for five gate passes, to conclude that the movement of goods was pursuant to a sale. The court held that movement of goods to depots/warehouses outside Delhi without evidence of a sale contract could not be deemed inter-State sales. The demand for tax under the CST Act was set aside, and the matter was remanded to the DVATT for fresh consideration.3. Non-Supply of Seized Documents to the Appellant:The appellant argued that the seized documents were not provided, affecting their ability to contest the assessment. The DVATT dismissed this plea, stating that the documents were seized in the presence of the appellant's representatives, who did not protest at the time. The High Court found no prejudice caused to the appellant due to the non-supply of documents, as objections were not raised at the appropriate time before the Assessing Authority.4. Dismissal of Application under Section 73(8) of the DVAT Act:The appellant's application under Section 73(8) of the DVAT Act was dismissed by the DVATT on the grounds of delay and lack of due diligence. The High Court upheld this dismissal, finding no legal infirmity or prejudice caused to the appellant.Relief:The High Court partly dismissed the appeal, sustaining the demand for local tax under the DST Act and dismissing the challenge to the application under Section 73(8) of the DVAT Act. However, the demand for tax under the CST Act was set aside, and the matter was remanded to the DVATT for fresh assessment and levy of tax under the CST Act, with an opportunity for the parties to file fresh documents. The appeal was disposed of accordingly.