2024 (11) TMI 981 - HC - VAT / Sales Tax

Dealer must prove first sale before claiming second sale exemption under Section 12(5)(iii)

The HC set aside the Tribunal's order allowing second sale exemption where the dealer failed to prove the factum of first sale. The court held that the ... Allowing the claim of second sale exemption contrary to established facts that the so-called sellers were either non-existent or had not handled the goods - Deletion of consequential penalty under Section 12(5)(iii). Whether the Tribunal was legally right in allowing the claim of second sale exemption despite the sellers being non-existent or not having handled the goods? - HELD THAT:- When the burden was on the dealer to prove the factum of second sale, the respondent had not discharged the burden of proving the actual first sale, for him to successfully claim the exemption on the ground of second sale. The Tribunal had erroneously shifted the burden from the dealer to the revenue, which is against Section 10 of the Act and had come to the conclusion that the revenue had not established by proving that the purchase of the respondent was a first sale. Similar issue in M/S. MKR CASHEW EXPORTS VERSUS THE SECRETARY, TAMILNADU SALES TAX APPELLATE TRIBUNAL (MB) , CHENNAI, THE DEPUTY COMMERCIAL TAX OFFICER, PANRUTI (RURAL). [2024 (8) TMI 1485 - MADRAS HIGH COURT] where the dealer was not able to prove the factum of first sale to claim the exemption on the ground of second sale, as the burden of proof was on the assessee to prove the transaction. Further, in A.S.Ganapathy Chettiar Vs. The State of Tamil Nadu [1976 (3) TMI 209 - MADRAS HIGH COURT], relied on by the learned Government Advocate for the appellant, the Division Bench of this Court has held that the burden of proving that there was an earlier taxable sale was on the assessee. In view of the above decisions and the fact that the respondent dealer had failed to prove the transaction of the factum of first sale, the first question of law is answered in favour of the revenue and against the assessee. Whether the deletion of the consequential penalty under Section 12(5)(iii) by the Tribunal is legally tenable? - HELD THAT:- In the instant case, the respondent had put forth a claim of second sales and further they submitted the documents, which on enquiry were found to be bogus and fictitious and the respondent had made no attempts to produce the documents through dealers before the authorities for confirmation of the alleged first sale. In view of our findings arrived at question No.1, the respondent, who is liable to pay tax had not filed any return for the assessment year 1982-83 and have wilfully suppressed taxable turnover and therefore, the Assessing Officer had rightly imposed the penalty under Section 12(5)(iii) of the Act - the decision of the Tribunal in deleting the penalty imposed by the Assessing Officer under Section 12(5)(iii) of the Act cannot be sustained. Under such circumstances, the second question of law is also answered in favour of the revenue and against the assessee. The impugned order of the Tribunal is set aside and the assessment order as confirmed by the appellate authority stands restored - this Tax Case stands allowed. Issues Involved:1. Whether the Tribunal was legally right in allowing the claim of second sale exemption despite the sellers being non-existent or not having handled the goods.2. Whether the deletion of the consequential penalty under Section 12(5)(iii) by the Tribunal is legally tenable.Detailed Analysis:Issue 1: Second Sale ExemptionThe primary issue revolves around the respondent, a dealer in Iron and Steel, claiming an exemption on sales as second sales under the Tamil Nadu General Sales Tax Act, 1959. The Assessing Officer, upon verifying the records, found that the purchases were allegedly made from five entities that were non-existent, with documents deemed fictitious and bogus. Consequently, the claim of second sales was rejected, and the dealer was assessed for tax for the assessment year 1982-83.The Tribunal, however, allowed the appeal, stating that since the entire purchases were from registered dealers, the sales were eligible for exemption. The Tribunal also noted that the Assessing Officer had not conducted a detailed enquiry after receiving reports from various assessment circles. The Tribunal's decision was challenged by the Revenue, arguing that the burden of proving the second sale exemption rests on the assessee, as per the decision in A.S.Ganapathy Chettiar Vs. The State of Tamil Nadu, which emphasizes that the assessee must prove the existence of an earlier taxable sale.The High Court reiterated that the burden of proof lies with the dealer to establish the transaction as a second sale. The respondent failed to produce any material evidence to substantiate the claim of second sales, as the alleged sellers were found to be non-existent. The Tribunal's shifting of the burden from the dealer to the revenue was deemed erroneous and contrary to Section 10 of the Act. The court concluded that the respondent did not discharge the burden of proving the first sale, thus failing to establish the claim for second sale exemption.Issue 2: Deletion of PenaltyThe second issue concerns the Tribunal's decision to set aside the penalty imposed under Section 12(5)(iii) of the Act. The Tribunal had reasoned that since the turnover was not liable for tax as it was claimed to be second sales, the question of filing a return did not arise, and hence, no penalty could be levied.The High Court, however, found that the respondent had submitted documents that were found to be bogus and fictitious. The respondent did not make any attempts to produce confirmation of the alleged first sale through the dealers. Given the findings on the first issue, the court held that the respondent, who was liable to pay tax, had not filed any return for the assessment year 1982-83 and had willfully suppressed taxable turnover. Therefore, the penalty imposed by the Assessing Officer was justified.Conclusion:The High Court set aside the Tribunal's order, restoring the assessment order confirmed by the appellate authority. Both questions of law were answered in favor of the revenue and against the assessee, emphasizing the dealer's responsibility to prove the claim of second sales and the legitimacy of the penalty imposed due to non-compliance with statutory obligations.