TaxTMI 
TaxTMI 
1975 (8) TMI 69
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.... No. 48, Sembudoss Street, Madras-I against the revision of assessment for the year 1970-71 and 1971-72 and the original assessment for 1971-72. 3. T.A. No. 536/74: As regards 1970-71, the appellants returned a total and taxable turnover of Rs. 74,83,207.03 and Rs. 4,70,046.75 respectively. As against this the AO determined the total and taxable turnover at Rs. 76,09,228.58 and Rs. 6,75,900.00 respectively. The AO had allowed exemption on a turnover of Rs. 69,33,328.58 as sales other than first sales of iron and steel. The appellants also filed a list of corresponding second purchases before the original assessing authority for Rs. 75,35,831.95. The purchase list are available at p. 95 to 108 of the assessment filed for 1970-71. These lists include the purchases which were subsequently stated as made from fictitious persons. Subsequently on the basis of report from intelligence staff that certain purchases were from fictitious person, the AO resorted to the revision of assessment. The extract of the investigating officer's report as adopted by the AO is as follows: "The dealers have effected purchases of declared goods under the cover of bills which are found to be fictiti....
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.... - 2,75,591.08 NIL 30-6-71 12,21,882.00 1,79,418.00 27-12-73 47,591.50 NIL 1-12-72 4,19,716.00 2,24,947.00 27-12-73 2,02,961.31 NIL 29/6. 6.70 5,992.50 30/15. 7.70 19,387.20 33/21. 7.70 1,092.00 35/25. 7.70 10,252.40 37/9. 8.70 091.20 47/16. 9.70 11,019.90 48/16.10.70 5,085.80 50/28 10.70 4,332.00 . 93,573.60 The duplicate copies of the above bills obtained from the dealers as enclosed. These bills do not contain the registration No. of the sellers. A perusal of these bills would indicate that they are not genuine. A registered notice sent to this address was returned undelivered with the postal endorsement 'Not in 47 V.P. Colony'. It is thus clear that the declared goods covered by these bills had not suffered tax at any earlier stage. In reply to a notice issued the assessee ( Mohamed Naina & Bros) represented that the same dealer is now doing business under the style 'Geespee Stee)' 15, Jones Street, Madras and he is on the file of the Joint Commercial Tax Officer, Harbour-III, in TNGST 2869/71-72. For the purpose of cowndering the assessee's liability to tax, it is unnecessary for....
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....ing that the so called investigation was made by the Officer behind the back of the appellants and that these records were not made available to the appellants. He also pointed out that the G.S.P. & Co., who was held to be a fictitious dealer on enquiry by the Department, turned out to be a real dealer against whom assessment proceedings were taken by the Department. 4. T.A. No. 534/74 : As regards 1971-72, the appellants returned a total and taxable turnover of Rs. 81,97,752.92 and Rs. 1,49,682.00 respectively. The AO had however originally determined the total and taxable turnover at Rs. 81,97,752.92 and Rs. 7,14,600.70 respectively. In this year, the appellant filed a list of second purchases and it is filed at pp. 67 to 85 for Rs. 89,49,832.14. In the original assessment itself, the AO had examined the list of purchases and rejected the claim of second sales to a tune of Rs. 5,39,900.00 for the reason that there is no proof to show that the goods had already suffered the single point tax in the State. The proposals of the Intelligence Staff filed at p. 337 of the assessment file for 1971-72 show that the Intelligence Officers had categorised the purchases into two classes on....
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....t notes in his assessment proceedings. Clearly the sellers in the latter cases were dealers It does not matter whether he is a registered dealer or not. The appellant contended that in these cases, the purchases were only covered by invoices issued by the local dealers that there was no allegations of malafide against the appellants and that the records of enquiry were not shown to the appellants. The learned Counsel also argued that in the latter category of turnover of Rs. 3,66,000 the AO finding was that sufferance of tax earlier was not proved and that he had not spelled out any cloud or malafide of these transactions and that these dealers are existing and it is for the Department to rope them to tax as laid down in the High Court's decision in Govindan's case. The appellant had shown the source of purchases in the latter category and according to the High Court judgment in Govindan's case, it is not necessary for the appellant to show that the goods had actually suffered the single point tax earlier and that it would suffice to show the real persons from whom he had purchased and it is upon the Department to go into this aspect and assess the tax if the dealer is also the fir....
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....stered letter. 7. T.A. No. 515/74 : Reliance Hard Ware, No. 85 Sembudoss street, Madras-1. The appellants were originally assessed for 1970-71 by the AO on 27th Dec., 1971. He had given deduction of Rs. 30,45,911.12 from the turnover of second sales of iron and steel. The appellants filed detailed list of purchases and they are available in the assessment file from pp. 81 to 153. However, there was a report from the Intelligence Staff. They are about 18 purchases during 1970-71. In all these cases, the Intelligence Staff contended themselves with issuing registered letters to these parties and on receipt of undelivered registered letters, they concluded them to be fictitious. There appears to be no proper enquiries conducted in all these 18 cases. The list of the cases is as follows :- S. No. Name and address found in the bill T.O. 1970-71 1. Radha Iron Mart, 19, Mannady, Madras-1 1,56,942.78 2. Kohinnor Business Corporation 25,Mannady, Madras-1 66,224.84 3. S.M. Badhbha 98, Mannady, Madras, 1. 1,38,315.64 4. T.R. Sastry & Sons 89, Broadway, Ms. 1. 1,78,370.91 5. D.T.V. Iron Corpn. 12 Nainiappa Naicken St., Ms 3. 73,894.50 ....
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.... 1,58,013.76 4. Navy Deva Steel Corporation 36, Rasappa Chetty St., Ms. 3. 79,964.70 5. Kupumudali Iron and Steel Corporation, 63, Rassappa Chetty St. Ms. 3. 98,754.30 6. Rooptara Corporation, 36, Mount Road, Madras-6. 55,822.60 7. Arrun Iron and Steel Traders, Muthumari Chetty St., Ms. 1. 1,74,785.85 8. Viswash Hardware, Aiyappa Chetty St., Madras-1. 1,74,475.40 9. Jain steel Distributors, Lingni Chetty St., Ms. 1. 2,04,751.13 10. Anatram Hardware and Steel Traders. Rasappa Chetty St., Ms. 3. 1,31,349.30 11. Pandiyan Metal Works, 14, Mettupalayam, Road, Ms. 37 8,143.20 12. Ravi Metal Works, 1/19, Teynampet, Ramaswami Mudali St., Ms. 2 8,906.20 . . 11,97,820.26 Except in one case viz. Pandian Metal Works, 14, Mettupalayam Road, Madras-37, in all other cases the Investigating Officers satisfied themselves about the fictitious nature of the purchase bills only with reference to the registered letters issued to the dealers and received back, undelivered, with endorsement "not known", "not in the address" etc. In respect of one Pandian Metal Works, 14, Mettupalayam Road, Madras-17, the postal....
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....urchases which were held to be fictitious as reported by the Intelligence Staff. The list of these purchases it this. 1. Pandiyan Metal Works, 14, Mettupalayam Road, Ms. 37 6,576.00 2. Steel & General Trading Co., 2/3, Venkata Maistry St., Ms. 33 40,040.00 3. Paramount Industries, 1/67A, Sarojini St., Ms. 33 29,768.00 4. Kannan, Wall Tax road, Ms. 4,165.00 5. S.A. Salem, Wall Tax Road, Ms. 2,756.00 . . 83,305.00 It was subsequently found by the AO, that one of their sellers viz. Steel and General Trading Co. was existent and proposals were being rooted for assessing him. One of the sellers in this case is also one Pandian Metal Works, whose address is no. 14, Mettupalayam Road, M.s. 37. Here without verifying where the Mettupalayam Road lies the officers below took the view that the postal zone, Madras-37, did not include Mettupalayam Road and hence they came to the conclusion that they were fictitious. As regard another seller Paramount Industries no. 17, Sarojini St., Madras-33, the AO, satisfied himself with the return of the registered letter without making independent enquiries. In respect of the other two cases viz., Ka....
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.... The Tribunal also pointed out in that case that what s. 3(2) of the Act imposes is the levy of sales tax on the first sale by the dealer in the State, and that therefore if the previous sales was by a non-dealer, they could not save the appellant from the sales tax liability and had therefore remanded the case to the AAC to examine the purchase notes produced by the appellant and determine whether the purchases were made from dealers in the State. The Madras High Court accepted the contention of the appellant's position of the case that many of the persons from whom he bought the old tyres are petty hawkers who were spread all over the Districts of the State and that consequently an analysis such as has been directed by the Tribunal would yield no useful result. The issue namely that the impugned goods were first sales in the hands of the appellant and they were purchased on the basis of bought notes prepared by the appellant were clearly before Their Lordships. 13. In a similar case for a different year of the same appellant viz. 1960-61 while disposing of a petition under s. 38 of the Tamil Nadu General Sales Tax Act, 1959, by Deputy Commissioner (Commercial taxes) Coimbatore....
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....pellants are shown to be dealers. None of these transactions are proved to have suffered the single point tax at source. The genuineness of the certificates also were not shown. Rule 26(13) is clear and requires every dealer in goods liable to single point tax at the first stage of sale to furnish a certificate in the bill or cash memorandum in form XXI. The certificate contains a specific declaration as under.- "Certified that the goods covered by this bill suffered tax at any hands already". The contents of the certificates in the produced bills are totally different and such contents due also not proved. What is essentially required to be established is the payment of single point tax at source and this has not been done". The extenuating features involved also deserve mention. Probabilities cannot be ruled out in the consideration of these facts. It may be that some of the old tyres were purchased from tax paid sources by the consumers. When such tyres were worn out, the consumers might have sold them to the appellants. It is extremely difficult to go into further details in elaborate detail. It is equitable that a portion of the involved purchases should be treated as ha....
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....case was in order and that the assessing authority shall furnish the appellant, the substance and result of enquiries made by the Investigating Officer regarding the whereabouts of the 12 sellers of the goods in question. On a revision before the High Court against this order of the Main Bench of the Sales Tax Appellate Tribunal, the High Court held in T.C. 1/1974 dt. 14th March, 1975 as follows: "To claim the benefit of tax on the ground that their sales are second sales, the petitioners need not show that their sellers have in fact paid tax and it is enough for them to show that the earlier sales are taxable sales and that the tax is really payable by their sellers. Therefore, the direction given by the Tribunal that the petitioners are to show that the tax has been paid by their sellers on the iron and steel goods sold by them to the petitioners does not appear to be correct". In 15 STC page 641, State of Orissa vs. M.A. Taluk & Co. Ltd., the Supreme Court had observed in a case that, where a dealer claimed deduction under s. 5(1)(a)(ii) of the Orissa Sales Tax Act from tax, being sales to a registered dealer or goods specified in the purchasing dealer's certificate of reg....
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....nd that the concession under s. 3(2) of the Act is absolute and the only condition for obtaining the concession is to show that the sale or purchase is not at the point specified in the First Schedule. The ratio decedendi in the above case had also been applied by the Madras High Court in TC 1/74 (Govindan & Co.) The principle of consideration of the above decisions appears to be pari materia of the decision of the Supreme Court in 15 STC 641, State of Orissa vs. M.A. Taluk & Co. Ltd. discussed earlier. The Main Bench of the Sales Tax Appellant Tribunal, Madras, in T.A. No. 490/72 in the case of Madras Provisions, Madras-12, where certain exemption of second sales on the basis of certain anamath accounts were claimed. The Tribunal observed that 'when considered in the totality of the circumstances the possibility of existence of some purchases from tax paid sources for which purchase bills could not be produced, has to be considered in favour of the appellants. We reasonable allow half of Rs. 38,930.08 to cover the affections on the above two counts and refix the assessable turnover o the schedule goods at Rs. 19,465.04". This decision was also rendered for an assessment made under....
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....y them in its decisions in T.A. 641/73 and 647/73 dt. 5th Dec., 1973 and T.A. 290/1974 dt. 10th July, 1975. In the former decision, the entire disputed turnover of Rs. 13,044.37 represented purchases from three sellers who were conclusively proved to be fictitious and in the latter case also, the disputed turnover Rs. 42,663.91 represented purchases from three sellers, proved to be fictitious. In these batch appeals. except few cases which were stated to be fictious, most of these sellers are not verifiable and there were no proper enquiries and all that the AO had done to verify is to issue registered letters, which came back undelivered. It was on this account, the AO took them to be fictitious. In a similar set of facts decided in TC 150 of 1964 dt. 6th April, 1967 State o Madras vs. T.N. Samuel on revision from the order of the Sales Tax Appellate Tribunal, (A.D) in TA 1320 of 1962 dt. 29th Nov., 1963, the High Court confirmed the order of the Sales Tax Tribunal giving deduction on 50:50 basis. In TA No. 976/72, dt. 15th Sept., 1973 Tvl. K. Dharmichand Jain and The State of Tamil Nadu a decision of the Main Bench, Sales Tax Tribunal Madras. In that case the appellant maintai....
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....with the last dealer R.C. No. in the sale bill as prescribed under r. 26(11) is a necessary evidence to show whether that dealer is also one link in the chain of successive dealers. This is no doubt a responsibility cast on the selling dealers and their default cannot be responsibility of the buyers unless there is other circumstances to sustain that responsibility. In the present case, there is no suggestion that both the buyer and seller colluded or that the buyers fabricated the invoices. 18. The Punjab High Court in 33 STC page 42, Mylakh Raj N. and Lal Dazar Gandawala, Amristar vs. The Excise and Taxation Commissioner in interpreting the proviso to s. 5(1)(a) of the Punjab General Sales Tax Act, 1948, had observed that before a person at the subsequent stage of sale can get exemption from payment of sales tax, sales tax should have been paid or had been undertaken to be paid by a person making the sale at the first stage and inasmuch as the State authorities have control only over the registered dealer, the certificate to the effect that somebody has paid or has undertaken to pay tax at the stage of sale must be a registered dealer. Their Lordships have also observed that t....
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.... dealer registered under this Act. The duties and privileges of a registered dealer are defined under r. 24 of the Tamily Nadu General Sales Tax Rules 1959. 20. In these batch case, the appellants are dealers in iron and steel goods of long standing repute & the turnover declared year after year is quite huge & significant. The turnover of the second sales claimed and allowed even in the previsions years is almost equal to the turnover claimed & allowed by the AO in his original assessments in these cases. There have been purchases from various dealers & wherever they locally purchases, the appellants claimed it to be second sales when effected by them. This was conceded by the AO in the original assessment and exemption was allowed. It is brought to our notice that according to the executive instructions of the Department that an AO, who is discharging the powers under the statute more specifically in the matter of granting exemptions should take a list of such purchases & make a cross verification to seek the point whether the sale of the impugned goods as contended by the appellants is the second or subsequent sales. Even though these are ellaborate purchase lists in the asse....
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....ee with the observation of the Sales Tax Tribunal, Main Bench, Madras, when it concludes on the basis of evidence in respect of three dealers viz., the Pandian Hard Wares etc. Where it was conclusively proved that they were fictitious so far as that case is concerned, the investigation was done in entirety and the disputed turnover relates to the 3 sellers duly enquired and found to be fictitious. But in respect of others, we would only hold that the dealers who have sold the goods to the appellants in this distant past are not verifiable dealers. On that score, it may not be proper to conclude that the sales by the appellants are first sale. The appellants had produced affidavits of some brokers who had actually played the part of bringing the buyer and seller in several cases. It is needless for us to go too far into this. However, on evidence as seen from the affidavits filed by brokers stating that they had arranged for the purchases between various sellers and the appellants there is abundant room for inferring that the bought vouchers could not have been bolstered by ingenious persons and that there is the accompaniment of sales and delivery of the goods as per these invoices....
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....was not the suggestion of the Revenue that these bought notes and vouchers were bolsted up by the appellants nor there were any collusion between these parties. The appellants do not stand the chance of either losing anything even if they have purchased from established dealers or gaining anything by purchasing from unverifiable or fictitious sources because their sales were only second sales, in the circumstances stated above. We would not see any malafide intention on the part of these appellants to be actuated to the practice of unverifiable and fictitious bought notes for the purposes of self aggradizement. As far as the appellants are concerned, ikt does not matter whether they bought it from X,Y or Z. All the same they were only second sales. It is in this connection, the Sales Tax Tribunal, Madras (Main Bench) evidently held that there would be innocent victims also. But unfortunately, the decision of the Madras High Court in Royal Tyres, were not placed before him. On a factual appreciation of the identical facts of these cases, Their Lordships, conceded that 50:50 would be the reasonable ratio in similar unverifiable purchases. If these verifications have been taken, befor....
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....y tax as the first purchasers, would be no ground for denying the relief to the assessee to which he was entitled under the law. The only difference in the present cases is that the impugned goods are liable to tax on the first sale. 24. On a very careful consideration of the facts of these cases and the various decisions of the High Court and the Tribunal, we sum up our conclusion as follows:- (1) Except otherwise specifically held, the bought notes and purchases vouchers in these cases are not verifiable at this distant past and in view of the sellers being not available in the addresses given. (2) The evidence available in the return of registered letters with postal endorsement "not known" etc. is not sufficient enough to hold that sellers to be fictitious unless it is also corroborated by other evidence. (3) The revision of assessment under s. 16 is quite sustainable in this case and because it was a revision it would not absolve the discharge of the onus of proof cast on these appellants under s. 10 of Act of claim the exemption. (4) The determination of turnover to best of judgment with respect to the first sales and second sales is a question of fact to be fo....