TaxTMI 
TaxTMI 
2001 (1) TMI 943
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....t years. (3) Aggrieved, the assessee preferred appeals to the Appellate Deputy Commissioner (C.T.), Secunderabad (hereinafter, "the first appellate authority"). On an analysis of the record, the Appellate authority held that the assessee was a purchaser of finished beedies and was never a purchaser of beedi leaves let alone the last purchaser. Consequently the appeals were allowed and the revised assessment orders and consequent penalties set aside. (4) By the orders under appeal the Commissioner of Commercial Taxes exercising revisional power under section 20(1) of the Act invalidated the appellate orders in respect of all the five assessment years. While directing that the cost of the beedi leaves shall be subjected to sales tax at the hands of the assessee and at the quantum assessed by the C.T.O., the revisional authority confirmed the orders of the appellate authority to the extent the latter set aside the penalty orders for the five years. 3.. This batch of appeals arise from the revisional orders of the Commissioner of Commercial Taxes dated September 24, 1994, passed under section 20(1) of the Act. 4.. The contentions urged by Sri P. Chandrasekhar, learned couns....
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....ability to payment of tax was determined on a net turnover of Rs. 10,92,541, on which a tax liability of Rs. 78,117 was determined. Penalty was also imposed. This determination was arrived at on a finding that the assessee-firm paid the value of beedi leaves to M/s. Balaji & Co., Kisannagar, which amounts to purchase of beedi leaves and the assessee thus figures as the last purchaser in the State thus liable to pay tax on the beedi leaves as per item 18 of the Second Schedule of the Act. A finding was also recorded that the assessee-firm supplies tobacco mixture along with other packing material except beedi leaves to M/s. Balaji & Co., who in turn hands over the particular brand "No. 1521" beedies to the assessee-firm and collects labour charges, duty (excise duty paid on behalf of the assessee) and the value of the beedi leaves and that this factum is evident from the entries at page 21 of Ledger Folio of the assessee for the assessment year 1985-86. (D) As against the above order the assessee preferred an appeal to the first appellate authority. By the order dated December 2, 1992 the Appellate Deputy Commissioner (C.T.) allowed the appeal. The first appellate authority analy....
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....s also set aside. (E) The Commissioner of Commercial Taxes by a composite show cause notice dated July 12, 1994 (for all the five assessment years 1985-86 to 1989-90) called upon the assessee to file its objections against the proposal to set aside the orders of the first appellate authority and restore the orders of the assessing authority dated March 20, 1992 including of the penalty levied for all the assessment years. The show cause notice was issued on the stated premise that the assessee is a seller of beedies and the last purchaser of beedi leaves in the State to the extent of value of beedi leaves involved in the transaction of beedies. The show cause notice also stated that the orders of the first appellate authority are prejudicial to the interests of Revenue. (F) The assessee submitted a detailed memorandum of objections to the aforesaid show cause notice. The assessee categorically stated that it has not purchased any beedi leaves so as to be fastened with the liability to pay tax on such purchases, the actual purchase of beedi leaves was by M/s. Balaji & Co., on whom the liability to pay sales tax vests, M/s. Balaji & Co., is an assessee on the rolls of C.T.O., N....
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..... It is compensating the agent for his efforts and services. Commission is not the value of the goods supplied. As such, it is clear from the wording of the agreement that M/s. Balaji & Co., were to be paid commission for getting the beedies manufactured. Naturally, since they were also procuring beedi leaves on behalf of the assessee, they should be paid the cost of the beedi leaves on behalf of the assessee, they should be paid the cost of the beedi leaves. They should also be paid the excise duty, as they would be remitting the same on behalf of the assessee. It is to be noted that beedies were not being sold by M/s. Balaji Co., to the assessee; in which case, there will be only one single consolidated price. If certain goods were supplied by the assessee to M/s. Balaji & Co., for the manufacture of the beedies, then credit could be taken for the value of the goods like tobacco and accounts settled. This is the procedure adopted for all contractors by the P.W.D. and others. If such were the position, then the situation would be that of a seller and a buyer of beedies. It is very clear from the agreement that it was not so. M/s. Balaji & Co., were commissioned to manufactur....
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....y acted without jurisdiction and patently beyond the ambit of the powers available under section 14(4) of the Act as the reopening of the assessment has been made demonstrably on the basis of the record available with the initial assessing authority and no fresh material was either available or analysed in reopening the assessment. Reliance for this contention was placed on the decisions of this Court in Fatechand and Sons v. Commercial Tax Officer [1983] 54 STC 166, State of Andhra Pradesh v. Ratna Sree Box Makers [1989] 75 STC 82 and Girdharlal & Company v. State of Andhra Pradesh [1995] 97 STC 442. The aforesaid two contentions, we decline to adjudicate in the light of our decision, on an analysis of other and substantive questions. 9.. Relying on the decision of this Court in State of Andhra Pradesh v. Loharu Steel Industries Limited [1995] 96 STC 369, it is urged on behalf of the appellants that the revisional order is vitiated by violation of principles of natural justice. The contention, in specie, is that any exercise of powers under section 20 of the Act by the revisional authority could only be on the grounds mentioned in the show cause notice as else the rationale ....
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....ince 1985, which was reduced to writing in the year 1987. In the order under revision, the Commissioner went about construing the agreement dated September 10, 1987 between the assessee and M/s. Balaji & Co., focussing on the expression "commission" employed in the said agreement. In substance, the revisional order identified the meaning of the said expression by a lexicographic approach. Finding the terms of the agreement different from the terms adopted in contracts of the Public Works Department and others, the revisional authority concluded that M/s. Balaji & Co., were not the suppliers/sellers of beedies to the assessee, but were mere commission agents for the manufacture of beedies. M/s. Balaji & Co., were buying the beedi leaves on behalf of the assessee and were collecting the cost of the beedi leaves apart from the cost of the labour and packing charges, is another finding. 14.. The task of construction/interpretation of contracts is by no means, as simple a task, as would, at first blush, appear. It is as delicate and complex an exercise as is construction and interpretation of statutory instruments. The object sought to be achieved in construing any contract is to asc....
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....ent legal consequences, including in the matter of liability to sales tax must be given effect to by the court, unless of course, the actual facts as apparent from the books of account or other material disclose the existence of a relationship different from that agreed upon by the written instrument. What then are the terms of the written agreement? 19.. The terms of the written contract between the parties as contained in the agreement dated September 10, 1987, construed as a whole, to the extent relevant and material for the purpose of the case, are to the following effect: (A) Both the parties are registered dealers under Andhra Pradesh General Sales Tax Act and Central Sales Tax Act, as also licence holders under the Excise Act. (B) The assessee has requested M/s. Balaji & Co., to manufacture beedies on their behalf for the specified brands on commission basis due to labour problems and other practical difficulties encountered by the assessee resulting in inability to continue manufacture of beedies at Nizamabad in respect of its brand names. (C) M/s. Balaji & Co., has accorded consent to manufacture the required quantity of beedies on commission basis and h....
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....hat it is evident from the books of account maintained that the assessee-firm supplied tobacco mixture, etc., to M/s. Balaji & Co., who in turn hand over the specific brand of beedies to the assessee-firm and collect labour charges, duty, etc., and the value of beedi leaves, as is evident from L.F. page 21 of the assessee. It is this finding, viz., that the accounts disclose payment of specific amounts towards cost of beedi leaves by the assessee to M/s. Balaji & Co., that influenced the decision that the assessee is the last purchaser of beedi leaves in the State and therefore liable to tax. 22.. The first appellate authority by the orders dated December 2, 1992 however categorically recorded that there has been no purchase at all of beedi leaves at the hands of the appellants as per the material evidence placed on record and further that the manufacturer (M/s. Balaji & Co.) has supplied finished beedies ready for sale to the appellants and not the beedi leaves as assumed by the revisional authority, without any basis. The first appellate authority categorically recorded the finding as under: "...................Thus, having regard to the fact that the beedi leaves required ....
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....e of the beedi leaves in the returns filed by it, has been assessed therefor and has paid the tax thereon, as specifically agreed upon with the assessee under the agreement dated September 10, 1987 reinforces the view that it is M/s. Balaji & Co., and not the assessee, who is the last purchaser of beedi leaves in the State. 25.. The purchase of beedi leaves by the assessee should be found to have been the primary object of the transaction and the intention of the parties, to fall within the tax net. As expounded by the Supreme Court in Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314: "Mere passing of property in an article or commodity during the course of performance of the transaction in question does not render the transaction to be transaction of sale. Even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work, and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the court would have to find out what was the primary object of the transaction and the intention of....
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....judicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." This provision came to be interpreted on successive occasions and it is uniformly held that the ingredient of "prejudice to the interests of revenue" must necessarily exist to justify the exercise of power under section 263 of the 1961 Act-vide: Commissioner of Income-tax, Mysore v. Narayana Pai [1975] 98 ITR 422 (Kar); Russell Properties Pvt. Ltd. v. A. Chowdhury, Additional Commissioner of Income-tax, West Bengal [1977] 109 ITR 229 (Cal), Commissioner of Income-tax, Madras v. Royal Textiles [1979] 120 ITR 506 (Mad.), V.G. Krishnamurthy v. Commissioner of Income-tax, Karnataka II [1985] 152 ITR 683 (Kar), Jagadhri Electric Supply and Industrial Co. v. Commissioner of Income-tax [1987] 166 ITR 143 (P&H); Commissioner of Income-tax v. Smt. Minalben S. Parikh [1995] 215 ITR 81 (Guj); and Malabar Industrial Co. Ltd. v. ....
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....arned advocate, prejudicial to the interests of the revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. If so-and we think it is so-the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income-tax authorities is liable for the income thereof." 35.. The principle enunciated Smt. Tara Devi Aggarwal [1973] 88 ITR 323 (SC) was applied by Paripoornan, J., for the Kerala High Court (as he then was) in Malabar Industrial Co. v. Commissioner of Income-tax [1992] 198 ITR 611 and the decision in Malabar Industrial Co. [1992] 198 ITR 611 has been approved by the apex Court in [2000] 243 ITR 83. 36.. The contours of the revisional pow....