AI Drafter 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2008 (8) TMI 820
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under the label "Portland Pozzoloria" cement. The unit had charged sales tax in the invoices raised and had collected the same from its consumers and remitted the tax so collected along with the monthly returns submitted till the end of July 2004. The assessee-company, in so far as its Cherthala unit is concerned, had applied for grant of exemption from payment of sales tax under the Kerala General Sales Tax Act, 1963 ("the Act", for short). The competent authority had issued the exemption certificate on August 9, 2004, granting exemption from payment of sales tax with effect from August 7, 2003. Till then and thereafter the assessee for a further period of 21 days had collected sales tax on its sales of cement from its Cherthala unit. The respondent-company was filing its monthly returns and annual returns before the assessing authority and was including the turnover of its Cherthala unit in the said returns filed. The assessee-company had filed its monthly returns for the month of August, 2004 on September 9, 2004, along with a covering letter dated September 10, 2004, inter alia, stating that its Cherthala unit is exempted from payment of sales tax in view of the exemp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e hours of the undersigned within three days of the receipt of this notice. Sd./ ASSISTANT COMMISSIONER (ASSESSMENT)-II." After receipt of the notice, a reply came to be filed by the assessee and in that, it had only stated that the assessee was exempted from payment of sales tax in view of the exemption certificate issued by the competent authority dated August 9, 2004 with effect from August 7, 2003, and it was further stated that it intends to make use of the tax collected by it for expansion of its industrial unit. The explanation offered by the assessee to the notice dated September 15, 2004 is as under: "In reply to your notice cited (4) above we may submit the following. We have furnished the turnover and tax collected for Walayar unit. As regards CGU (Cherthala Grinding Unit), we have been exempted from payment of sales tax for nine years from the date of commencement of production vide Kerala Gazette Notification S.R. O. No. 859/2004 and G.O. (P) No. 129/2004/TD dated August 9, 2004. This was informed to you vide our letter cited fourth above enclosing a copy of the gazette notification (for ready reference, the above letter with gazette notification ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....petent authority, they have issued credit notes to its purchasers/ customers. The reply filed by the assessee dated October 13, 2004 is as under: "Kindly refer our letter No. Fin/Sales Tax/2004-05/8570 dated September 10, 2004 and No. Fin/Sales Tax/2004-05/9050 dated September 22, 2004 (copy enclosed for ready reference). The reason for retaining the above amount was explained to you in the above cited letters. Credit notes have been raised towards tax collected during the month of August 2004. We may once again explain the background of our action. The sales tax exemption has been granted to Malabar Cements Ltd., for utilising it as a source of fund for implementing another 600 TPD cement grinding unit at Panakkad, Malappuram District. It would be seen that the Cherthala Grinding Unit (CGU) is the only industrial unit at the moment owned by public sector undertaking and MCL is the only public sector undertaking manufacturing grey cement using fly ash as a raw material. CGU has been in operation since August 7, 2003. So the intention of the Government order is explicitly clear and we are to get the exemption benefit from August 7, 2003. The modality of claiming refund of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No. FIN/ST/2004-05/ 10010 dated October 13, 2004. MCL is one of the PSUs under the Industries Department, Government of Kerala. Therefore the company cannot conceal the facts as mentioned in your notice. In this connection, it may be mentioned that the Assistant Commissioner (Intelligence), Commercial Taxes, Trivandrum had issued the notice under section 45(a) and 46 of the KGST Act, 1963 and we have furnished the facts on the notice. Subsequently there was a personal hearing also by the Assistant Commissioner. Considering the above facts and the collected tax has been refunded by issuing credit notes, we request you to drop the proposed penalty proceedings by the Department vide notice No. 3101 0400/ 04-05 dated January 17, 2005 against the company. We confirm that we would be attending the personal hearing as proposed without fail." Since the Revenue was taking steps to recover the amounts due to them from the assessee, the assessee had preferred an appeal in No. 6469 of 2005 against the demand notice issued by the assessing authority. For the first time, in the memorandum of appeal, the assessee had stated, that apart from issuing credit notes to its purchasers of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e strength of these tax suffered bills. On this context, the company had to pay over the collected tax to Government on the due date as it had done previously or return the tax to the persons from whom it was collected. As on September 20, 2004 the company had no intention to return the tax to its customers as is evident from the letter dated September 22, 2004 wherein it is stated that the company had retained the tax with them. On a later date the company decided to increase the basic price for the completed past sales in such a way that the composite price remains to be the same. The company has no authority to convert an amount collected purporting to be by way of tax to its basic price to its own benefit. So the action of the company to convert tax amount as its basic price is a fraudulent act. This action of the company results in excessive enrichment which is not the intention of the Government while issuing Notification in S.R.O. No. 859 of 2004. The company had not only paid over the amount collected by way of tax during the month of August 2004 to Government but had appropriated it for their own benefit. Non-inclusion of sales turnover relating to Cherthala unit and failu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the lawful claim of the Revenue. In support of his contention, learned Government Advocate has brought to our notice the comments made by the apex court on the observations made by Justice Chinnapa Reddy, J. in McDowell & Company Limited v. Commercial Tax Officer [1985] 59 STC 277 (SC); [1985] 154 ITR 148, in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706. Lastly the learned counsel would submit that the principles for levy of penalty under section 45A of the Act are totally different and those principles cannot be applied when it comes to the question of demanding the tax due under the Act. In Azadi Bachao Andolan's case [2003] 263 ITR 706 the apex court has observed: (at page 762) "If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he order so passed by the competent authority was communicated to the assessee on August 12, 2004. The assessee had filed its monthly returns for all its units before the assessing authority on September 9, 2004. In the monthly return so filed, the assessee had not included the turnover of its Cherthala unit solely on the ground that it has obtained an exemption certificate from the competent authority. Even after receipt of the exemption from payment of sales tax, the assessee had collected sales tax on the sales of cement made by its Cherthala unit. The assessing authority coming to know that in spite of the grant of exemption from payment of sales tax, the assessee-company had collected tax on sale of cement from its Cherthala unit, had issued a demand notice asking the assessee to remit the tax due to the State. The assessee in the reply filed had only stated that it is exempted from payment of sales tax and secondly that whatever amount it has collected by way of tax from its customers, they intend to make use of the same for the purpose of expansion of its industrial unit. That only means when it filed the first reply to the demand notice issued by the assessing authori....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n for the purpose of assessing the fiscal results." In the present case, it was not the case of the assessee that it had not collected tax from its customers for the month of August, 2004 though exemption certificate was issued to the assessee on August 9, 2004 which was received by the assessee on August 12, 2004. In fact, in the reply filed to the first demand notice they would only say that they intend to make use of the tax collected from its customers for expansion of its activities. After realising that the same would not be permissible in law, by way of further reply to the second demand notice, they would speak of the issuance of credit notes. Again, the dates of the credit notes are not even mentioned in the reply filed. For the first time before the first appellate authority, they speak of not only the issuance of credit notes but also the issuance of debit notes. The facts which we have noticed in extenso would speak for itself the modus operandi adopted by the assessee-company. The credit notes issued earlier and debit notes issued within a short span of time were only to avoid remittances of tax collected for the month of August, 2004. The purpose that is serv....