TaxTMI 
TaxTMI 
TaxTMI 
2010 (10) TMI 963
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.... 45A of the Act to the tune of Rs. 5,05,79,164 passed against the company on December 28, 2006, which was subsequently confirmed by the two revisionary authorities successively on June 21, 2007 and January 25, 2008, respectively, was challenged unsuccessfully. The company, as a part of its business, deals in high speed diesel (HSD). During the assessment year 2004-05, the company effected sales of HSD to two purchasers, called "Shebna Enterprises" and "Ifan Enterprises", hereinafter referred to as "purchasing dealers 1 and 2", respectively. The quantity of the HSD sold is 3924 KL and 1980 KL, respectively, and the value of the goods is Rs. 8,07,45,486 and Rs. 4,54,52,424, respectively. While making the above-mentioned sales, the company also collected sales tax at the rate of four per cent ad valorem under the provisions of the KGST Act. Admittedly, the sale of HSD is liable for 24 per cent ad valorem tax under the provisions of the Act, but the company collected a reduced rate of tax claiming the benefit of a notification issued by the State of Kerala in S.R.O. No. 1091/99 dated December 31, 1999 (hereinafter referred to as "the exemption notification"), which was issued by the....
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....at the export bills filed with the Assistant Commissioner are fabricated and fake. The commodities transported through ports of Beypore and Mangalore are totally different and do not match with the goods declared in the certificates as per S.R.O. No. 1091/99 filed together with related export bills. The seal and signature of the port officer appearing in the export bills are manifestly bogus. When such fake export bills were shown to the port authorities they endorsed the fact of fabricated nature of such documents. The consequential situation is nothing but the irrefutable fact that the concessional rate of four per cent KGST is not admissible on the sales of HSD aggregating to Rs. 12,61,97,911.20 effected to M/s. Ifan Enterprises, Agathi and Shebna Enterprises, Agathi during 2004-05. In other words, you have wrongly availed of the concessional rate of four per cent KGST. As per the stipulation under entry 1 of the Third Schedule to S.R.O. No. 1091/99 the concessional rate of four per cent would only apply subject to the condition that a dealer recognised by the Administrator, Union Territory of Lakshadweep utilizes the concession only in respect of goods used in the Union Terri....
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....e., "the petitioner should have confirmed that the purchasing dealer may not misuse the concession they availed . . . the petitioner should have taken all precautions to see that by availing the concessional rate of four per cent, the purchasers are not defrauding both seller as well as the Government." (The order dated June 21, 2007 of the Deputy Commissioner, Commercial Taxes, Ernakulam). By the stage the matter reached the second revisional authority, i.e., the Commissioner of Commercial Taxes, Thiruvananthapuram, the matter took a different dimension. The Commissioner observed as follows: "The revision petitioner here has sold 5,904 KL to two dealers, viz., M/s. Ifan Enterprises and Shebna Enterprises, in 2004-05 valued at Rs. 12.62 crores at a concessional rate of four per cent for use in Lakshadweep. Considering that this represented more than 70 per cent of the islands' requirements, a diligent trader would not have stopped making enquiries regarding the purchasers just because demand drafts for the entire amount were tendered in advance; they admittedly failed to do any due diligence on the purchasing parties and the large quantity of indented by them, and pre....
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....ng this process, the company was only ruling out the risk of the purchaser dishonouring the cheques. It is stated that there was no evidence at all to show that the petitioner received any consideration from respondents 5 and 6 in respect of HSD allegedly sold to them and that all payments were made by strangers who are not parties to the contract of sale. 14.. It is stated in exhibit P13 order that the applications for export filed by respondents 5 and 6 at the ports and authenticated by the port officer, when compared with the copies filed by the petitioner with the fourth respondent showed that the documents produced by the petitioner contained forged signature of the port officer and as a specimen testifying the fraud, details of six forged documents and the corresponding genuine documents have been given in the order. On this basis, the first respondent concluded that local sales of HSD was effected in Kerala and the differential tax of 20 per cent was irregularly availed of on the basis of forged export bills, the original of which related to supply of vegetables, provisions, etc. The argument of the company that in view of the undertaking contained in annexure 1 to exhibit ....
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....all this petitioner wants everyone to believe that they did not feel anything amiss in the transaction and that everything was genuine. The aforesaid facts only leads to the irresistible conclusion that the transactions in question are not genuine. If that be so, I cannot accept the contention of the counsel for the petitioner that the seller cannot be held liable and that if at all anybody is liable, it is the buyer alone." The various factors which weighed with the learned judge in coming to such a conclusion are summarised at paragraph 28 of the judgment as follows: "28. While considering the genuineness of sale, it is to be noticed: 1.. That the sale of 5,904 kilo litres of HSD sold by the petitioner, out of 8,316 kilo litres supplied to Lakshadweep during 2004-05, was the business canvassed by its BDA who was appointed as per exhibit P4. 2.. First of all, appointment of the BDA was for a period of three months from June 15, 2004 and unless extended, it automatically expires. The petitioner has no case that the period of appointment was extended and if that be so, it is for the petitioner to explain under what authority the BDA canvassed the business during the period subse....
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....inst such goods in the said Schedules; . . . . " Such levy of tax is subject to certain statutory exemptions, the details of which are not necessary for the purpose of the present case. Entry 108 of the First Schedule to the Act deals with the petroleum products. The entry in so far as it is relevant for the present purpose, read at the relevant point of time, as follows: "Sl. No. Description of goods Point of levy Rate of tax - % 108 Petroleum products, namely: At the point of sale in the State by any oil-company liable to tax under section 5 except where the sale is by an oil company to another oil-company and at the point of first sale in the State by a dealer who is liable to tax under section 5 when the sale is not by an oil-company". 24 The net result of the declaration under section 5 and the above mentioned entry is that the sales of HSD were liable for tax at 24 per cent by an oil-company like the company herein. However, the State of Kerala issued the exemption notification in the purported exercise of power under section 10 of the Act. The said notification is that the said notification purports to reduce the rate of tax against the sales and purchases of various item....
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....he sales were made in favour of such persons as are specified in the Third Schedule to the notification, but also subject to the condition that the goods so purchased are actually used in the Union Territory of Lakshadweep. The relevant portion of the assessment order reads as follows: "On a plain reading of the above provision it is clear that the availing of the concession is subject to certain conditions and restrictions. The tax concession is limited to a class of persons only. It is no available to each and every dealers. Similarly if the purchaser is a dealer recognized by the Administrator of the UTL, then such purchasing dealer shall utilise the goods so purchased for the use in the UTL. In other words the concession is allowable only if the goods so purchased are actually used in the UTL. Thus the law cast a duty (duly sic) upon the assessing authority to ascertain whether the goods, purchased after availing of the concession, are actually used in the UTL. If the assessing authority based on evidence, found that the goods so purchased are not actually used in the UTL he can rightly deny the concession. The intention of the Government in granting the concession is crystal ....
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....ax and penalty should be upon the purchasing dealer. It is also the grievance of the company that though the show-cause notice proceeded on the basis that the company is required to establish the actual use of the goods in the Union Territory, the final order imposing penalty recorded a finding that- ". . . Oil company colluded with the offenders M/s. Shebna Enterprises and M/s. Ifan Enterprises to defraud the Government Revenue to the extent of 20 per cent differential tax" in complete derogation of the established norms of jurisprudence. The conclusions reached are wholly beyond the scope of the enquiry as indicated in the show-cause notice. Therefore, there is a gross violation of the principles of natural justice. It is also the objection of the company that the case of the respondent kept on varying from stage to stage making it difficult for the company to know the case it is required to be meant. On the other hand, Sri Vinod Chandran, the learned counsel for the Revenue, argued that though it is not the requirement of law that the company is under an obligation to monitor the movement of the goods, having regard to the nature of the commodity/goods dealt by the company, ....
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....to quantify the evasion or an amount not exceeding ten thousand rupees in any other case. Explanation I.-The burden of proving that any person is not liable to the penalty under this section shall be on such person. Explanation II.-For the purposes of this sub-section the expression 'assessing authority' includes any officer not below the rank of a Sales Tax Officer specified by the Government in this behalf by notification in the Gazette. . . ." It can be seen from the above extract that there are eight alternative contingencies under which penalty can be imposed. Under Explanation I, it is declared that the burden of proof that any person is not liable to penalty is on such person against whom penalty is proposed to be imposed. While section 45A prescribes a monetary penalty, under section 46 some of the contingencies specified in section 45A are also prescribed to be offences punishable with imprisonment. The show-cause notice does not indicate exactly under which sub-clause of section 45A(1) the company is proposed to be proceeded against. No doubt, the mere non-mention of the specific provision of law by itself does not vitiate the administrative action, pro....
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....uch a case, the concession under the exemption notification will not be available. The concessional rate of duty is applicable only in those cases where such a recognized dealer "shall utilise the concessions only for such goods intended for use in the Union Territory of Lakshadweep". The expression "intended for use in the Union Territory of Lakshadweep" requires an examination. The learned counsel for the appellant Shri Aravind P. Datar argued that there is a distinction between "intention to use" and "actual user". Since the language employed by the notification is "intended for use", the Department cannot insist upon the actual user for allowing the benefit of the notification. On the other hand, on behalf of the State of Kerala, it is submitted at the Bar by the learned counsel for the State on the basis of the assessment order that the only purpose behind the exemption is to make available various commodities at a cheaper rate to the inhabitants of the Union Territory of Lakshadweep in view of the ethnic connection between the people of Kerala and the People of Lakshadweep and the peculiar location and geographical disadvantages in securing supply of goods suffered by the in....
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....exemption under the Haryana Sales Tax Act the Supreme Court made the above extracted observation. The observations of the court must be understood in the context of the facts and rival contentions of that case. We are of the opinion that the distinction such as the one sought to be drawn by the learned counsel for the appellant is irrelevant in the context of the present case. The learned counsel also relied upon the decision of the Supreme Court in Collector of C. Ex. v. Shalimar Chemical Industries Pvt. Ltd. [2001] 127 ELT 647 and argued that whenever the law-maker intended that a tax exemption should be available to only those cases where the particular end-use is established before the assessing authority, the law made an express stipulation in that regard and in the absence of any such stipulation, such a requirement cannot be read into the notification on hand. We express our inability to accept the submission of the appellant. The Legislature/law-maker adopts various drafting techniques for expressing its intentions. The technique of making an express provision of the requirement of proof of the actual utilization is only one of the techniques of drafting; but it does not ....
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....mpany. Therefore, the liability to pay the tax is on the first seller. The exemption notification only reduces the rate of tax on all the sales of goods to the persons or organisations mentioned in the second column of the Third Schedule of the said notification; but does not in any other way alter the liability of the dealers of petroleum products in the State of Kerala, like the appellant. The first question would be whether the appellant had wrongly availed of the benefit of the exemption notification. Sales tax being an indirect tax, the liability of tax is normally passed on to the purchaser unless it is specifically prohibited by the law. Section 22(1) of the Act recognises the right of a registered dealer to pass on the tax liability to the purchasers of the goods. In the context of the sales in question, admittedly the appellant's right to pass on the tax liability to the purchaser is not in any way restricted by any other provision of the Act. But the rate at which the (1)22. Collection of tax by dealers.-(1) A registered dealer may, subject to the provisions of sub-section (2), collect the tax payable by him on the sale of any goods from the person to whom he sells t....
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....selling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. If the purchasing dealer misapplies the goods he incurs a penalty under section 10. That penalty is incurred by the purchasing dealer and cannot be visited upon the selling dealer. The selling dealer is under the Act authorised to collect from the purchasing dealer the amount payable by him as tax on the transaction, and he can collect that amount only in the light of the declaration mentioned in the certificate in form C. He cannot hold an enquiry whether the notified authority who issued the certificate of registration acted properly, or ascertain whether the purchaser, notwithstanding the declaration, was likely to use the goods for a purpose other than the purpose mentioned in the certificate in form C. There is nothing in the Act or the Rules that for infraction of the law committed by the purchasing dealer by misapplication of the goods after he purchased them, or for any fraudulent misrepresentation by him, penalty may be visited upon the selling dealer." The case before the Supreme Court arose under the C....
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....ler because that would be penalising the selling dealer for a breach of faith committed by the purchasing dealer. The legislative wrath should in all fairness fall on the purchasing dealer and that is why the second proviso has been introduced in the Act by Delhi Amendment Act 20 of 1959. The object of the second proviso is to ensure that the intention expressed by the purchasing dealer in the declaration given by him is carried out and he acts in conformity with that intention. Where the purchasing dealer gives a declaration of intention to resell the goods purchased or to use them as raw materials in the manufacture of goods for sale, he must act in accordance with that intention, because it is on the basis of that intention that deduction is allowed to the selling dealer and if he does not carry out that intention and utilises the goods for any other purpose, it stands to reason that the tax which is lost to the Revenue by reason of deduction granted to the selling dealer should be recoverable from him, that is, the purchasing dealer. . .". Recognising the possibility of the purchaser not complying with the statement of intention made (declared in a statutory form) the Legislat....
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....ale being the proximate cause of movement; and (iii) such movement of goods must be from one State to another State where the sale concludes. It follows as a necessary corollary of these principles that a movement of goods which takes place independently of a contract of sale would not fall within the meaning of inter-State sale. In other words, if there is no contract of sale preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sale stands completed within the State and the movement of goods takes place thereafter, it would obviously be independently of the contract of sale and necessarily by or on behalf of the purchaser alone and, therefore, the transaction would not be having an inter-State element. . ." (emphasis(1) ours). He, therefore, argued that even for the purpose of the benefit under the exemption notification, the actual movement of the goods to the Union Territory of Lakshadweep must be established. We are of the opinion that the submission of the learned counsel for the State is wholly misconceived. No doubt, the sales contemplated under the exemption notification are sales which in t....
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....9; failure to utilise the goods in accordance with the stipulation of the exemption notification or a penalty is a question which still requires examination. The learned counsel for the respondents submitted that neither the whereabouts of the two purchasing dealers are certain, nor any information available with the State whether such purchasing dealers have sufficient means to satisfy the claim of the Revenue, if proceedings are initiated against them for recovery of the differential tax and, therefore, the State may not be disabled from collecting the tax which is legally due to it. We have no doubt that a substantial amount of tax has been evaded under the cover of the exemption notification; but that does not automatically mean that the State is legally permitted to recover either the tax or the penalty from any person from whom it can lay its hands upon. The liability to pay tax or the penalty arises from the legal obligations created by the law. The question is, on whom does such an obligation lie? We have already come to the conclusion that the infraction of law is committed by the purchaser and therefore the liability for penalty can only be on the purchasing deal....
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....ise. It can be seen from the provisions of the Indian Evidence Act discussed above that in general the rules relating to the burden of proof are the rules dealing with the burden of proving the existence or otherwise of facts necessary to establish either a legal right or liability in order to obtain a judgment from a court. It is too obvious to be stated that ultimately the existence of any legal right or liability in turn depends upon the existence or otherwise of certain facts. The first Explanation to section 45A does not appear to be a provision prescribing any rule of evidence regarding the existence or otherwise of a fact. It seeks to impose a burden of proving the absence of any legal liability for the penalties contemplated under section 45A of the Act. The existence or absence of such a liability depends on the existence or otherwise of a number of facts depending upon the nature of the allegation sought to be made by the State. In other words, by the Explanation ostensibly the burden of establishing the existence or absence of all those facts relevant in the context and the nature of the allegation is sought to be shifted to the person facing the proceeding under sectio....
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....s which could lead to the conclusion that the sales in issue were not genuine apart from the fact that it was not the case of the Department in the show-cause notice that the sales were not genuine. Their simple case as already noticed from the show-cause notice is that the goods did not actually reach the Union Territory of Lakshadweep. It is possible in a given case where the sales are undisputedly genuine, the purchaser after purchasing the goods may change his intentions originally communicated to the vendor and alter the destination of the goods. Merely because the goods did not reach the destination in such a case it cannot be said that the sale itself was not genuine. The show-cause notice purported to initiate a limited enquiry as to whether the goods in question did actually reach the destination to justify the payment of a lower rate of tax, but the enquiry ultimately ended up in a conclusion that the sales themselves were not genuine. Such a conclusion, in our opinion, would be highly unsustainable on the ground that such a conclusion would be contrary to the principles of natural justice as the party, the company, is totally misdirected regarding the scope of the enquir....
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....on that the sales are not genuine. At paragraph 35 of the judgment the learned judge held that the absence of the allegation of collusion in the show-cause notice did not make any difference to the conclusion in the final order that there was a collusion between the company and the purchasing dealers. Such a conclusion, in our opinion, cannot be sustained having regard to the requirements of the principles of natural justice. The learned judge while holding on the one hand that the company is not responsible for monitoring the movement of the goods and also that the company is entitled to accept payment from anyone who offers it, recorded a conclusion that the failure on the part of the company to monitor the movement of goods and acceptance of the sale consideration from a third party to the contract are factors establishing collusion. In paragraph 33 of the judgment it is held as follows: "35. As far as the finding of collusion is concerned, I feel that if the order is read in its totality, the finding of collusion can be seen to be only an inference drawn by the first respondent and therefore the fact that this allegation was not made in the show-cause notice, cannot be fatal ....