TaxTMI 
TaxTMI 
2018 (6) TMI 1632
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....ssment. 2. The factual matrix from which these cases arise is as follows : HLL was a registered dealer under the Act of 1957. It however did not disclose the turnover of Rs. 89,34,625 during the year 1984-85 which, according to the Revenue, pertained to purchase of shrimps from Union Carbide India Limited (UCIL), Visakhapatnam. Final assessment was completed on this escaped turnover vide order dated March 31, 1989 of the Commercial Tax Officer (CTO), Secunderabad Division, quantifying the sales tax payable at Rs. 5,40,545 and imposing penalty of Rs. 27,02,725, at five times the tax component. HLL preferred appeals before the Appellate Deputy Commissioner (ADC), Commercial Taxes, Secunderabad, in Appeal Nos. 21 and 28/89-90. By common order dated October 24, 1992, the ADC opined that a fresh probe had to be conducted into the issue of whether the purchase of shrimps by HLL was in the course of export and set aside the assessment. He remitted the matter to the assessing authority for fresh enquiry. As the assessment was set aside and the levy of penalty would depend upon the tax liability, the ADC set aside the penalty proceedings and remanded the penalty issue also, without going....
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....ons of the STAT and to establish the real transaction between HLL and UCIL. HLL was requested to submit the documents within seven days. 5. It is an admitted fact that HLL, despite receipt of the aforestated notice, submitted copies of the very same documents which had been furnished to the assessing authority earlier and no new documents were produced by it to substantiate that there was no purchase of shrimps by it. The CTO, Hydernagar Circle, therefore opined that HLL had no documentary evidence to prove that there was no purchase of shrimps. The CTO referred to the earlier findings of the assessing authority, which were to this effect : HLL entered into an agreement with UCIL titled "Agreement for sale of catch" and the catch was nothing but shrimps. In the Memorandum of Understanding (MoU), there was no mention that HLL was holding orders from foreign buyers for purchase of shrimps and that it was intending to take trawlers on charter from UCIL for catching shrimps. Clause 3 of the agreement also stated that HLL would co-operate with UCIL in the operation of the trawlers and would purchase all the catch from the four trawlers as per clause 8 thereof. Sale of shrimps was men....
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.... disclose the disputed turnover at the time of assessment, the ADC opined that it amounted to suppression, attracting levy of penalty under section 14(8) of the Act of 1957, and confirmed the penalty. In consequence, both the appeals were dismissed. It is against this common order of the ADC that T. A. Nos. 103 and 104 of 2001 were filed by HLL before the STAT. 8. Significantly, during the hearing of the subject T. As. by the STAT, HLL gave up its contention that purchase of shrimps, if any, was liable to be exempted under section 5(3) of the Central Sales Tax Act, 1956, on the ground that it related to export turnover. 9. In the first instance, T. A. Nos. 103 and 104 of 2001 were heard by the Bench comprising honourable Sri Justice P. Lakshmana Reddy (Retired), Chairman, and Sri S. A. Kareem, Departmental Member. By separate orders dated February 16, 2005, the members of the Bench differed with each other. The Chairman opined that the notice dated December 15, 1998 issued by the CTO did not satisfy the mandatory requirement of issuing a pre-assessment show-cause notice before final assessment and therefore, the final assessment order dated December 28, 1998 was not sustainab....
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....r. HLL reiterated that it did not wish to press the point regarding the purchase of shrimps, if any, being made in the course of export. The only point urged by HLL was that there was no purchase of catch from UCIL at all. HLL once again contended that the transaction was for charter of the trawlers of UCIL and therefore, there was no question of any purchase of the catch separately. The Bench opined that the documents, viz., the MoU and the agreement dated October 12, 1984, clearly demonstrated that what was intended thereunder was sale of the catch by UCIL to HLL. The debit notes raised thereafter by UCIL against HLL also bore the element of sale. In the light of these documents, the Bench opined that it was for HLL to disprove the inference drawn by the Revenue there- from to the effect that there was sale of shrimps by UCIL to HLL. Holding that the contract between the parties in its totality clearly indicated sale of the catch and as HLL failed to produce its books of account or any other documentary evidence, the Bench opined that there was no necessity for the CTO to issue a fresh show-cause notice, as the matter had been remitted for fresh consideration. The Bench also foun....
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....agreement. The MoU stated to the following effect: HLL was desirous of undertaking deep sea trawling operations for its marine products business and was interested in taking trawlers on charter and UCIL had a fleet of trawlers of different sizes and had experience and expertise in deep sea trawling operations. They therefore recorded their intention to enter into a commercial agreement which would, inter alia, incorporate the following terms and conditions. (1) HLL will take on charter six indigenously built trawlers from UCIL on or about April 1985. (2) The tenure of the charter will be initially for a period of five years. The parties may extend the charter for another period of five years on terms and conditions to be mutually agreed upon at the expiry of the first charter period. (3) HLL will appoint a marine surveyor to ensure maintenance of class of vessels in accordance with ABS classification prior to the commen cement of the lease agreement. (4) In consideration for the charter, HLL will pay to UCIL rental and other charges as may be agreed upon. (5) Both HLL and UCIL will obtain all necessary approval from their shareholders, G....
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....nd assistance for this purpose. Clause 8 is relevant and is extracted hereunder : "(8) In consideration of UCIL selling the catches to HLL as above, HLL agrees to make the following payments to UCIL every month : (a) A fixed sum of Rs. 3,55,000 for four trawlers per month to be paid in advance provided that prorate adjustment will be made with reference to the sailing date of each trawler in the first month of ope ration. (b) In addition HLL will reimburse UCIL all actual operating expenses including the following, viz.,- Cost of HSD oil, lubricating oil, spare parts used in the repair of trawlers, nets and gears, salary and other payments (including incen tives) paid to the master and the crew, supplies including provision for the crew, paints, ropes, refrigerant pilotage, berthing charges and port dues relating to the operation of the said trawlers. In respect of these actual expenses UCIL shall submit invoices to HLL within seven days of the expiry of each month and HLL agrees to make the payments within seven days of the submission of the invoices. (c) All taxes and duties in respect of the sale transactions here under will be to HLL....
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....84, was relatable to the earlier MoU, which has not even been produced. The earlier MoU dated March 24, 1984 entered into by HLL with UCIL seems to have been on different lines and that is the reason why the invoice read differently. The mere fact that no mention was made in the later debit notes as to the details of the catch does not assume the significance that the learned counsel would suggest it have. 17. The first debit note raised by UCIL against HLL, pertaining to the agreement dated October 12, 1984, was dated November 23, 1984. It reads as under : 23rd November, 1984 Debit note M/s. Hindustan Lever Limited, Lever House, 165/166 Backbay Reclamation, Bombay 400 020. Debit Note No : HLL/3/84 Date : 23/11/84 Amount payable by you for sale of catch as per agreement dated 12/10/84 for the month October, 1984. Rs. (A) As per clause 8(a) of the agreement . . . 3,06,331 (B) As per clause 8(b) of the agreement . . . 4,22,721 Total 7,29,052 Less : Advance received from you on 26/10/84 3,55,000 Balance due from you 3,74,052 (Rupees three lak....
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.... considered is whether it is possible to give effect to all the clauses in question. 21. In Union of India v. D. N. Revri and Co. [1976] 4 SCC 147, the Supreme Court observed that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it and it would not be right while interpreting a contract to apply strict rules of construction which are ordinarily applicable to formal documents. It was further observed that the meaning of such a contract must be gathered by adopting a commonsense approach. 22. In State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 (SC) ; [1985] AIR 1985 SC 1293 ; [1985] Supp SCC 280, the Supreme Court observed that a document cannot be interpreted by picking out only a few clauses ignoring other relevant ones. 23. In Provash Chandra Dalui v. Biswanath Banerjee [1989] Supp 1 SCC 487, the Supreme Court affirmed that the best interpretation is made from the context and every contract is to be construed with reference to its object and the whole of its terms. It was observed that the whole context must be considered to ascertain the inte....
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....ness sense without the term, the courts will not imply the same. The following passage from the opinion of Bowen, L.J. in Moorcock [1889] LR 14 Pd 64 (CA) sums up the position : (PD page 68) '. . . In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the tran saction as must have been intended at all events by both parties who are businessmen ; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances'." 26. In the light of the aforestated principles, the issue essentially boils down to the transaction entered into by HLL with UCIL and what they intended by it. HLL would claim that it merely chartered UCIL's trawlers on lease and paid a lump sum amount per month, which was inclusive of the lease rental, and in consequence, UCIL delivered the month's catch to it. The Revenue, on the other hand, would have it that HLL purchased the cat....
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....nsation other than payments for the catch as set out in clause 8. Clause 10 recorded that it was agreed that HLL would purchase the entire catch from the trawlers and would process the same and export it in its own name. 29. Construction of the agreement, as projected by Sri S. Dwarakanath, learned counsel, would mean that HLL chartered UCIL's trawlers on lease, paid the entire operational expenses, inclusive of the crew who would be provided by UCIL, and paid a lump sum amount of Rs. 3,55,000 towards the lease rental for the four trawlers per month, and by way of such trawling operations during the month, whatever fish, shrimps or other marine life were caught would belong to HLL itself. 30. However, in the light of the afore stated clauses, it is clear that HLL did purchase the catch each month from UCIL and the consideration therefor was included in the lump sum payment of Rs. 3,55,000. Though its claim was that the entire fixed sum of Rs. 3,55,000 was only towards rental for the four trawlers, no evidence was let in at any stage, despite the matter being kept pending for over three decades, as to what was the prevailing rental payable for a trawler during the relevant....
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....ady discussed supra, clearly bear out that what was agreed upon was the purchase of catch by HLL from UCIL from only four out of its six trawlers. 32. Further, the fact cannot be lost sight of that though UCIL's debit notes always recorded that the amount was payable by HLL for sale of the catch as per the agreement dated October 12, 1984, HLL never objected to this nomenclature. This, in itself, is sufficient to indicate that HLL did not contest the nature of this sale transaction and the consideration paid. 33. It is clear from clause 8(a) of the agreement dated October 12, 1984 that the parties adopted the method of a lump sum consideration being paid by HLL to UCIL. This sum of Rs. 3,55,000 was inclusive of the lease rental payable by HLL to UCIL for the trawlers and also the purchase price for the shrimps delivered by UCIL to HLL during that month. As no material is forthcoming as to the lease rental component out of the monthly lump sum payment and there is no evidence adduced by HLL as to what was the prevailing lease rental for trawlers at that point of time, an adverse inference would necessarily have to be drawn against it. The entire monthly payment would there....
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....duce documentary evidence as called upon by the assessing authority. 35. Another issue that is raised by HLL is that it was for the Revenue to prove the taxable event but the assessment proceeded only on the failure of HLL to produce its books of account, thereby placing the burden upon it. The failure to issue a show-cause notice prior to the fresh assessment assumes significance in the context of this argument. It may however be noticed that the whole issue came to light only because of the material found by the Revenue during inspection of UCIL's premises and the documents found were sufficient to prove the taxable event, viz., the agreement dated October 12, 1984 and the debit notes raised by UCIL against HLL. This material was sufficient to prove that HLL had paid money to UCIL for purchase of shrimps/prawns. Thereupon, the onus shifted at that stage to HLL to disprove the sale transaction. It was in this context that the matter was remanded by the STAT, vide order dated March 18, 1996 in T. A. Nos. 766 and 767 of 1993. Therein, the STAT directed HLL to produce the relevant books containing entries relating to the transaction with UCIL, covered by the agreement dated Oc....
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....se where the assessing authority is satisfied that the failure of the dealer to disclose the whole or part of the turnover or any other particulars correctly was wilful and shall not exceed one half of the tax due in a case where such failure was not wilful. The proviso thereto states that where such failure occurred due to a bona fide mistake on the part of the dealer, no penalty shall be levied. 37. In Mahaveer Bangles v. Commercial Tax Officer, Tarapet, Vijayawada [1993] 91 STC 168 (AP) [FB] ; [1993] 17 APSTJ 98, a Full Bench of this court observed that there is no legal sanctity to the plea that levy of penalty must be simultaneous with the making of a best judgment assessment. In the context of section 14(2) of the Act of 1957, it was observed that in tax laws, penalty provisions are meant to be deterrents against tax evasion and the trite saying that provisions relating to penalty must be construed strictly does not mean anything more than saying that the language of the provision must not be strained to sustain the power to levy penalty and in a case of reasonable doubt, the benefit should be given to the assessee. This principle, it was held, did not rule out a reasonabl....
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....ke the plea that by reason of simultaneous levy of penalty, the assessee denied the opportunity of taking aid from the contents of the assessment order to the extent they help him and to avoid such objections, it would be desirable, as far as practicable, that penalty proceedings are concluded after assessment is made. However, no proposition was laid down that a penalty order passed simultaneously with the assessment order would be vitiated and the Bench observed that it would depend upon the facts and circumstances of each case. 38. In the light of the afore stated principles and as there is no embargo in the statutory scheme as to passing of orders of assessment and penalty simultaneously, it would essentially depend upon the individual facts of the case to decide the correctness of such procedure. Presently, when the issue of penalty was specifically remanded to be decided along with main assessment, no demonstrable prejudice was caused to HLL by passing of orders simultaneously. 39. As regards the issue of levy of penalty, it may be noted that in Hindus- tan Steel Ltd. v. State of Orissa [1970] 25 STC 211 (SC) ; AIR 1970 SC 253, the Supreme Court observed that an order i....
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....ous disregard of their statutory obligation. 42. Later, in Larsen & Toubro Ltd. v. CCE [2007] 9 RC 1 ; [2007] 9 SCC 617, the Supreme Court, while dealing with levy of penalty on the ground of suppression, held that acts of fraud or suppression must be specifically pleaded and allegations in regard to suppression of facts must be clear and explicit so as to enable the noticee to reply thereto effectively. On facts, the Supreme Court found that the issue in relation to which penalty was levied was a debatable one and it was not a case of suppression by the appellant. On similar lines, in Viceroy Hotels Limited v. Commercial Tax Officer [2011] 43 VST 424 (AP) ; [2011] 52 APSTJ 147, a Division Bench of this court accepted that when there was no fraud or wilful neglect established in the under declaration of tax, no penalty could be levied. In VPL Projects Private Limited v. Commercial Tax Officer, Dwarakanagar, Visakhapatnam (W. P. No. 214 of 2016 decided on February 23, 2016), a Division Bench of this court reiterated that while under-declaration of tax was liable for penalty if fraud or wilful neglect is established, the jurisdictional facts necessary for such levy must be discern....