Inbios Petroleum (P) Limited v. Commercial Tax Officer Adyar-I Assessment Circle

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 15.11.2012CORAMTHE HONOURABLE MR.JUSTICE R.SUDHAKARWrit Petition Nos.7747 and 7748 of 2004Inbios Petroleum (P) LimitedNo.6, East Mada StreetSrinagar ColonyChennai 600 015..Petitioner in both the writpetitions-vs-1. Commercial Tax Officer Adyar-I Assessment Circle No.46, Greenways Road Chennai 600 0282. The State of Kerala represented by the Secretary Department of Revenue Trivandrum Kerala..Respondents in both the writpetitionsW.P.No.7747 of 2004 is filed under Article 226 of TheConstitution of India, praying for the issue of a Writ of Certiorari,calling for the records on the file of the first respondent herein inTNGST/0861669/2003-04 dated 18.2.2004, quash the proceedings of thefirst respondent herein in TNGST/0861669/2003-04 dated 18.2.2004. W.P.No.7748 of 2004 is filed under Article 226 of TheConstitution of India, praying for the issue of a Writ of Mandamus,directing the State of Kerala, the second respondent herein totransfer to the credit of the first respondent herein the taxes paidto the Assistant Commissioner (Assessment), Special Circle-II,Commercial Taxes, Ernakulam by the petitioners in the State of Keralaunder the Central Sales Tax Act, 1956 on the inter-State saleseffected between April 2003 and October 2003 to customers inside https://hcservices.ecourts.gov.in/hcservices/ Tamil Nadu. For Petitioner::Mr.N.SriprakashFor Respondents::Mr.A.R.Jaya PrathapGovernment Advocate (Taxes)for R1ORDERThe petitioner is one and the same in both the writ petitions.In W.P.No.7747 of 2004, the petitioner challenges the provisionalassessment order dated 18.2.2004 passed by the Commercial TaxOfficer, Adyar-I Assessment Circle, Chennai. The petitioner is animporter of Superior Kerosene Oil ("SKO" in short) and the supplierto various industries. The petitioner is a registered dealer underthe Tamil Nadu General Sales Tax Act, 1959 ("State Act" in short) andCentral Sales Tax Act, 1956 ("Central Act" in short) on the file ofthe first respondent. 2. The issue in these writ petitions relates to the assessmentyear 2003-2004 and the period involved is from April, 2003 toOctober, 2003. On 14.11.2003, the officers of the first respondent-Department caused inspection of the business branch premises atCoimbatore and the petitioner furnished statements for the periodfrom April, 2003 to October, 2003 relating to the sale of SKO.According to the petitioner, the entire consignment imported and soldto various parties in Tamil Nadu is an inter-State sale covered by'C' forms and therefore there is no element of local sales. 3. On the contrary, the first respondent took the stand that thesale had occasioned inside the State of Tamil Nadu and it is not acase of inter-State sale. In support of the same, the firstrespondent issued a notice dated 14.1.2004 in TNGST No.0861669/2003-04 and the petitioner-dealer filed their objections on 10.2.2004. Inthe notice dated 14.1.2004, the following were the charges:-"1. From the above, it is seen that the consumers inand around Coimbatore placed orders addressed to thedealers Chennai office and in most of the cases withadvance payment by D.D. and in turn they were forwardedto the dealers Coimbatore Depot to monitor the deliveryof SKO to the ultimate buyers. Both these orders anddemand drafts have finally been handed over to thedealers Coimbatore Depot. Certain purchase orders donot contain the place where from the goods should besupplied. In some cases, there is provision for CST 4%but this will not be the deciding factor for inter-State sale. In some cases both the place and CST 4%were absent. Although in some of the cases, it has beennoted that the goods from Cochin it cannot bedeterminative test to call it as in the course of https://hcservices.ecourts.gov.in/hcservices/ inter-State purchase. To put it in simple words, thebuyer at Coimbatore is concerned with the delivery ofSKO at their premises and not concerned whether itcomes from Cochin or Coimbatore. 2. Further all the consignments first reachedCoimbatore Depot and then only started its journey tothe buyers destination. Hence it is clear that theCoimbatore Depot took full custody of the goods beforeit is delivered to the buyers. 3. Unidentified goods, part of a specific whole such as100 tons out of 1000 tons held in stock.4. SKO at Cochin terminals is stored in big storagetanks of more volume and 12 KL is very minimal, whichcannot be identified, at the time of contract of sale.Hence it falls under category (iii) supra. When theunascertained goods move from one State to another andthey are ascertained for a particular contract of saleonly after they are received at the destination, thesale will not come under Sec.3 but will only amount toa local sale at the destination (vide Kelvinator ofIndia Vs. State of Haryana, 32 STC 629 SC, CementDistributors Vs. DCTO, 23 STC 86 Madras affirmed in(1975) 36 STC 389 (SC).5. As in the instant case, the SKO being anunascertained goods, is appropriated in Tamil Nadu forthe orders placed with the Coimbatore Depot, it is onlya local sale according to Sec.4(2)(b) of the CST Act,1956 read with the explanation 3(a)(ii) to Sec.2(n) ofthe TNGST Act, 1959. This will be the case in respectof other Depots and Chennai office.Therefore the monthly returns filed by them in Form A1from April 2003 to October 2003 are incorrect andincomplete. It is therefore proposed to reject thereturns from April 2003 to October 2003 under Rule 18(4) of the TNGST Rules to determine provisionally thetaxable turnover upto October 2003 as follows:-Taxable turnover reportedRs.3,01,53,468-00Local sales camouflaged as inter-State salesRs.3,62,90,160-00----------------------Taxable turnover proposed upto October2003Rs.6,64,43,628-00at 25%----------------------As the matter relating to levy of surcharge issubjudice appropriate action will be initiated afterthe receipt of the orders from Hon'ble High Court. https://hcservices.ecourts.gov.in/hcservices/ As they have willingly suppressed the local sales bycamouflaging it as an inter-State sales maximumpenalty under Sec.12(3)(b) of the Act at 150% isproposed on the tax due on the suppressed turnover ofRs.3,62,90,160-00.The dealer are requested to file their objections ifany to the above proposals with connected records insupport of their contention within 15 days of receiptof this notice failing which the proposals will beconfirmed and orders and demand notices issuedaccordingly."4. In the reply dated 10.2.2004, while reiterating the standthat it was a case of inter-State sale of SKO from Cochin to variouspurchasers in Tamil Nadu, the petitioner relied upon variousdocuments like the purchase orders, central excise documents to showthe proof of despatch of goods from Cochin to the purchasers in TamilNadu and the documents were annexed to the reply dated 10.2.2004.The petitioner also relied upon a Certificate issued by the AssistantCommissioner (Assessment), Special Circle-II, Commercial Taxes,Ernakulam dated 27.1.2004 in support of the plea that the goods inquestion viz., SKO had already suffered 4% central sales tax atKerala and therefore the first respondent's claim of local sales isfar-fetched. The petitioner had taken pains to enclose all thedocuments submitted to the authority, as part of the typed-set ofpapers, and after taking note of the detailed objections and afterextracting the entire objections including the case laws relied upon,the Commercial Tax Officer has passed the impugned provisionalassessment order overruling the objections and provisionallyassessing the total and taxable turnover for the period from 1.4.2003to 31.10.2003 and thereafter demanding tax and penalty. The saidorder is under challenge in W.P.No.7747 of 2004. 5. Heard the learned counsel for the petitioner and the learnedGovernment Advocate (Taxes) for the first respondent. 6. To cut short the entire issue which is before the Court, thelast paragraph which gives reasons for passing the provisionalassessment order is extracted hereunder, to question what prevailedupon the authority to pass the impugned provisional assessment order."I have carefully examined their objections andthe copies of records enclosed. It is found thatin all cases, there is no evidence to show thatcovenant to the contract entered into by theMadras office with the purchasers, the goods movedfrom other States. There is no evidence to showthat the purchase orders were transmitted to theCochin branch. All these records have been https://hcservices.ecourts.gov.in/hcservices/ camouflaged to show that these are inter-Statesales from Cochin. But the goods have beenreceived by the Coimbatore branch taken to stockand then only delivered to the customers in TamilNadu. Only to avoid local tax this has been done.In the circumstances, the decisions relied on bythe dealers are not applicable to this case. TheCentral Sales Tax paid in other State will notalter the nature of transactions, which is a localsale in Tamil Nadu. As they have willinglysuppressed the local sales, levy of penalty isalso justified. I therefore over rule theirobjections and provisionally assess the total andtaxable turnover for the period from 01.04.2003 to31.10.2003, as follows, under the TNGST Act, 1959........."7. A reading of the above clearly shows that the order suffersfrom total non-application of mind as well as non-consideration ofthe documents and records produced by the petitioner. The authoritystates that she had examined the objections and copies of records andtherefore the production of records is not in dispute. If therecords were taken for consideration, it is not clear as to how theauthority can state that no evidence was filed to show the movementof goods from other States to the local purchasers based on thecovenant. This statement appears to be a fallacy, as the purchaseorders had already been produced showing the origin of goods fromCochin to the purchaser at the State of Tamil Nadu. The next reasonis that there was no evidence to show that the purchase orders weretransmitted to the Cochin branch. For this, the petitioner hassubmitted the central excise records to show the delivery of goodsafter import and the payment of central sales tax at 4% supported bythe certificate issued by the Assistant Commissioner (Assessment),Special Circle-II, Commercial Taxes Department, Ernakulam. Thoserecords have not been taken into consideration by the authority. 8. The next finding of the authority is even more unreasonable,that is to say that the records have been camouflaged to show thatthey were inter-State sales from Cochin. With great reservation, theCourt would observe that the authority has not taken pains to stateas to which document has been camouflaged and in what manner to showthe inter-State sales from Cochin. A finding of this nature, seriousenough to allege, should be based on analysis of documents and notmerely on conjectures and surmises. There is no analysis of theadmitted documents to show that they have been camouflaged in one orother manner. Therefore, the said statement of camouflage appears tobe a figment of imagination by the authority. The next finding isthat the goods had been received by the Coimbatore branch, taken tostock and then delivered to customers in Tamil Nadu and this was doneonly to avoid the local tax. The plea of the petitioner is that https://hcservices.ecourts.gov.in/hcservices/ neither there is any evidence nor has the officer relied upon anymaterial document. It is, therefore, clear that all theseallegations are mere conjectures and surmises on the part of theauthority, without analysing the documents produced by the petitionerand what makes the matter worse is that, there are no reasonsrecorded as to which of the documents are invalid under law and whichof the documents have been camouflaged to show the inter-State salesand how those documents are inadmissible in law. The originalauthority, namely, the Commercial Tax Officer cannot give a findingagainst an assessee on mere ipse dixit, as has been done in thepresent case. All the documents referred to by the petitioner havebeen brushed aside by stating as not applicable. It is alsosurprising to note that the officer has merely brushed aside thecentral sales tax paid in other State by stating that it does notalter the transaction, namely, local sales in Tamil Nadu. Unless anduntil it is shown by material document as to which documentestablished the case of local sales, the authority cannotunilaterally come to the conclusion that the sale in this case waslocal sales exigible to tax under the provisions of the State Act.The question of suppression, which is also the reason for levy ofpenalty, appears to be unsupported by any material. On the whole, theentire order, which runs to about seven pages, contains only theextract of the notice and the reply upto six pages and the lastparagraph of the seventh page only deals with the record of findingsby the authority, which apparently do not contain any reasons. It iswell established principle in law that the administrative authorityexercising judicial or quasi-judicial functions is required to recordthe reasons for its decision. In S.N.Mukherjee v. Union of India,AIR 1990 SC 1984, the Hon'ble Supreme Court held in paragraphs 35, 38and 39 as follows:-"35. Reasons, when recorded by anadministrative authority in an order passed by itwhile exercising quasi-judicial functions, wouldno doubt facilitate the exercise of itsjurisdiction by the appellate or supervisoryauthority. But the other considerations, referredto above, which have also weighed with this Courtin holding that an administrative authority mustrecord reasons for its decision are of no lesssignificance. These considerations show that therecording of reasons by an administrativeauthority serves a salutary purpose, namely, itexcludes chances of arbitrariness and ensures adegree of fairness in the process of decisions-making. The said purpose would apply equally toall decisions and its application cannot beconfined to decisions which are subject toappeal, revision or judicial review. In ouropinion, therefore, the requirement that reasonsbe recorded should govern the decisions of an https://hcservices.ecourts.gov.in/hcservices/ administrative authority exercising quasi-judicialfunctions irrespective of the fact whether thedecision is subject to appeal, revision orjudicial review. It may, however, be added thatit is not required that the reasons should be aselaborate as in the decision of a Court of law.The extent and nature of the reasons would dependon particular facts and circumstances. What isnecessary is that the reasons are clear andexplicit so as to indicate that the authority hasgiven due consideration to the points incontroversy. The need for recording of reasons isgreater in a case where the order is passed at theoriginal stage. The appellate or revisionalauthority, if it affirms such an order, need notgive separate reasons if the appellate orrevisional authority agrees with the reasonscontained in the order under challenge.38. The object underlying the rules ofnatural justice "is to prevent miscarriage ofjustice" and secure "fair play in action". Aspointed out earlier the requirement aboutrecording of reasons for its decision by anadministrative authority exercising quasi-judicialfunctions achieves this object by excludingchances of arbitrariness and ensuring a degree offairness in the process of decision-making.Keeping in view the expanding horizon of theprinciples of natural justice, we are of theopinion, that the requirement to record reason canbe regarded as one of the principles of naturaljustice which govern exercise of power byadministrative authorities. The rules of naturaljustice are not embodied rules. The extent oftheir application depends upon the particularstatutory framework whereunder jurisdiction hasbeen conferred on the administrative authority.With regard to the exercise of a particular powerby an administrative authority including exerciseof judicial or quasi-judicial functions thelegislature, while conferring the said power, mayfeel that it would not be in the larger publicinterest that the reasons for the order passed bythe administrative authority be recorded in theorder and be communicated to the aggrieved partyand it may dispense with such a requirement. Itmay do so by making an express provision to thateffect as those contained in the AdministrativeProcedure Act, 1946 of U.S.A. and the https://hcservices.ecourts.gov.in/hcservices/ Administrative Decisions (Judicial Review) Act,1977 of Australia whereby the orders passed bycertain specified authorities are excluded fromthe ambit of the enactment. Such an exclusion canalso arise by necessary implication from thenature of the subject matter, the scheme and theprovisions of the enactment. The public interestunderlying such a provision would outweigh thesalutary purpose served by the requirement torecord the reasons. The said requirement cannot,therefore, be insisted upon in such a case. 39. For the reasons aforesaid, it must beconcluded that except in cases where therequirement has been dispensed with expressly orby necessary implication, an administrativeauthority exercising judicial or quasi-judicialfunctions is required to record the reasons forits decision."9. In the light of the above, this Court has no hesitation tohold that the first respondent-Commercial Tax Officer has passed anon-speaking order, bereft of reasons, without application of mind tothe records produced. The entire findings are in the realm ofconjectures and surmises and, therefore, the petitioner was justifiedin approaching this Court to interfere with the same. 10. Though a counter affidavit is filed, it does not further thecase of the first respondent, as it is only the reiteration of theorder and in any event, as has been held by the Apex Court inMohinder Singh Gill and another v. The Chief Election Commissioner,New Delhi and others AIR 1978 SC 851, the counter affidavit cannotimprove the case of the department when the order does not speak foritself. Para 8 of the decision in AIR 1978 SC 851 reads as follows:-"8. The second equally relevant matter isthat when a statutory functionary makes an orderbased on certain grounds, its validity must bejudged by the reasons so mentioned and cannot besupplemented by fresh reasons in the shape ofaffidavit or otherwise. Otherwise, an order badin the beginning may, by the time it comes tocourt on account of a challenge, get validated byadditional grounds later brought out. We mayhere draw attention to the observations of Bose,J., in Gordhandas Bhani (AIR 1952 SC 16) (atp.18):"Public orders publicly made, inexercise of a statutory authority cannotbe construed in the light of https://hcservices.ecourts.gov.in/hcservices/ explanations subsequently given by theofficer making the order of what hemeant, or of what was in his mind, orwhat he intended to do. Public ordersmade by public authorities are meant tohave public effect and are intended toaffect the acting and conduct of thoseto whom they are addressed and must beconstrued objectively with reference tothe language used in the order itself".Orders are not like old wine becoming better asthey grow older."11. For all the above reasons, the impugned order is set asideand the matter is remitted to the first respondent-authority for re-consideration of the entire issue and the first respondent isdirected to pass a reasoned order on merits after affordingopportunity to the petitioner. W.P.No.7747 of 2004 is allowed by wayof remand. Consequently, W.P.M.P.No.9191 of 2004 is closed. 12. In view of the order passed in W.P.No.7747 of 2004, nofurther direction is required to be issued in W.P.No.7748 of 2004.Accordingly, W.P.No.7748 of 2004 is closed. No costs.sd/-Assistant RegistrarTrue Copy/-Sub Assistant RegistrarssTo1. The Commercial Tax Officer Adyar-I Assessment Circle No.46, Greenways Road Chennai 600 028 https://hcservices.ecourts.gov.in/hcservices/

2. The Secretary to Government of Kerala Department of Revenue Tiruvananthapuram Kerala +2 Ccs to Mr.N. Inbarajan, Advocate SR 69674+1 CC to Government Pleader Sr No. 69856Writ Petition Nos.7747 & 7748 of 2004RSI-COKV – 05/12/2012