The State of Tamil Nadu v. Tvl Gupta Iron and Steel Company67, Sembudoss Street Chennai 600 001

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 19.01.2012CORAMTHE HONOURABLE MR.JUSTICE D.MURUGESANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Revision) Nos.1361 & 1362 of 2006The State of Tamil Nadu rep.byThe Deputy Commissioner (CT)Chennai (North) DivisionGreams RoadChennai 600 006..Petitioner in both Tax Case Revisions-vs-Tvl Gupta Iron and Steel Company67, Sembudoss StreetChennai 600 001..Respondent in both Tax Case RevisionsMemorandum of Grounds of Tax Case Revision Petitions underSection 38 of the TNGST Act, 1959 to revise the order of the TamilNadu Sales Tax Appellate Tribunal (Main Bench) Chennai dated26.07.2000 made in STA Nos.11 and 13 of 1998 for the assessment years1989-90 and 1992-93. For Petitioner::Mr.R.SivaramanSpecial Government Pleader (T)For Respondent::Mr.A.RavichandranORDERD.MURUGESAN, J.The above tax case revision petitions are filed by the Revenuechallenging the order of the Tamil Nadu Sales Tax Appellate Tribunal(Main Bench), Chennai dated 26.7.2000 made in S.T.A.Nos.11 and 13 of1998 for the assessment years 1989-90 and 1992-93 and raising thefollowing substantial question of law:-“Whether in the facts and circumstances of the case,the Tribunal is right in affirming the allowance ofsecond sales exemption in respect of 50% of theturnover ordered by the Appellate AssistantCommissioner (CT) when there was no further evidenceof movement of goods in addition to the fact thatsome dealers were non-existent and registrationcancelled in respect of some dealers?2. The facts giving rise to the present revision petitions are asfollows. The respondent-Tvl.Gupta Iron & Steel Company are the https://hcservices.ecourts.gov.in/hcservices/ dealers in iron and steel. For the assessment year 1989-90, theassessee reported Nil taxable turnover and total turnover ofRs.57,87,441.69. Their place of business was inspected by theofficers of Enforcement Wing on 26.2.90 and based on the detailsgathered from the assessee during spot enquiry and the verificationof records in the assessment circle, it was noticed that certainpurchases were made by the assessee from non-existing dealers andwhose registration were cancelled prior to the purchase. The detailsof the non-existing dealers are Tvl.Omega Enterprises, S.M.Tradersand Steel Syndicate. Similarly for the assessment year 1992-93, itwas noticed that the purchases were made from non-existing dealers.Based on the inspection, notices were issued to the assessee andrevised assessment orders together with penalty under Section 12(3)at the rate of 150 per cent of the tax due were confirmed by holdingthat the assessee did not prove the bona fide of the purchase andthere were no materials to prove the genuineness of the purchase andthat such purchases were made from non-existing dealers namely,Santhi Traders and Selvam Traders whose registration had beencancelled prior to the date of purchase. 3. Questioning the assessment orders, the assessee preferred twoappeals before the Appellate Assistant Commissioner(CT), Chennai, whoalso found that the alleged purchases were made by the assessee fromnon-existing dealers whose registration were cancelled prior to thepurchases. Nevertheless, the Appellate Assistant Commissioner foundthat the assessee can be taken to have purchased the goodsrepresenting 50 per cent of the escaped turnover from local dealersand therefore to that extent the sale should be taken to be secondsale. Accordingly, the first appellate authority adopted the ratio of50:50 for the disputed turnover, namely, as first sale and secondsale respectively and ordered exemption on the turnover in respect ofthe second sales on the ground that all the purchases had been madefrom local dealers. Simultaneously, the first appellate authorityalso reduced the penalty in respect of the assessment year 1989-90and no penalty was imposed in respect of the assessment year 1992-93.4. The said orders were questioned by the Revenue before theTamil Nadu Sales Tax Appellate Tribunal. The Appellate Tribunal alsoconfirmed the orders of the Appellate Assistant Commissioner byholding that at the time when the purchases were made by theassessee, the dealers in question were registered in the books of theassessing authority and that the assessee had produced the copy ofthe registration certificates of the dealers to establish that theyhad made the purchases from registered dealers and accordinglygranted the exemption on the 50 per cent turnover as second sales.Challenging the above order, the present tax case revision petitionshave been filed by the Revenue.5. We heard the learned Special Government Pleader (Taxes) forthe petitioner and the learned counsel for the respondent. 6. We have considered the rival submissions and perused therecords as well. The assessing authority, on the basis of theinspection made by the Enforcement Wing, factually found that thepurchases were made by the assessee from non-existing dealers. Theassessing authority also factually found that the registration https://hcservices.ecourts.gov.in/hcservices/ certificates of the dealers in question were cancelled much prior tothe purchases effected. Hence, the assessing authority re-determinedthe total and taxable turnover of the assessee on the ground that nomaterial evidence was produced by the assessee to claim exemption assecond sales. This being a factual finding, the first appellateauthority has rightly appreciated the issue and also concurred withthe finding of the assessing authority in holding that the dealers inquestion did not have the valid registration on the date when thepurchases were made by the assessee. Nevertheless, once the saidfinding was rendered, the first appellate authority ought to haveconfirmed the order of the assessing authority instead of giving thebenefit to the assessee on the presumption that the assessee can betaken to have purchased the goods representing 50 per cent of theescaped turnover from local dealers and therefore to that extent thesale should be taken to be second sale. In our opinion, this findingis not supported by any material and is only on presumption. Oncethe assessing authority factually found that the purchases wereeffected by the assessee from non-existing dealers without any validregistration on the date of purchases and the said finding wasconfirmed by the first appellate authority, there is no other optionleft to the first appellate authority but to confirm the order of re-assessment, rather giving the benefit to the assessee on presumption.The Appellate Tribunal has committed further error in confirming theorder of the first appellate authority by holding that the purchaseshad been made from the local dealers and that the assessee could bemade entitled for 50 per cent exemption as second sales. Here againthe finding of the Appellate Tribunal is contrary to the materialsgathered at the time of inspection and also contrary to the factualfinding of both the assessing authority and the first appellateauthority. 7. It is the contention of the learned counsel for therespondent-assessee that once the invoices were produced by theassessee to show that the purchases had been made, the burden ofproof under Section 10 of the Tamil Nadu General Sales Tax Act liesonly with the dealer and not on the assessee. Hence the returnsshould have been accepted and confirmed for exemption. In ouropinion, the said contention cannot be accepted. Section 10contemplates that for the purpose of assessment of tax under the Act,the burden of proof that any transaction or turnover of a dealer isnot liable to tax shall lie on such dealer. This provision wouldapply only in case of an existing dealer. In the event the materialsshow that the dealers are non-existing and there were no registrationon the date of sale, they will be only called as bill traders. Insuch circumstances, the question of placing reliance on Section 10 bythe assessee does not arise. When the exemption of tax on secondsales is sought to be claimed by the assessee, it is for the assesseeto establish that the transactions were bona fide on two aspects,namely, (i) that the purchases were made by the assessee and thegoods so purchased had suffered tax already and (ii) that suchpurchases were made from the dealers whose registration were in forceon the date of purchases. This onus cannot be shifted from theassessee by placing reliance on Section 10 of the Act. 8. The learned counsel for the respondent-assessee also placedreliance upon a judgment of this Court in National Iron Traders v. https://hcservices.ecourts.gov.in/hcservices/ State of Tamil Nadu, (1997) 106 STC 42 and contended that once thebills were produced with all particulars, it should be deemed thatthe assessee had discharged the burden. In our opinion, the saidjudgment is not applicable to the facts of the case. In that case,this Court was considering the case of purchase of goods fromregistered dealers as found by the first appellate authority. Withthat factual finding, this Court found that for the purpose of secondsales, it is enough for the assessee to produce the particulars thatthe purchase was made from the dealer and in such event the burdenhad been discharged. In the given case, when the assessee has notproduced any material to show that the purchases have been made andthe goods had suffered tax that too from the registered dealers, thereliance placed on the above judgment cannot be accepted. Inasmuchas the assessing authority as well as the first appellate authorityfactually found that the purchases were effected by the assessee fromnon-existing dealers and their registration certificates werecancelled prior to such purchases, the first appellate authority aswell as the Appellate Tribunal cannot come to a different conclusioncontrary to the materials to hold that the dealers had validregistration certificates on the date of purchase by the assessee.To this extent, the findings of both the first appellate authorityand the Appellate Tribunal are perverse. On the facts of the case,when once it is found that there were no materials to show that thepurchases were made from the dealers with valid registrationcertificates, the only course open to the authorities is to deny theexemption as to the second sales. For the foregoing reasons, thetax case revision petitions deserve to be allowed. Accordingly, boththe tax case revision petitions are allowed and the substantialquestion of law is answered against the assessee, but in favour ofthe Revenue. No costs.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarssTo1. The Tamil Nadu Sales Tax Appellate Tribunal (Main Bench) Chennai 600 1042. The Deputy Commissioner (CT) Chennai (North) Division Greams Road, Chennai 600 0061 cc to Spl.Government Pleader, Sr.No.3881, 3882Order inT.C.(R) Nos.1361 & 1362 of 2006TEJ {CO}TP/3.2.2012.