Shuttle Weaves International v. The Commercial Tax Officer, Kilpauk Assessment Circle, Choolaimedu, Chennai – 600 094

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 23.12.2009CORAM:THE HONOURABLE MR. JUSTICE F.M.IBRAHIM KALIFULLAHANDTHE HONOURABLE MR. JUSTICE T.S.SIVAGNANAMW.P.No.1806 of 2006 &.W.M.P.No.2050 of 2006 Shuttle Weaves Internationalrepresented by its proprietrix,R.M. MeenalNo.15 (old No.61), Gajapathy Street,Shenoy Nagar, Chennai – 30. ... Petitioner-Vs-1.The Commercial Tax Officer, Kilpauk Assessment Circle, Choolaimedu, Chennai – 600 094.2.The Appellate Assistant Commissioner (CT) VI, Kuralagam Annexe VI Floor, Chennai – 600 108.3.The Sales Tax Appellate Tribunal (Main Bench) represented by the Secretary City Civil Court Building, High Court Complex, Chennai – 600 104. ... RespondentsPrayer : The Writ Petition filed under Article 226 of theConstitution of India for issue of Writ of Certiorari to call for therecords on the file of the third respondent and quashing theproceedings of the third respondent herein in T.A.No.485/01 dated21.12.2005. For Petitioner :Mr.N.Inbarajan For Respondents :Mr.Haja Nazirudeen Special Govt. Pleader for RR1-2 https://hcservices.ecourts.gov.in/hcservices/ O R D E RT.S.SIVAGNANAM,J.The challenge in this writ petition is to an order passed by theSales Tax Appellate Tribunal, the third respondent, in T.A.No.485/01dated 21.12.2005. The issue involved in the present writ petitionrelates to levy of penalty under Section 16(2) of the Tamil NaduGeneral Sales Tax Act, 1959, (hereinafter referred to "as the Act"),which contemplates that the escape from the assessment to tax, if dueto willful non-discloser by the dealer shall attract penalty inaddition to the tax assessed.Facts leading to the filing of the writ petition:2. The petitioner is a registered dealer on the file of the firstrespondent, engaged in the export of readymade garments. The SalesTax assessment for 1998-99 was completed and an order of assessmentdated 05.08.1999 was passed by the first respondent. On 26.10.1999,the place of business of the petitioner was inspected and thedocuments available were verified and it revealed that the petitionerreceived premium from the transfer of the quota entitlementcertificate issued to them by the Apparel Export Promotion Council(AEPC) for Rs.9,28,925/- during the year 1998-99, which according tothe department is liable to tax at 11 %. During the course of theinspection a sworn statement of the proprietrix was recorded. On29.10.1999, the petitioner appear to have paid the entire taxdemanded by two cheques for Rs.1,02,181.75/- for the period 1998-99and Rs.1,68,898.83 for the period 1999-2000(upto September 1999). Arepresentation was also made on the said date, wherein the petitionerstated that they have made payments fully for the period from April1998 to March 1999 and from April 1999 to September 1999 and undertook to pay the tax in the succeeding months to the Commercial TaxOfficer, Kilpauk Assessment Circle, if there is quota sales. 3. Thereafter a notice was issued to the petitioner allegingthat they have failed to disclose either in their returns regardingthe AEPC quota sales nor paid the tax due thereon and at the time ofcheck of accounts, the trading accounts were filed and detailsregarding receipt of premium on AEPC quota sales did not find placein the trading accounts and it has been intentionally suppressed,hence levy of penalty under Section 16(2) is warranted at 150 % ofthe tax due was proposed in the said notice and the penalty wasquantified at Rs.1,53,273. The petitioner was given opportunity tosubmit their objections and the gist of the objections are that theywere under the impression that there was no liability on quota salesand at the time of inspection, it was pointed out to the petitionerabout the liability and therefore a statement was given on 26.10.1999that they would consult their Auditor about such liability. Thefirst respondent considered the objections and by order dated https://hcservices.ecourts.gov.in/hcservices/

27.12.1999 confirmed the proposal of the total taxable turnover aswell as penalty. In doing so, the first respondent observed that atthe time of production of accounts, the petitioner filed tradingaccounts, which did not disclose receipts towards AEPC quota sale andincomplete production of accounts clearly proved willful suppression.4. Aggrieved by the order passed by the first respondent, thepetitioner preferred an appeal before the second respondent and thesecond respondent by order dated 15.02.2001, dismissed the appeal, asagainst the said order, the petitioner preferred an appeal to thethird respondent-Tribunal in T.A.No.485/01 and the third respondentby order dated 21.12.2005 dismissed the appeal and confirmed theorders passed by the respondents 1 & 2. Aggrieved by such order ofthe third respondent Tribunal the petitioner is before this Court. Contentions:-5. Mr.N.Inbarajan, learned counsel appearing for the petitionerwould contend that the disposal of quota sale was available in thebooks of accounts, which was seen by the first respondent and theoriginal assessment was completed on 05.08.1999 and in suchcircumstances, it cannot be stated that there is an escapedassessment, which is willful. It is further submitted that there isno finding as regards mens rea and in the absence of such findingsthere cannot be a levy of penalty under Section 16(2) of the Act.The conduct of the petitioner in having paid the entire tax liabilitywithin three days from the date of inspection would itself establishthat there was no intention to evade payment and once the tax hasbeen paid , it cannot be stated there is willful non-disclosure ofany assessable turnover. The learned counsel relied upon anotherorder of the Tribunal in T.A.No.309/2001, which according to thepetitioner was under similar circumstances, and therefore theTribunal ought to have allowed their appeal.6. The learned counsel would further contend that under serialNo.46A in part-D of the first schedule to the Act, tax was leviableat 11% on sale of goods described as REP license/Exim scrip. Thisentry was in force from 05.03.1997 to 07.08.1998, and wassubsequently modified as Patents, trade marks, import licencesincluding exim scrips, export permit or license or quota and othergoods of incorporeal or intangible character and this entry wasinserted by gazette dated 19.05.1997 with retrospective effect from05.03.1997. The learned counsel would submit that the Hon'bleSupreme Court in the case of Vikas Sales Corporation and another Vs.Commissioner of Commercial Taxes and Another [(1996) 102 STC 106(SC)] held that REP license and exim scrips are goods as definedunder Section 2(j) of the Act and are liable to tax. The Hon'bleSupreme Court only on 06.08.2008 in Yash Overseas Vs. Commissioner ofSales Tax and others [2008 17 VST page 182 (SC)] held that REP https://hcservices.ecourts.gov.in/hcservices/ licences and "DEPB" credit qualify as goods under the Sales Tax Act.Therefore, the learned counsel would submit that the law remainedunsettled as to whether these quota sales are goods, since it wascontended that as they are actionable claims and cannot be treated asgoods. In view of the said position, the learned counsel contendedthat the petitioner should not have been treated to have willfullysuppressed the quota sales. In support of his contention the learnedcounsel placed reliance on the Hon'ble Division Bench Judgment ofthis Court, that no penalty was leviable as there is no willfulsuppression, in State of Tamil Nadu Vs Estate of V.U.Paneer Nadar ByP.Parameswari (Wife),[1979 (VOL 44) STC page 300], E.I.D. Parry (I)Ltd Vs. Assistant Commissioner of Commercial Taxes and another(SC)[2000 VOL 117 STC page 457] 7. The learned counsel would further submit that the accountbooks were produced and accepted by the first respondent andassessment made based on such materials were not estimates and haveto be regarded as assessment made under Section 12(1) to which penalprovision of Section 12(3) was not attracted. In support of the saidcontention, the learned counsel relied on the Hon'ble Division BenchJudgment of this Court in Krishna Alloy Steels Vs. Registrar, TamilNadu Taxation Special Tribunal, Chennai and anther [2008 13 VST 424(MAD)]. On the above submissions the learned counsel prayed forsetting aside the impugned order.8. Per contra, Mr.Haja Nazirudeen, learned Special GovernmentPleader appearing for the respondents would contend that the case onhand was a case of willful suppression, since a perusal of theassessment order, dated 05.08.1999, reveals that the petitionerreported the entire turnover as export sales and therefore, theassessing authority determined the total and taxable turnover at nilunder the provision of TNGST Act. The learned Special GovernmentPleader would further submit that what was produced was only thetrading account and the amount towards the quota sale was not shownand the entire turnover was shown as export sale, which itself wouldestablish the conduct of the dealer warranting penalty under section16(2). The learned Special Government Pleader further contented thatthe issue relating to the scope of Entry 46-A in the first scheduleto the Act was not raised by the petitioner before the Tribunal norbefore the statutory authorities and it has been raised for the firsttime before this Court. In any event, the learned Special GovernmentPleader would submit the amendment to Entry 46A from 08.09.1999, byincorporating the words Patents, trade marks, import licensesincluding exim scrips, export permit or license or quota etc., wasonly clarificatory in nature and it is not the case of thepetitioner/dealer that the REP licence was in any manner differentfrom that of the "quota". It is further submitted that on account ofthe trade policy of the Government of India, new incentives areoffered to importers and exporters and the terminology alone differsand it does not change the character of the benefit granted to either https://hcservices.ecourts.gov.in/hcservices/ the importer or the exporter. Further, the petitioner being an exporthouse was very well aware of the said position and the suppression ofthe quota sales is willful. It is further contended by the learnedcounsel that the law on the subject, namely as to whether REPlicenses and Exim Scrip are goods was settled by the Hon'ble DivisionBench of this Court as early as on 04.04.1994 in the Judgmentreported in P.S.Apparels Vs.Deputy Commercial Tax Officer, T.NagarEast Assessment Circle, Madras (and other cases) [94 STC 139] andaffirmed by the Hon'ble Supreme Court in Vijay Sales Corp. Vs.Commissioner of Commercial Taxes, [102 STC 106] and the contention ofthe petitioner that there was a genuine doubt as regards thetaxability of the quota sales is incorrect, more so when no such pleawas raised before the respondents 1 to 3. The learned counsel wouldfurther submit that the order passed by the Tribunal in T.A.No.309/01is not applicable to the facts and circumstances of the present caseas it was factually held in the said case that the sales found placein the books of accounts. The learned Special Government Pleaderwould further contend that but for the inspection on 26.10.1999, theabove illegality would not have been brought to light and thereforethe order of the Tribunal calls for no interference.Discussion:-9. Section 16(2) of the Act is relevant for deciding the presentissue, which reads as follows:-"16(1).....16(2). In making an assessment under clause (a) of sub-section(1), the assessing authority may, if it is satisfied that theescape from the assessment is due to wilful non-disclosure ofassessable turnover by the dealer, direct the dealer, to pay,in addition to the tax assessed under clause (a) of sub-section (1) by way of penalty a sum which shall be:-(a) fifty per cent of the tax due on the turnover that waswilfully not disclosed if the tax due on such turnover is notmore than ten per cent of the tax paid as per the return; (b) one hundred per cent of the tax due on the turnover thatwas wilfully not disclosed if the tax due on such turnover ismore than ten per cent but not more than fifty per cent of thetax paid as per the return;(c) one hundred and fifty per cent of the tax due on theassessable turnover that was wilfully not disclosed, if the taxdue on such turnover is more than fifty per cent of the taxpaid as per the return; https://hcservices.ecourts.gov.in/hcservices/ (d) one hundred and fifty per cent of the tax due on theassessable turnover that was wilfully not disclosed, in thecase of self-assessment referred to in sub-section (1) ofSection 12:Provided that no penalty under this sub-section shall beimposed unless the dealer affected has had a reasonableopportunity of showing cause against such imposition."10. Section 16 provided for reopening of the completedassessment by the same authority who made it so as to include anyturnover, which had escaped taxation and also to rectify cases werelower rate of tax had been levied. Sub-Section 2 of Section 16provides for levy of penalty for willful non disclosure of assessableturnover. This power to levy penalty being discretionary, it isincumbent upon the authority to record reason before proceeding tolevy penalty. The language employed in Sub-Section 2 of Section 16 isthat the assessing authority should be satisfied that the escape fromthe assessment is due to "willful non-disclosure" of assessableturnover. The Hon'ble Division Bench of this Court in The State ofTamil Nadu Vs. Estate of V.U. Panneer Nadar By P.Parameswari (Wife)[44 STC 300] held that before it could be stated that a turnover,which had escaped assessment was willfully not disclosed by anassessee, the department had to establish that the assessee had thenecessary mens rea and the mere use of the expression suppression inthe order is not enough. Therefore, mens rea is necessary to assesspenalty under Section 16(2) and the burden is on the department toprove that the dealer willfully and deliberately avoided hisobligation under the Act.11. Having examined the scope of Section 16(2) as stated above,if the facts of the present case are looked into, it is seen that theassessment came to be completed on 05.08.1999 and in the said orderthe turnover reported was Rs.9,18,75,265.50/- and it has beenmentioned that the entire amount as export sales and consequently thefirst respondent held that the total and taxable turnover of thedealer is determined at Rs. Nil under TNGST Act. In the order ofassessment, it has been stated that the check of accounts revealedthat the entire sales were export only and hence the export sales areto be dealt under CST Act. The documents, which were produced by thedealer where the day book, purchase and sales register, ledger andbill of lading. 12. The learned counsel appearing for the petitioner wouldstrenuously contend that the order of assessment having been madebased on the accounts cannot be treated to be a best Judgmentassessment and the analogy applicable to Section 12(1) and 12(3) ofthe Act could be applied and it has to be held that penalty cannot https://hcservices.ecourts.gov.in/hcservices/ be levied. Heavy reliance was placed on the Hon'ble Division BenchJudgment of this Court in the case of Krishna Alloy Steels Vs.Registrar, Tamil Nadu Taxation Special Tribunal, Chennai and anther[2008 13 VST 424 (MAD)]. as referred supra. Countering the saidsubmission the learned Special Government Pleader would submit thatit is the specific case of the department that only trading accountswere produced by the dealer and the details of receipt of premium onquota sales did not find place in the trading accounts and the dealerproceeded to show the entire turnover as export sales. At thisjuncture, it is worthwhile to note that the petitioner is an exporterpresumed to be well-versed in the export procedures and there is aclear distinction between export sales and premium received on quotasales. Quotas are incentives granted by the Central government undervarious schemes announced from time to time. In the instant case, thequota was issued by AEPC, which the petitioner earned on account ofexport to non quota countries during the relevant point of time.This quota is a freely transferable commodity, hence falling withinthe definition of goods under Section 2(j) of the Act. In fact thisposition came to be examined in respect of REP license and eximscrips, which were held to be goods by the Hon'ble Division Bench ofthis Court in P.S.Apparels Vs.Deputy Commercial Tax Officer, T.NagarEast Assessment Circle, Madras (and other cases) [94 STC 139]. TheHon'ble Division Bench held:- "7.... In our view, the rights to import conferred underthe licences in question are very valuable rights and as slipsof paper or memoranda evidencing the entitlement and right toimport goods of the category and of value from outside thecountry into this country, in a sense by itself could beregarded as an article of merchandise and, therefore, wouldconstitute "goods" capable of themselves being bought or soldin the market. The submission that the licences underconsideration are actionable claims, therefore, is not tenable.8...... The licences under consideration can hardly beclaimed to satisfy this criteria also. Therefore, we are ofview that the licences under consideration which have been heldby us to be "goods" do not fall within the excluded category orclass of goods so as to take them outside the purview of thesales tax laws in force in the state.10....... The fact that such licences are issued infavour of an exporter as an incentive or a privilege toencourage export or earn for the country the required foreignexchange does not in any manner alter the position that theprivilege or right embodied in the form of a documentconstitutes "goods", the sale or transfer of which forconsideration attracts liability to sales tax either under theState Act or under the Central Act as the case may be." https://hcservices.ecourts.gov.in/hcservices/ Further the Hon'ble Supreme Court in the case of Yasha Overseas,referred supra the Hon'ble Supreme Court held:-".... REP licences had always a market. There were peoplewilling to sell and others willing to buy REP licences at alltimes. Their innate value coupled with free transferabilitymade REP licences into a marketable commodity. They were"goods" properly so called having innate value and a readymarket..... Under the Duty Entitlement Passbook (DEPB) Scheme, anexporter is eligible to claim credit as a specified percentageof the job value of exports made in freely convertiblecurrency. The credit is available against such export productsand at such rates as may be specified by the Director Generalof Foreign Trade by a public notice issued in this behalf. TheDEPB is exactly the same as REP licence. Like the REP licenceit has an innate value which makes it a marketable commodity.The DEPB credit is also clearly "goods" within the meaning ofthe sales tax laws."13. From the facts of the present case, it is evident that thesuppression was willful and the assessee failed to disclose thepremium received towards sale of quota, in view of the same, we findno reason to upset the factual findings of the original authority,appellate authority as well as the Tribunal on this aspect of thematter. Therefore, the contention raised by the learned counsel thatthere was substantial doubt as regards whether the quota was goodswithin the scope of Section 2(j) of the Act and therefore the dealershould not be penalised and that the said issue was finally decidedby the Hon'ble Supreme Court on 06.05.2008 in the case of YashaOverseas, referred supra, though appears to be attractive at thefirst blush, does not merit acceptance, since factually, the case ofthe petitioner was not as projected by the learned counsel appearingfor the petitioner.14. In fact in the statement given by the proprietrix of thepetitioner on 26.10.1999, what was stated is that for the quota salestax due the proprietrix shall consult her auditor and pay the tax dueif any within a period of a week. Therefore, the law had been settledby the Hon'ble Division Bench of this Court in the case ofP.S.Apparels, as referred supra, on this aspect as regards taxabilityof the quota sale as early as on 04.04.1994, the question ofentertaining any doubt does not arise. In the typed set of papers aphoto copy of what is stated to be the quota sales account ledgerbearing page No.125 has been filed. Similarly photo copy salesaccounts has been filed, bearing page no.127. The learned counselappearing for the petitioner would submit the sales account wasproduced at the time of original assessment and the assessingauthority on perusal of the same affixed his seal and signature on https://hcservices.ecourts.gov.in/hcservices/

29.07.1999, which is official proof that the assessment was based onrecords produced. It is to be noted that there is no seal orsignature in the quota sales accounts sheet and it is a finding offact that what was produced was only a trading account. In any event,we do not propose to re-appreciate the documents, which are stated tobe produced before the assessing authority by invoking the writjurisdiction. In our view the first respondent after issuing anotice to the petitioner, appreciated the documents on record andstated that the contention raised by the petitioner does not meritacceptance, and we find no reason to upset such finding of factrecorded by the original authority, confirmed by the appellateauthority as well as by the Tribunal. The learned counsel placedreliance on the Judgment of the Hon'ble Division Bench of this Courtin the case of Krishna Alloy Steels, referred supra. In view of thefactual finding rendered in the previous paragraph, it has to benecessarily held that the said Judgment is not applicable to thefacts and circumstances of the case. As, we have already held thatthere could be no confusion in the minds of the petitioner/dealer asto whether the sale of such quota would be taxable, the Judgment ofthe Hon'ble Supreme Court in the case of E.I.D. Parry (I) Ltd,referred supra also would not apply to the facts of the present case. Conclusion:-15. In the result, we find that there is no error or anyperversity in the approach of either the original authority or theappellate authority or the Tribunal and we are convinced that thefinding of fact recorded by the original authority as confirmed onfurther appeals establishes willful non-disclosure of the assessableturnover by the petitioner. The law relating to as to whether theREP license and exim scrips are goods within the definition ofSection 2(j) of the Act, having been settled by the Judgment of theHon'ble Division Bench of this Court on 04.04.1994 in case ofP.S.Apparels as referred supra, cannot be stated to have created anyconfusion in the minds of the petitioner/dealer, when on facts alsosuch was not the case of the petitioner. Hence, the writ petitionfails and accordingly the same is dismissed. Consequently, connectedmiscellaneous petition is also dismissed. No costs. pbn Sd/- Asst.Registrar/True Copy/ Sub.Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ To1.The Commercial Tax Officer, Kilpauk Assessment Circle, Choolaimedu, Chennai – 600 094.2.The Appellate Assistant Commissioner (CT) VI, Kuralagam Annexe VI Floor, Chennai – 600 108.3.The Sales Tax Appellate Tribunal (Main Bench) represented by the Secretary City Civil Court Building, High Court Complex, Chennai – 600 104. + 1 cc to Special Government Pleader SR.71472+ 1 cc to Mr.N. Inba Rajan, Advocate SR.70976W.P.No.1806 of 2006AKR(CO)EU 8.01.2010.