Telangana High Court
The State Of Ap Rep By Its Sr Stat Hyd vs Mcc Bowell And Co. Hyd on 28 May, 2025
Author: T. Vinod Kumar
Bench: T.Vinod Kumar, P.Sree Sudha
THE HON'BLE SRI JUSTICE T. VINOD KUMAR
AND
THE HON'BLE SMT. JUSTICE P. SREE SUDHA
TRC. No.13 of 2002
JUDGMENT:(Per Hon'ble Sri Justice T. Vinod Kumar) This Tax Revision Case is filed under Section 22(1) of the APGST Act, 1957 (for short 'the Act') by the Revenue being dissatisfied with the order of the Tribunal in Tax Appeal vide T.A. No.425 of 1997 dated 23.07.2001.
2. The question that arises for consideration in this revision is whether the respondent/assessee could have sold liquor in bottles and packing material supplied by its distributor under agreement entered into with them and also as to whether the reduction of sale price before and after 06.07.1991 was done with a view to evade sales tax.
3. The respondent/assessee is a registered dealer under the provisions of the Act on the rolls of Commercial Tax Officer, Nacharam and deals in the manufacture of Indian made Foreign Liquor (for short 'IMFL') at their distillery situated at Nacharam. 2 For the assessment year 1991-92 under the Act, the respondent/assessee had disclosed the gross turnover of Rs.55,06,72,218/- with turnover of Rs.54,55,93,063/-. The Assessing Authority in the course of assessment had noticed that though the respondent/assessee claimed of it having entered into an agreement with its eight distributors who had agreed to supply the bottles required for filling the IMFL manufactured by the respondent/assessee for selling the same to them by duly packing the same in the packing material supplied by such distributors, however found the said claim not acceptable.
4. In the view of the Assessing Authority the claim of the respondent/assessee of its distributors supplying the empty bottles for it to be filled with the liquor and thereafter fixing the caps and sealing the same with its labels for being sold to distributors is a camouflage to reduce the price of the liquor for the payment of sales tax. The Assessing Authority rejected the claim of the respondent/assessee of it having received the empty bottles from its distributors and supplying the filled bottles by affixing its seal and label cannot be accepted as the respondent/assessee did not 3 produce its books of accounts, stock registers. The Assessing Authority also noted deficit in stocks during a particular day and concluded that the respondent/assessee had undertaken transactions beyond its books of accounts and thus caused best judgment assessment.
5. The Assessing Authority also noted that the respondent/assessee by entering into such camouflaged transaction with its distributors of they supplying empty bottles and packing material had drastically reduced the price of liquor sold with effect from 06.07.1991 which is only intended to avoid sales tax payable on sale of liquor.
6. The respondent/assessee aggrieved by the aforesaid order of assessment had filed Appeal under Section 19 of the Act before the 1st appellate authority who by his order dated 30.04.1997, dismissed the same.
7. Aggrieved by the said order of dismissal by the 1st appellate authority, the respondent/assessee filed the subject appeal under Section 21 of the Act before the Tribunal.
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8. On behalf of the respondent/assessee before the Tribunal, it was contended that the Assessing Authority had erred in causing best judgment assessment by holding that the respondent/assessee having not produced its books of accounts, while in fact the books of accounts were produced as would be evident from the observations noted in the order of assessment itself.
9. On behalf of the respondent/assessee, it is also contended that the Assessing Authority did not consider the comprehensive explanation dated 01.04.1996 submitted by the respondent/assessee to the show cause notice and instead have thrown the burden on the assessee to prove the negative.
10. On behalf of the respondent/assesse, it is further contended that on an appeal being filed, the 1st appellate authority without granting sufficient opportunity to the respondent/assessee had passed the order dated 30.04.1997 confirming the order of assessment and thus the order of 1st appellate authority is in violation of principles of natural justice.
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11. The respondent/assessee further contended that since it had only received stocks of empty bottles from its distributors, it was only maintaining the Stock Monitoring Register ('SMR'), and thus is not required to produce way bill covering transport of such empty bottles from the distributors to it as observed by the Assessing Authority.
12. The respondent/assssee had also contended that since all its distributors have got their branches in close proximity, to the respondent/assessee distillery, there is no requirement to issue way bills from their branch offices to it while supplying empty bottles.
13. The Tribunal by taking note of the aforesaid submissions of the respondent/assessee on the above two issues had observed that the entire matter revolves round the two grounds viz., (i) the theory of the appellant, that the distributors supplied bottles and appellant sold the IMFL in the said bottles is not true and correct and that the appellant must have purchased bottles and cartons even in respect of sales effected through the distributors; and (ii) the reduction of the IMFL sale price after 06.07.1991 compared to pre-existing price also creates doubt about the genuineness of the transaction. 6
14. The Tribunal by considering the submissions made on the above two issues had held that the respondent/assssee by filling the IMFL in empty bottles supplied by its distributors by corking and labelling with relevant brand name would not amount to the title in the empty bottles getting vested with the respondent/assessee for inclusion of value thereof in the sale price for being liable to pay tax thereon.
15. Insofar as the reduction in sale price with effect from 06.07.1991 is concerned, the Tribunal had noted that with effect from the said date, the respondent/assessee had done away with extending the benefit of trade discount, special discount etc.
16. The Tribunal also noted that by virtue of reduction in Excise Duty per proof litre, the respondent/assessee stood to gain about Rs.150/- and as a result of all the above, the net realisation of the respondent/assessee had increased after 06.07.1991 and therefore the assumption of the Assessing Authority that the net realisation after 06.07.1991 has been reduced substantially is not correct. 7
17. The Tribunal also rejected the finding of the Assessing Authority with regard to the variation in the stocks, to reject the claim of respondent/assessee of bailment and accepted the respondent/assesse's contention that the permissible percentage of breakages in this line of trade is about 10% and since, the variation in stocks noted by the Assessing Authority only constitutes 7% total turnover of the packing material is thus, well within the permissible limit breakages of 10%.
18. Further, the Tribunal noted that though the Assessing Authority while resorting to passing a best judgment assessment had placed reliance on Rule 66(6) of the A.P. Distillery Rules, 1970 (for short 'the Rules'), the same does not oblige to own the bottles and packing material and the respondent/assessee arranging its affairs by entering into commercial contract with its distributors whereby they agreed to supply bottles and cartons for filling in IMFL cannot be termed as illegal much less device or rouse to avoid tax.
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19. The Tribunal by observing as above had set aside the order of the Assessing Authority as well as the 1st appellate authority on the above points.
20. A reading of the order of the Tribunal in its entirety would show that the Tribunal was swayed by the submission made on behalf of the respondent/assessee, while deciding to consider the appeal on merits by observing "as to avoid further prolonged litigation" even though it had noted that the 1st appellate authority had passed order in violation of principles of natural justice. If only the Tribunal wanted to dispose of the appeal on merit, it should have taken up the detailed examination of the respective contentions rather than proceeding on the basis of mere surmises and conjectures.
21. Further, reading of the order of the Tribunal would also reveal that the respondent/assessee on one hand claims of it having entered into agreement with its eight distributors who had agreed to supply empty bottles and packing material for filling IMFL therein and the respondent/assessee only undertaking corking and labelling and selling the same to them, had failed to note that the 9 respondent/assessee was also purchasing packing material viz., bottles and cartons to meet its own sale requirement other than through its distributors. A scrutiny of the assessment order would show that the respondent/assessee having sold about 6,54,161 number of cases corresponding to 2,22,15,228 number of bottles of various sizes of 180 ml, 375 ml, 500 ml, 750 ml and 1000 ml as extracted in para 26 of the assessment order, failed to examine as to the number of empty bottles of each of the sizes, it had received from its distributors and the corresponding sales of filled IMFL made to such distributors.
22. Further, the Tribunal having taken up the onus of deciding the matter on merit ought to have considered that the respondent/assessee having claimed of making purchases of bottles and packing material on its own to meet its own sales requirement (other than through their distributors) without examining the details of purchases made by the respondent/assessee and corresponding own sales other than through the eight distributors with whom it had claimed of entering into agreement for supply of empty bottles 10 and packing material, to discredit the finding of the Assessing Authority.
23. Further, the Tribunal also accepted the claim of respondent/assessee with regard to percentage of breakages to be 10% as normal practice and thus, the variation in stock being only 7%, the same is well within the permissible limit of the breakages of 10% dehors any material on record.
24. Since, the respondent/assessee claims of it having entered into agreement with its distributors only in the month of June, 1991, consequently having changed its practice with effect from 06.07.1991 nothing prevented the respondent/assessee to place before the Tribunal the record relating to percentage of breakages of its previous year to substantiate the said claim.
25. Further, the Tribunal while holding that Rule 66(6) of the Rules does not mandate/obligate the respondent/assessee to acquire title over the bottles while effecting sale of IMFL, had failed to note that the proviso to Rule 66(6)(ii) specifies that the licencee shall not use any bottle bearing the name or trade mark of any other 11 bottle or any other distillery and sub-rule (7) further requires that the bottles mentioned in sub-rule (6) shall be of standard pattern i.e, with regard to capacity as mentioned in sub-rule (6) and should bear the name or mark of manufacturer of the bottles.
26. The aforesaid two rules of the Rules would clearly show that the respondent/assessee in order to claim of it having received empty bottles from its distributors under agreement, for filling the same merely with IMFL therein by corking and labelling the same for selling, would be required to show that such empty bottles supplied by the distributors meeting the requirement prescribed under the Rules. The Tribunal however, without noting that the respondent/assessee having not placed any material to show that it being a licencee having obtained any approval for the empty bottles being supplied by its distributors from the concerned authorities, held that the said rule does not oblige the distillery/respondent/assessee to acquire title over the bottles while effecting sale of IMFL.
27. On the other hand the Assessing Authority in the assessment order having brought out clearly as to how the claim of 12 respondent/assessee of it having sold the IMFL by filling in the empty bottles supplied by its distributor under agreement on a particular day without having stocks of such bottles cannot be accepted, could not have summarily brushed aside the said finding by accepting the claim of the respondent/assessee that it had agreed to loan the bottles and cartons which the distributors undertook replace on the respondent/assessee companies terms without any evidence being placed on record to the said effect.
28. Further, the Tribunal by noting that with effect from 06.07.1991 on account of reduction in sale price due to adoption of certain policies by the respondent/assessee had resulted in the net realisation of the respondent/assessee having improved, thus, the respondent/assessee arranging its affairs in such a manner to reduce the incidence of tax is permissible and cannot be termed as illegally much less a device or rouse to avoid tax.
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29. The Apex Court in Mc. Dowell and Co. Ltd. v. Commercial Tax Officer 1 dealing with tax planning and tax avoidance had observed as under:
"Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges."
30. The aforesaid view of the Apex Court has been reiterated by the Apex Court in the decision in Vodafone International Holdings BV v. Union of India 2.
31. In the light of the enunciation of law by the Apex Court, this Court is of the view that the Tribunal having decided to hear the matter on its merit, ought to have taken up detailed examination of the claim and counter-claim of the revenue and the respondent/assessee. Instead, as noted hereinabove the Tribunal got swayed by the submissions made on behalf of the respondent/assessee and generalized the issue involved, without 1 (1985) 3 SCC 230 2 (2012) 6 SCC 613 14 examining the matter, did not verify the record in detail, having taken up the responsibility to decide the matter on merit.
32. Further, the Tribunal being the highest fact finding authority under the Act, did not deal with the finding of fact recorded by the Assessing Authority in his order of assessment, with regard to sale of IMFL made by the respondent/assessee of different quantity (in ml.) to its distributors vis-à-vis the number of empty bottles (in ml. capacity) received from the distributors for the respondent/assessee to claim of it being a bailee of such empty bottles, for it to fill up IMFL therein, corking and sealing and selling the same to such distributors.
33. In view of the above, we are of the considered view that the Tribunal being the highest fact finding authority instead of examining the issue involved in detail had generalised the issue and had set aside the order of the Assessing Authority as affirmed by the 1st appellate authority.
34. It is for these reasons, this Court is of the view that since, the Tribunal, did not deal with the issue as to whether the 15 respondent/assessee could have or was permitted to sell IMFL by filling the same in the empty bottles supplied by the distributors, being a licence, the order cannot be said to be in accordance with law laid down by the Apex Court and also being in consonance with the provisions of the Act and the Rules noted hereinabove for it to be sustained.
35. Accordingly, the TRC is allowed. The order of the Tribunal is set aside and the matter is remitted back to the Tribunal to decide the matter afresh by examining all the aspects of the issue as noted hereinabove. No order as to costs.
As a sequel, miscellaneous petitions pending if any shall stand closed. No order as to costs.
____________________ T. VINOD KUMAR, J _________________ P.SREE SUDHA, J Date: 28 -05-2025 MRKR