Madras High Court
Southern Petrochemicals Industries vs The State Of Tamil Nadu on 20 December, 2018
Author: T.S.Sivagnanam
Bench: T.S.Sivagnanam, N.Sathish Kumar
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 20.12.2018
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MR.JUSTICE N.SATHISH KUMAR
Tax Case (Revision) Nos.68 and 69 of 2015
Southern Petrochemicals Industries
Corporation Limited,
No.88, Mount Road,
Chennai-600 032. ... Petitioner
in both the Revisions
-vs-
The State of Tamil Nadu,
Rep., by the Assistant Commissioner (CT),
Zone VI, Chennai-6. ... Respondent
in both the Revisions
Tax Case Revisions filed under Section 38 of the Tamil Nadu
General Sales Tax Act, 1959 to revise the common order of the Sales
Tax Appellate Tribunal (Additional Bench), Chennai, dated 15.12.2014,
passed in Tribunal Appeal Nos.698 of 2002 and 389 of 2005, for the
assessment years 1996-97 and 1997-98 respectively.
http://www.judis.nic.in
2
For Petitioner : Mr.N.Prasad
(in both the Revisions)
For Respondent : Mr.Mohammed Shaffiq,
(in both the Revisions) Special Government Pleader
: assisted by Mrs.G.Dhanamadhri,
Government Advocate (Taxes)
******
COMMON ORDER
(Order of the Court was made by T.S.Sivagnanam, J.) These tax case revisions have been filed by the petitioner (hereinafter referred to as “the assessee”) under Section 38 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as “the Act”) challenging the common order passed by the Sales Tax Appellate Tribunal (Additional Bench), Chennai, dated 15.12.2014.
2.T.C.R.No.68 of 2015 has been filed challenging the order passed by the Tribunal in Tribunal Appeal No.698 of 2002 dated 15.12.2014, for the assessment year 1996-97. T.C.R.No.69 of 2015 has been filed challenging the order passed by the Tribunal in T.A.No.389 of 2005, dated 15.12.2014, for the assessment year 1997- http://www.judis.nic.in 3 98.
3.The impugned order passed by the Tribunal is a common order for both the assessment years. However, the First Appellate Authority, viz., the Deputy Commissioner (CT) Appeals, Chennai, passed separate orders for both the assessment years and for the assessment year 1996-97, the order in A.P.No.160 of 2001 is dated 26.12.2001 and for the assessment year 1997-98, the order in A.P.No.82 of 2001 is dated 05.09.2005.
4.These tax case revisions have been filed raising the following common substantial question of law:-
“Whether in the facts and circumstances of the case and in law, the Hon'ble Sales Tax Appellate Tribunal committed an error of law in confirming the demand of sales tax on the full value indicated in the Central Excise invoices raised by the Petitioners on M/s.Tuticorin Alkhali Chemicals and Fertilizers Ltd., when in fact for the supply of Carbon Dioxide, the Petitioners had only collected the central excise duty component from M/s.Tuticorin Alkhali Chemicals and Fertilizers Ltd., and when that alone constituted a turnover under Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959?” http://www.judis.nic.in 4
5.The petitioner, M/s.Southern Petrochemicals Industries Corporation Limited, which has its factory at Tuticorin, is involved in the manufacture of nitrogenous fertlizers, such as urea and ammonia. The controversy, which is the subject matter of these revisions, is with regard to levy of sales tax on the alleged price, though not charged by the assessee from their sister concern, M/s.Tutocorin Alkhali Chemicals and Fertilizers Limited (hereinafter referred to as “TAC”). TAC is a joint venture between TIDCO and the assessee. During the period, 1997- 98, the assessee held approximately 46% of shares in TAC.
6.The facts of the case are that the principal raw material, which is necessary for manufacture of ammonium chloride (fertilizer grade), which is manufactured by TAC, is Carbon-Di-Oxide “CO2”. The proposal was that the CO2, which emerged in the assessee's factory as a by-product, was to be supplied to TAC for whom, CO2 was the principal input.
7.The petitioner states that in their own factory, which is involved in the manufacture of urea, ammonia, has to be prepared as an input for the manufacture of fertilizers. In the process of http://www.judis.nic.in 5 generation of ammonia, CO2 emerges and this was captively used by the assessee for manufacture of urea and the excess CO2 was cleared to TAC. At the time when CO2 was cleared by the assessee to TAC, the assessee had remitted central excise duty, as this was generated in the factory of the assessee and in terms of the provisions of the Central Excise Act, 1944 (hereinafter referred to as “the CEA, 1944”), duty is payable at the time of removal of goods. Thus, the assessee would state that the clearance of CO2 to TAC was free of cost, which is subject to excise duty, as the taxable event for levy of excise duty is the manufacture of goods and not the sale of goods.
8.According to the assessee, an arrangement was entered between them and TAC wherein, the assessee agreed not to charge any “price” on the clearance of CO2 and they would only charge the excise duty and the sales tax on the excise duty and in terms of the agreement, they charged excise duty and the sales tax duty on TAC and the same was remitted by the assessee to the assessing authorities.
9.According to the assessee, the cost of production was arrived at Rs.1200/- per metric ton and in the invoices, the assessee http://www.judis.nic.in 6 collected the excise duty on Rs.1200/- per metric ton and the sales tax thereon, and collected only the same from TAC. During the course of assessment, the Assessing Officer raised an objection stating that the assessee ought to have paid sales tax on the full value of the invoice, though the petitioner did not collect the price. At that juncture, the assessee without prejudice to their contention, is stated to have filed Form XVII declaration for the full value contained in the central excise invoice and this, according to the assessee, was filed under protest and without prejudice to their submission that there is no sale at all. The Assessing Officer completed the assessment, vide orders dated 13.07.2001 and 02.05.2002 respectively confirming the demand of full value of the invoice. The assessee filed appeals before the first appellate authority, who by orders dated 26.12.2001 and 05.09.2005, confirmed the orders passed by the Assessing Officer. The assessee preferred appeals to the Tribunal under Section 36 of the Act and the Tribunal, by common order dated 15.12.2014, dismissed the appeals. This is how the assessee is before us by way of these tax case revisions.
10.Mr.N.Prasad, learned counsel for the assessee submitted that the Tribunal committed a serious error in failing to note that as http://www.judis.nic.in 7 per the definition of “turnover” contained in Section 2(r) of the Act, only the aggregate amount for which goods are bought or sold to be considered as turnover and the assessee did not charge any amount over and above the excise duty on supply of CO2 to TAC. In this regard, the learned counsel also referred to Section 2(n) of the Act, which defines “sale”.
11.Further, it is contended that the Tribunal committed a serious error of law in arriving at an inference of a sale on the sole ground that CO2 was intrinsically valuable and this cannot lead to the inference of a sale, which required parties competent to contract, mutual assent and price. Further, it is submitted that the Tribunal erred in confirming the demand after having come to the conclusion that the petitioner had charged only the excise duty from TAC. The Tribunal failed to look into the affidavit filed by the Chief Manager (Corporate Finance), who submitted on oath that except reimbursement of excise duty and sales tax, the assessee has not received any other price or consideration for the supply of CO2 to TAC.
12.The learned counsel also referred to the Central Excise (Valuation) Rules, 1975 more particularly, Rule 6(b)(ii) to draw the http://www.judis.nic.in 8 distinction between the “valuation” under the CEA Act, 1944 and that under the Sales Tax Act. To explain as to what is “turnover”, the learned counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of Neyveli Lignite Corporation Ltd., vs. Commercial Tax Officer, Cuddalore and Another, [2001] 124 STC 586. The learned counsel also placed reliance on the decision of the Hon'ble Supreme Court in the case of Moriroku UT India (P) Limited vs. State of Uttar Pradesh and Others, (2008) 4 SCC 548 to explain the distinction between the determination of sale price for the purpose of sales tax and determination of value for the purpose of levy of excise duty. Thus, it is submitted that in the absence of any material available with the Assessing Officer, the cost construction method could not have been adopted for the levy of sales tax and in this regard, the Assessing Officer committed a grave error.
13.Further, it is submitted that filing of Form XVII declaration was without prejudice to the assessee's right, and adverse inference could not have been drawn by the Assessing Officer merely because, the assessee had filed Form XVII declaration. Further, it is submitted that the Tribunal in paragraph 9 of its order, has accepted the fact that turnover is the amount received from the buyer and the turnover was http://www.judis.nic.in 9 only the excise duty and having held so, erred in adopting the cost construction method for levy of sales tax. Further, it is submitted that the Tribunal ignored the important documents placed by the assessee more particularly, the Chartered Accountant's certificates and affidavit and excise invoices, which clearly establish that except the excise duty component, the assessee has not received any further amount.
14.The learned counsel has drawn our attention to the order passed by the first appellate authority in the assessee's own case for the assessment years 1993-94 and 1994-95 in A.P.Nos.62 and 59 of 2001 dated 02.04.2002. In the said order, the First Appellate Authority has categorically held that the Assessing Officer failed to establish that the assessee has received consideration for the sale and relied upon the decision of the Hon'ble Supreme Court in the case of Neyveli Lignite Corporation Ltd. (supra). Further, the first appellate authority held that the Assessing Officer's observation is not supported by any documentary evidence that there was a sale of CO2 for any consideration except the central excise component of the assessable value and the sale tax thereon as already paid. Therefore, the first appellate authority concluded that the turnover assessed by the Assessing Authority is not at all a turnover, as the assessee is not http://www.judis.nic.in 10 entitled for receiving any such amount for consideration of free supply of CO2. Thus, the first appellate authority concluded that there is no turnover at all and no consideration for supply of CO2. It is submitted that this order, passed by the first appellate authority in the assessee's own case for the assessment years 1993-94 and 1994-95 dated 02.04.2002, has attained finality and accepted by the Department and though the orders were placed before the Tribunal, they were not dealt with by the Tribunal. On the above grounds, the learned counsel prays for setting aside the order passed by the Tribunal.
15.Mr.Mohammed Shaffiq, learned Special Government Pleader appearing for the respondent seeks to sustain the order passed by the Tribunal. The learned counsel would submit that there are few factors, which have led the Assessing Officer to believe that there is suppression of turnover. The factors being the relationship between the parties, as the assessee has accepted that they are holding 46% shares in TAC. Though initially the assessee contended that there is no suppression, subsequently, admitted that excise duty component was paid.
16.Referring to the decision in the case of Hindustan Sugar http://www.judis.nic.in 11 Mills vs. State of Rajasthan and Others, (1978) 4 SCC 271, it is submitted that the Assessing Officer was well justified in making a best judgment assessment and as pointed out by the Hon'ble Supreme Court, the fact that the value of CO2 is very high and the volume of CO2 supply is also high, there is sufficient material to suspect that there is something more than what meets the eye and therefore, the Assessing Officer was well justified in invoking his power under Section 12A of the Act.
17.Relying upon the decision of the Hon'ble Division Bench of this Court, in the case of Jayalakshmi Traders vs. Government of Tamil Nadu and Others, (1997) 105 STC 337, the learned counsel has submitted that when the price at which the goods are sold is abnormally low, it is one of the reasons for invoking the power under Section 12A of the Act.
18.Further, it is submitted that in such circumstances, the Assessing Officer would be entitled to make best judgment assessment and in the instant case, the value of the product was available with the assessee supported by invoices/bills and therefore, there is a need for estimation, as there is suppression and all these have led to the best http://www.judis.nic.in 12 judgment assessment.
19.To explain as to what would constitute best judgment assessment, reliance was placed on the decision of the Hon'ble Supreme Court in the case of The Commissioner of Sales Tax, Madhya Pradesh vs. M/s.H.M.Esufali, H.M.Abdulali, Siyaganj, (1973) 2 SCC 137. Further, the learned counsel has elaborately referred to the assessment orders to impress upon this Court that there was reasonable material to suspect and consequently, best judgment assessment was drawn. Thus, the learned counsel submitted that the order passed by the Tribunal may be confirmed.
20.In reply, the learned counsel appearing for the assessee would contend that the contentions raised by the Revenue pointing out the relationship between the parties, the value of CO2 supplied, the pipeline which was laid, the volume of CO2 supplied are all mere surmises and conjectures and cannot be a basis for best judgment assessment. Furthermore, there is no positive finding recorded by the Assessing Officer that the accounts submitted by the assessee were unreliable, the documents placed by the assessee were totally ignored and without recording a satisfaction at the first instance, a best http://www.judis.nic.in 13 judgment assessment cannot be done and for which purposes, the learned counsel has referred to the language of Section 12A of the Act. Furthermore, there is no finding rendered by the Assessing Officer or by the first appellate authority or by the Tribunal that there is understatement of the income in the books of accounts of the assessee; there is no finding on the Chartered Accountant's certificates, which were produced. Furthermore, it is pointed out that nowhere in the assessment orders, the Assessing Officer has referred to Section 12A of the Act and even assuming that he has invoked such power, the same could have been invoked, unless and until the Assessing Officer is satisfied that the accounts of the assessee were fabricated. In the absence of such finding, the entire proceedings are purely based on conjectures.
21.The learned counsel has drawn the attention of this Court to the documents, which were produced before the first appellate authority, viz., the agreement between the assessee and TAC dated 17.08.1998, the copy of the affidavit filed by the Chief Manager (Corporate Finance), the Chartered Accountant's Certificates dated 01.09.2005, the relevant aspects of the annual report of TAC, the copy of the sample central excise invoices and other documents, which were http://www.judis.nic.in 14 placed before the first appellate authority and none of the documents has been dealt with by the first appellate authority, nor appreciated by the Tribunal in the appeals filed before it.
22.Further, it is submitted that the allegation against the assessee is one of fraud and the Hon'ble Supreme Court, in the case of Union of India vs. C.M.Patel & Co., AIR 1976 SC 712, has pointed out as to what is the quality of evidence that should be available to prove fraud. Further, to show what is a best judgment assessment, the learned counsel has referred to the decision of the Hon'ble Supreme Court in the case of State of Kerala vs. C.Velukutty, (1966) 17 STC 465; and the decision in Hindustan Steel Ltd. vs. State of Orissa, [1970] 25 STC 211 (SC); and the decision of this Court in Nokia India Private Ltd., vs. Deputy Commissioner, (2015) 79 VST 137 (Mad.), to which, one of us (TSSJ) was a party. Therefore, it is submitted that the impugned assessments can never be taken as a best judgment assessment, as there is no satisfaction recorded by the Assessing Officer as required under Section 12A and the entire proceedings are purely on surmises and conjectures. On the above grounds, the learned counsel prays for interference of the order passed by the Tribunal.
http://www.judis.nic.in 15
23.Heard the learned counsels for the parties and carefully perused the materials placed on record.
24.The place of business of TAC was inspected by the Central Enforcement Wing Officers on 18.11.1999 and 19.11.1999 and it was found out that the assessee had effected sales of CO2 to TAC against Form XVII declaration under Section 3(3) of the Act and on perusal of the balance sheet and other records, it was found that the seller, viz., the assessee, had paid tax at the rate of 3% only on the excise duty payable on the assessable value of CO2, which was supplied through pipeline from the assessee to TAC. The sale invoices pertaining to the sale of CO2 were verified and it was found that the assessable value in the excise gate pass cum sale invoices have mentioned that there was no sale of gas by the assessee, but only a free transfer was made by the assessee to TAC. Thus, the inspecting team found that excise cum sale invoices and the contention of TAC to be contradictory. This ultimately led to the assessment orders dated 13.07.2001 and 02.05.2002. The Assessing Officer held that the sale has really been effected by the assessee to TAC and the consideration for the sale has been clearly noted in the invoice as assessable value and excise duty, http://www.judis.nic.in 16 and TAC have subsequently furnished the details of supply of CO2 made by the assessee to the dealers plant at Tuticorin for the relevant assessment years. Thus, the Assessing Officer concluded that since the assessee, viz., the sellers have collected and paid tax at 3% on the excise duty portion only, the basic assessable value not covered by Form XVH at the rate of 3% is not applicable and the same is taxable at 12% and 16% respectively. Further, the Assessing Officer held that the assessee has wantonly suppressed the basic value of CO2 sold to TAC and evaded payment of sales tax on the basic value. Accordingly, tax was levied and penalty was also imposed at 150%. The assessee preferred appeals before the Deputy commissioner (CT) Appeals. The appeals were dismissed, which orders were confirmed by the Tribunal.
25.The correctness of the order of the Tribunal is to be tested by us in these revisions and it has to be seen whether the conclusion arrived at by the Assessing Officer and confirmed by the first appellate authority and the Tribunal, in the given facts and circumstances, is just and proper.
26.The case, initially projected by the assessee, is that there was no sale of CO2 to TAC. Subsequently, the assessee filed Form XVII http://www.judis.nic.in 17 declaration, which according to the assessee was under protest and without prejudice to their rights. Nevertheless, the Form XVII declaration was reckoned and the Assessing Officer treated the transaction as sale. The question is whether the Assessing Officer was right in doing so.
27.Section 2(n) of the Act defines “sale” to mean every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration.
28.Section 2(r) of the Act defines “turnover” to mean the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in Clause (n) of Section 2, by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration. The definition of “sale” and “turnover” are widely couched and “sale” includes every transfer of the property in goods, be it in the course of business for cash, deferred payment or valuable consideration. “Turnover” also has http://www.judis.nic.in 18 been widely defined to mean the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of whether for cash or for deferred payment or other valuable consideration.
29.Admittedly, the agreement entered into between the assessee and TAC dated 17.08.1998 is a supply agreement for supply of CO2, which is lying in excess with the assessee. The agreement also speaks about the advance paid by TAC to the assessee for not only the supply of CO2, but also Ammonia. There is also a reference to an earlier agreement dated 28.02.1980 and the advance was to be retained by the assessee for all supply of CO2 to TAC and the assessee have a right to adjust such amount against any amount due by TAC to the assessee under this agreement. The excise duty and other central and State Government taxes will be collected by the assessee from TAC and remitted to the concerned authorities. The agreement also stipulates the specification for CO2 supply to TAC. TAC, in turn, agreed to maintain at their cost all necessary equipment from the tap off point of the assessee's equipment for drawing the CO2. The supply of CO2 to TAC was on a priority basis subject to production and to meet its own requirements. The agreement was put in force for ten years with http://www.judis.nic.in 19 effect from 17th August, 1998 with an option to renew the agreement for a further period of ten years. It is relevant to note that the agreement, in clause 3, states that the supply of CO2 by the assessee will be free to TAC for the first five years. However, the same clause states that any levies or taxes consequent to such supply of CO2 by the assessee to TAC shall be to the account of TAC.
30.The assessee's case is that the excise duty payable by the assessee for clearance of CO2 to TAC was alone collected and it was remitted to the Department including sales tax.
31.In our considered view, the transaction between the assessee and TAC would qualify for a sale transaction, as defined under Section 2(n) of the Act. There has been transfer of the property in goods from the assessee to TAC and such transfer is in the course of business and it was for a consideration. Though the assessee may state that the consideration received is only to meet the central excise liability, it is still a consideration payable for the goods transferred. Further, the transaction would also fall within the definition of “turnover” as defined under Section 2(r), as goods have been supplied by the assessee to TAC and it has been for valuable consideration. http://www.judis.nic.in 20 Therefore, we do not agree with the assessee's contention that there was no sale. Though the assessee would contend that Form XVII declaration was filed without prejudice to their rights, having taken note of the factual situation involved in the case and the type of transaction, we have no doubt in our mind that the transaction is a sale transaction and the assessee is liable for payment of tax applying the definitions under the Act.
32.Having held so, we have to decide the question of law raised in these revisions as to whether the Tribunal was right in confirming the demand of sales tax on the full value indicated in the central excise invoices raised by the assessee on TAC.
33.Chapter II of the Central Excise (Valuation) Rules, 1975 deals with “determination of value”. Under the Rules, value would mean the value under Section 4 of the CEA, 1944. Rule 6 deals with cases where the value of the excisable goods under assessment cannot be determined under Rule 4 or Rule 5. There are three sub-Clauses under Rule 6 of which, sub-Clause (b) would be relevant for the case on hand, which reads as follows:-
http://www.judis.nic.in 21 Rule 6(b):-
Where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based -
(i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee:
Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods;
(ii) if the value cannot be determined under sub-clause (i), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods;
34.In terms of the above Rule, where excisable goods are not sold by the assessee, but are used or consumed by them or on their behalf in the production or manufacture, the value can be determined in terms of sub-Clauses (i) and (ii) of Rule 6(b). Sub-Clause (i) of Rule http://www.judis.nic.in 22 6(b) can be invoked for ascertaining the value based on the value of comparable goods produced or manufactured by the assessee or by any other assessee.
34.1. Sub-Clause (ii) of Rule 6(b) deals with contingencies, where the value cannot be determined under sub-Clause (i) of Rule 6(b) and it shall be on the cost of production or manufacture including the profits, if any, which the assessee would have normally earned on the sale of such goods.
34.2. The Assessing Officer, in the instant case, has adopted the second method under sub-Clause (ii) of Rule 6(b) by taking into consideration the valuation shown in the central excise invoices and alleged that the assessee had suppressed the basic value of CO2 and completed the assessment by demanding tax on the entire value of CO2 as per the central excise invoices.
35.In Moriroku UT India (P) Limited (supra), the question, which fell for consideration before the Hon'ble Supreme Court was whether Section 4 of the CEA, 1944 read with Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 could be read into Section 3 of U.P. Trade Tax Act, 1948. The U.P. Trade Tax Act, 1948 is analogous to the TNGST Act and under the http://www.judis.nic.in 23 said Act, Section 2(h) defines “sale”, which is identical to that of the “sale' as defined under Section 2(n) of the TNGST Act. The Hon'ble Supreme Court while dealing with the question, pointed out that value of an excisable article has to be computed with reference to the prices charged by the manufacturer and excise law is a tax on value. Further, it was pointed out that Rule 6 of the Excise Valuation Rules, 2000 creates the deeming fiction only for the purposes of Section 4(1)(b) of the CEA, 1944 and for laying down the measure for levy of excise duty, and there is no such provision in Section 3 of the U.P. Trade Tax Act, 1948. Thus, it was held that in the case of excise law, the taxable event is manufacture, which is not related to commercial transaction. On the other hand, commercial transaction is the basis of the price- structure in sales tax laws. The levy of excise duty is on manufacture, while levy of sales tax arises at the stage beyond manufacture, viz, the sale of the article. Bearing in mind the distinction between the levy of central excise duty and the levy of sales tax we have proceeded to examine the cases on hand.
36.It is the submission of the learned Special Government Pleader that though the Assessing Officer has not specifically referred to Section 12A, which governs power to the Assessing Officer to make http://www.judis.nic.in 24 assessments of sales shown in the accounts and low price at best of judgment basis, essentially this is what the Assessing Officer has done. In this regard, the learned counsel has referred to the decision in the case of Jayalakshmi Traders (supra). It is true that in the assessment orders, the Assessing Officer does not refer to Section 12A of the Act.
37.Be that as it may, it has to be seen as to under what circumstances, Section 12A could be invoked and what are the pre- requisites. The first and foremost pre-requisite is that the Assessing Officer should be satisfied that a dealer with a view to evade payment of tax, shown in his accounts sales or purchase of goods at prices, which are abnormally low comparing to the prevailing market rate of such goods. If the Assessing Officer is satisfied that the dealer has done so, then the Assessing Officer would be empowered to assess or re-assess the dealer to the best of his judgment, on the turnover of such sales or purchases, after making such enquiry as he may consider necessary and after giving the dealer a reasonable opportunity to show cause against such assessment.
38.On consideration of the facts of the cases, we find that http://www.judis.nic.in 25 there is no such satisfaction recorded by the Assessing Officer in the assessment orders dated 13.07.2001 and 02.05.2002. It may not be sufficient for the Assessing Officer to state that the assessee has wantonly suppressed the basic value of CO2, which was sold to TAC. The Assessing Officer failed to note that the specific case of the assessee is that they have not collected any funds towards the sale of CO2 and what was collected was only the central excise component, which had been remitted on clearance of the goods from the assessee's factory. To support such contention, records were placed before the Assessing Officer as well as before the first appellate authority. We have, in the preceding paragraphs, noted those records. There is no iota of evidence produced by the Department to disbelieve the records produced by the assessee. The entire financials of TAC were produced to show that no other payment was made by TAC; the Chief Manager of the assessee has filed an affidavit; the copy of the annual report of TAC was produced. Thus, if the Assessing Officer did not have any material to show that the financials of the assessee were incorrect or false, the question of making a best judgment assessment that too invoking the power under Section 12A of the Act cannot be resorted to. The power under Section 12A is a power exercisable only upon satisfaction of the Assessing Officer that the assessee with a view http://www.judis.nic.in 26 to evade payment of tax, has shown to have sold/purchased goods at abnormally low prices compared to the prevailing market rate. The facts of the assessee's case are entirely different.
39.The assessee admits that the value of CO2 sold for the purposes of payment of central excise is a particular amount. Further, the assessee specifically states that what was collected from TAC was only the excise duty component. Therefore, unless there was clinching material available with the Assessing Officer to show that the statement made by the assessee was false or incorrect, the question of invoking the power under Section 12A does not arise. In fact, the first appellate authority in the assessee's own case in A.P.Nos.61 and 59 of 2001, dated 02.04.2002, for the assessment years 1993-94 and 1994- 95, allowed the assessee's appeals. Though we do not approve the finding in the said decision that there was no sale, the first appellate authority noted that there was no suppression of any turnover or that the assessee sold the product at abnormally low price. In the preceding paragraphs, we have noted the distinction between the assessment of the duty under the CEA, 1944 and tax under the Sales Tax Act. As held by the Hon'ble Supreme Court, levy of excise duty is on manufacture, while levy of sales tax arises at the stage beyond http://www.judis.nic.in 27 manufacture, viz., when the sale of the article takes place.
40.The Hon'ble Supreme Court in Neyveli Lignite Corporation Ltd. (supra), referred to the decision in the case of State of Tamil Nadu vs. Kothari Sugars & Chemicals Ltd., (1996) 101 STC 197 (SC), wherein it was held that the amounts paid by way of consideration by the purchaser to the seller of goods in pursuance of the contract of sale can legitimately be regarded as purchase price while calculating the turnover for the purposes of sales tax legislation. It was further pointed out that what can legitimately be brought to sales tax or purchase tax is the aggregation of the consideration for the transfer of property. (All the payments should have been made pursuant to the contract of sale and not de hors it.) Any amount paid as ex gratia payment or as an advance cannot be the component of the purchase price and cannot legitimately be included in the turnover of the purchasing dealer. By applying the above decision to the facts of the present case, we can safely conclude that the purchase price in the instance case shall deemed to be the amount, which was claimed by the assessee for the payment of the central excise duty.
41.The learned Special Government Pleader vehemently http://www.judis.nic.in 28 contended that the Assessing Officer was well justified in making a best of judgment assessment considering the three factors, viz., the relationship between the parties, the value of CO2 supplied and the volume of CO2 supplied. It may be true that at times, these factors may lead to a detection of suppression of turnover. However, in the instant case, there is no material worth mentioning available with the Assessing Officer to arrive at such conclusion. Mere suspicion will not amount to proof. If the charge against the assessee is one of suppression and fraud, the degree of proof is very strict, since the charge is quasi criminal. In this regard, it is beneficial to refer to the decision of the Hon'ble Supreme court in the case of C.M.Patel & Co. (supra). Furthermore, we find that the Assessing Officer or the first appellate authority have not recorded any finding that there is understatement of the amount received in the accounts. The accounts of the assessee have not been found to be incorrect or discredited. Thus, merely by surmises and conjectures, the Assessing Officer cannot treat the value of CO2 for the purposes of calculation of central excise to be adopted as the sale price for the purposes of levy of sales tax under the TNGST Act.
42.The submission of the learned counsel for the assessee http://www.judis.nic.in 29 with regard to the relationship of the parties is convincing in the sense that surplus CO2 produced by the assessee is fed to TAC, it sister concern, for manufacture of a product. For such purposes, dedicated pipeline has been laid. Therefore, merely because the assessee and TAC are sister concerns, no adverse inference can be drawn with regard to the transaction relating to the transfer of the excess CO2 by the assessee to TAC. As held by the Hon'ble Supreme Court in the case of M/s.H.M.Esufali, H.M.Abdulali, Siyaganj, (supra), the Assessing Officer is to make an assessment to the best of his judgment against a person, who is in default as regards supplying information, he must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter and he must make what he honestly believes to be a fair estimate of the proper figure of assessment. The Assessing Officer should have material before him to find out how much tax had escaped assessment and if the material is available, the estimation could be done. It was held that the estimate of the Assessing Officer may be an overestimate or an underestimate, but if materials are available before him, it cannot be stated that the estimate was without basis.
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43.Further, the Hon'ble Supreme Court in C.Velukutty (supra), held that though there is an element of guess-work in a best judgment assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of the cases. As pointed out earlier, there was no material relied on by the Assessing Officer to make a best judgment assessment on the assessee; the records produced by the assessee were not disbelieved; the accounts and the other documents produced by the assessee were not discredited. There is no specific finding recorded by the Assessing Officer that there was suppression and the facts clearly disclose that the entire assessment was based on mere suspicion, which does not tantamount to proof.
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44.Thus, for the above reasons, these tax case revisions are allowed and the substantial question of law is answered in favour of the assessee and it is held that the assessee will be liable to pay sales tax on the amount collected towards the central excise duty component from TAC, which we have held to be a consideration, payable by TAC to the assessee for CO2 supply. The Assessing Officer is directed to redo the assessment in terms of the above direction. No costs.
(T.S.S., J.) (N.S.K., J.)
20.12.2018
abr
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32
To
The Sales Tax Appellate Tribunal (Additional Bench), Chennai. http://www.judis.nic.in 33 T.S.Sivagnanam, J.
and N.Sathish Kumar, J.
(abr) T.C.(R) Nos.68 and 69 of 2015 20.12.2018 http://www.judis.nic.in