Madras High Court
The State Of Tamil Nadu vs Tvl.I.T.S.Tooling (P) Ltd on 22 December, 2017
Author: S.Manikumar
Bench: S.Manikumar, R.Pongiappan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.12.2017 CORAM: THE HONOURABLE MR.JUSTICE S.MANIKUMAR and THE HONOURABLE MR.JUSTICE R.PONGIAPPAN T.C.(R).No.73 of 2017 The State of Tamil Nadu rep.by the Deputy Commissioner (CT), now redesignated as Joint Commissioner (CT), Chennai (North) Division, Chennai - 6. .. Petitioner Vs. Tvl.I.T.S.Tooling (P) Ltd., No.9, Mookar Nallamuthu Street, Chennai - 600 001. .. Respondent Prayer: Tax Case Revision Petition is filed under Section 38 of the TNGST Act, 1959, against the order made in S.T.A.No.15 of 2011, dated 02.05.2013, on the file of the Tamil Nadu Sales Tax Appellte Tribunal (Additional Bench), Chennai. For Petitioner : Mr.K.Venkatesh Government Advocate. ORDER
(Order of this Court was made by S.MANIKUMAR, J.) Instant Tax Case Revision Petition is filed against the order made in S.T.A.No.15 of 2011 dated 02.05.2013 on the file of the Tamil Nadu Sales Tax Appellate Tribunal, (Additional Bench), Chennai.
2. Short facts leading to the revision are that the respondent is a dealer in tools, and reported a total and taxable turnover of Rs.2,65,44,626/- & 2,51,18,783/- respectively, in monthly returns for the assessment year 2006-07, under the Tamil Nadu General Sales Tax Act, 1959. Exemption claimed towards the sales made to 100% EOU, was disallowed by the Assessing Authority, on the ground that tools did not fall, within the scope of the notification, issued in GO Ms.No.528 CT & RE dated 21.11.1997. According to the petitioner, the place of business of the dealer was inspected by the Enforcement wing officers on 09.11.2006 and during the course of inspection, actual suppression was noticed and therefore, equal addition was made, for the probable omission. Thus, the Assessing Authority determined the total and taxable turnover at Rs.2,66,24,338/- and levied penalty, under Section 12(3) (b) of the TNGST Act by his order dated 28.07.2009.
3. Aggrieved against the above order, the dealer filed appeal before the Appellate Deputy Commissioner (CT) 1, Chennai, who in turn ,by his order in AP.29/2009 dated 09.04.2010 set aside the assessment made on the turnover, relating to the sale of 100% EOU, and treated the goods as consumables, eligible for exemption, as per the GO dated 21.11.1997 and accordingly deleted the further addition made for the probable omission. The Appellate Deputy Commissioner (CT)-I, Chennai, sustained the actual suppression, arrived at, and remanded the portion of penalty levied, under Section 12(3)(b) of the Act.
4. Aggrieved against the abovesaid order of the Appellate Deputy Commissioner (CT), State has preferred the 2nd appeal, before the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Chennai, and the Tribunal vide order, in STA 15/2011, dated 02.05.2013, partly allowed, the appeal with respect to sales made to 100% EOU, and dismissed the appeal, with respect to equal addition, and partly dismissed the appeal with respect to penalty. Aggrieved against the order of the Tribunal, in respect of levy of penalty, State has filed this Tax Case (R).
5. Tax case revision is filed on the following substantial questions of law:-
" i) Whether the fact and circumstances of the case, the Tribunal is right in law in deleting the penalty levied under Section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959.
ii) Whether on the facts and circumstances of the case, the Tribunal is right in law in not considering the amended Section 12(3)(b) of the Act, with effect from 01.07.2002, penalty is leviable with reference to the difference between the tax assessed and tax paid as per the returns."
6. Supporting the substantial questions of law Mr.K.Venkatesh, learned Government Advocate (Taxes) submitted that the order of the Tribunal is contrary to law, and the Tribunal has erred in deleting the penalty levied under Section 12(3)(b) of the TNGST Act.
7. Learned counsel for the petitioner further submitted that the Tribunal has failed to consider that as per the amended Section 12(3)(b) of the Act, with effect from 01.07.2002, penalty is leviable, with reference to the difference between the tax assessed, and tax paid as per the returns.
8. We have heard, Mr.K.Venkatesh, learned Government Advocate (Taxes) and perused the materials available on record.
9. After considering the rival submissions and the decisions in Coastal Chemical Limited Vs. Commercial Tax Officer and others, reported in 17 SCC-12 and Teak Tex Processing Complex Limited Vs. State of Kerala, reported in 136 SCC 435, the Tribunal, Vide order in S.T.A.No.15 of 2011, dated 02.05.2017, held as hereunder:-
"i) The contention of the respondent is that the Carbide Tip inserts are used for cutting purposes in the industries. After its use, it cannot be reused, and it loses its identity, as such it is consumed in the process of cutting as the inserts become brittle after use. The contention of the appellant is that, to be called as consumables, the goods should be completely utilized in the manufacturing activity. The Appellate Deputy Commissioner concurs with the stand of the respondent. The samples were examined. The samples were used Carbide Tip inserts, it is found that after the use, the Carbide Tip looses the sharpness in the cutting edge, thereby losing its utility, but not the identity.
ii) The Honble Supreme Court of India in the case of Coastal Chemicals Limited Vs. Commercial Tax Officer reported in 117 STC 12 has held that the word consumables refers only to materials which is utilized as an input in the manufacturing process but is not identifiable in the final product by reason of the fact that it has got consumed therein. The natural gas used by the appellant for the manufacture of paper and paper product was not consumable but a fuel.
iii) In the case of Teaktex Processing Complex Limited Vs. State of Kerala reported in 136 STC 435, the Honble High Court of Kerala has held that consumables means the item must not be in existence in end-product in any form. After processing of fabric by using the dyes, the dyes existed in the form of colour. The item dye used in the process of bleaching textile fabrics, could not be treated as a consumable. Similarly, the Honble High Court of Madras in the case of State of Tamil Nadu Vs. Arcot Cans reported in 88 STC 285 had held that the expression consumes unmistakably suggests that the commodity which is said to have been consumed loses its complete character, nature and identity in the manufacture of other goods, with a different and distinct character, nature and identity.
iv) In view of the above judicial pronouncements, it is true that the Carbide Tip Inserts are used for cutting purposes. By such activities, it cannot be said that the tips lose their character, nature and identity in the manufacturing of other goods. Upon its utilization, it may lose its utility, but it wont lose its identity as Carbide Tip inserts. In the manufacturing process, it is not passed on the end product in an unidentifiable form, therefore to be called as consumables. Even after its usage, it remains with its identity. Therefore, based on the facts of sample observation and judicial pronouncements, the Carbide Tip inserts are not consumed when used for cutting, as a result, they are not consumables, thereby not eligible for exemption as consumables as per the notification. As a result, this Tribunal feels that the Appellate Deputy Commissioner has not appreciated the facts in proper perspective accordingly, it needs interference by this Tribunal. Therefore, the orders of Appellate Deputy Commissioner is hereby set aside and deleted with regard to tax levied on sales made to 100% EOU.
v) Regarding the equal time addition for the stock difference noticed at the time of inspection, the entire stock differences were brought to assessment in the form of actual suppression and it was confirmed by the Appellate Deputy Commissioner. There is no incriminatory records (or) any other evidences to hold that the dealer has indulged habitually in suppressing the transactions. Therefore, the judicial decisions relied on are not supporting the case of the appellant. As a result, we feel that the order of Appellate Deputy Commissioner does not require further interference and accordingly it is confirmed.
vi) As far as penalty is concerned, assessment was made by rejecting the exemption claimed. The turnover is available in the books of accounts and claimed exemption. The exemption claimed was rejected by the Assessing Officer. There is no mensrea on the part of the respondent to attract penalty under section 12(3)(b) of TNGST Act, 1959 even for the best judgment assessment as per the judgment reported in 125 STC 505. Similarly, as per the explanation to Section 12(3)(b) of TNGST Act, 1959, penalty cannot be leviable for the equal additions. Therefore as rightly pointed out by the Appellate Deputy Commissioner, penalty is not justified and accordingly it needs to be set aside and deleted. Hench, the order of Appellate Deputy Commissioner does not require further interference with respect to penalty and accordingly it is confirmed.
viii) In fine, the S.T.A.No.15/2011, stands partly allowed with respect to sales made to 100% EOU, partly dismissed with respect to equal addition & partly dismissed with respect to penalty."
10. In Appollo Saline Pharmacheuticals Private Limited Vs. Commercial Tax Officer (Fac) and others, reported in CDJ 2001 MHC 550, a Hon'ble Division Bench of this Court held as follows:-
"6. The law so declared that the best judgment assessment is based on an estimate and is not one based solely on the account books was reiterated by the Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali H.M. Abdulali.
7. Though other sub-sections of Section 12 were amended by the State Legislature subsequent to the date of the judgment in the case of Jayaraj Nadar & Sons , Sections 12(1) and 12(2) have remained in the same form. The legislative intention therefore, except during the period December 3, 1979 to May 27, 1993 and on and after April 1, 1996 must be taken to be to, permit the levy of penalty only in case where the assessment is a best judgment assessment made on an estimate and not by relying solely on the accounts furnished by the assessee in the prescribed return. On and after April 1, 1996 an explanation has been added below Section 12(3) which requires the turnover relating to the tax assessed on the basis of the accounts of the assessee, to be disregarded, while determining the turnover on which the penalty is to be levied under Section 12(3).
8. The assessments for the assessment years 1993-94 and 1994-95 which were assessments made on the basis of the accounts, and not based on any other material and were not estimates, have therefore, to be regarded as assessments made under Section 12(1) to which the penal provisions of Section 12(3) are not attracted. The levy of penalty for those two assessment years is set aside.
9. The assessing authorities have not applied their mind as to whether in respect of those assessments to which Section 12(4) and 12(5) which have since been deleted, would apply, the assessee had failed to disclose any bona fides for not having paid the tax earlier. It is the case of the assessee that the law regarding the taxability of the turnover relating to the bottles was uncertain till this Court resolved the matter finally in W.P. No. 120 of 2000 on September 14, 2001 [Appollo Saline Pharmaceuticals (P.) Limited v. Deputy Commercial Tax Officer] Seepage 500 supra. The earlier judgments of this Court had taken the view that the bottles being a distinct commodity and not having been consumed in the manufacture of I.V. fluids, there was a separate sale of the bottles and therefore, Section 7-A providing for levy of purchase tax was not attracted.
10. In respect of assessments which were properly made by way of best judgment assessment, and in which penalty has been levied, it was submitted that the authority has failed to consider the bona fides of the petitioner. It was submitted that the turnover had been disclosed in full, but a part of it had not been regarded as part of the taxable turnover by reason of bona fide belief that the assessee had entertained having regard to the earlier judgments of this Court, and therefore, penalty levied was wholly unwarranted. The levy of penalty without considering the bona fides of the petitioner cannot be sustained."
11. Decisions referred to above, are squarely applicable to the case on hand. Hence, following the decision of this Court in Appollo Saline Pharmaceuticals Private Limited Vs. Commercial Tax Officer (Fac) and others, the instant Tax Case Revision is dismissed. No Costs. Substantial questions of law are answered against the revenue.
[S.M.K., J.] [R.P.A., J.]
22.12.2017
Index : Yes/No
Internet : Yes/No
dm
To
The Deputy Commissioner (CT),
now redesignated as Joint Commissioner (CT),
State of Tamil Nadu,
Chennai (North) Division,
Chennai - 6.
S.MANIKUMAR, J.
AND
R.PONGIAPPAN, J.
dm
T.C.(R).No.73 of 2017
22.12.2017