Madras High Court
Heat Transfer Developments vs State Of Tamil Nadu on 25 June, 1994
JUDGMENT K.A. Swami, C.J.
1. This revision is preferred against the order dated September 3, 1991, passed by the Tamil Nadu Sales Tax Appellate Tribunal hereinafter referred to as "the Appellate Tribunal" in Appeal No. 760 of 1990, which appeal was preferred against the order of reassessment dated September 30, 1989, passed by the Deputy Commercial Tax Officer, Gandhipuram Circle, Coimbatore in TNGST No. 313379/87-88 under section 7A of the Tamil Nadu General Sales Tax Act, 1959, hereinafter referred to as "the TNGST Act".
2. The assessment relates to the purchases of bush, coupling, etc., of the value of Rs. 1,29,699 as liable to sales tax even though it mentioned those purchases in this accounts. Of course, the original assessing authority accepted the returns; but subsequently reassessment proceeding was taken up under section 7A of the TNGST Act by issuing appropriate notice thereunder. In the reassessment, the assessing authority (Deputy Commercial Tax Officer, Gandhipuram Circle) came to the conclusion that the bush, coupling, etc., of the value of Rs. 1,29,699 were purchased from unregistered dealers; therefore, the turnover was liable to sales tax. It was further found that as the returns were incorrect to the extent the aforesaid turnover was not shown as liable to tax, penalty was leviable as per section 12(5)(iii) of the TNGST Act. Accordingly, he assessed the tax on the turnover of Rs. 1,29,699 at eight per cent to a sum of Rs. 10,376, surcharge at Rs. 519 and additional surcharge at Rs. 519, and also levied penalty of Rs. 3,259.
3. Aggrieved by the aforesaid order of the Deputy Commercial Tax Officer, the dealer preferred an appeal before the Appellate Assistant Commissioner, Commercial Taxes, in Appeal No. 818 of 1989. The Appellate Assistant Commissioner agreed with the findings recorded by the Deputy Commercial Tax Officer and with regard to penalty he observed as follows :
"Knowing fully well that the purchases effected from an unregistered dealer in the State and when the turnover had not been reported in the monthly returns, and paid the due taxes the penalty is warranted under section 12(5)(iii) of the Act and so the penalty levied is also confirmed."
4. The dealer preferred a further appeal before the Appellate Tribunal in Appeal No. 760 of 1990. It may be pointed out here that there was also another assessment proceeding against the very same dealer for the year 1988-89 in which also the dealer had preferred an appeal being Appeal No. 17 of 1991 before the Appellate Tribunal against the order dated October 25, 1990, passed by the Appellate Assistant Commissioner in Appeal No. 792 of 1989. The Appellate Tribunal has decided both the appeals by a common order. However, we confine our order to Appeal No. 760 of 1990 relating to the year 1987-88. The dealer has also preferred another tax revision in T.C. No. 143 of 1994 against the order dated September 3, 1991, passed by the Appellate Tribunal in Appeal No. 17 of 1991, which will be dealt with separately as it relates to the assessment year 1988-89.
5. Mr. R. Venkataraman, learned counsel for the dealer, has raised the following contentions :
(i) As the purchases in question were made from unregistered dealers, and at the point of purchase itself the sales tax was to be levied and the same was to be collected from the unregistered dealer, as such, the said transactions cannot be assessed to sales tax at the hands of the purchaser under section 7A of the TNGST Act,
(ii) this being a proceeding under section 16 of the TNGST Act, no penalty is permissible,
(iii) even if it is considered that the proceeding is under section 7A of the TNGST Act, the Tribunal has failed to consider whether the penalty levied by the Appellate Assistant Commissioner is justified in law,
(iv) the decisions of the assessing authority, the Appellate Assistant Commissioner and the Appellate Tribunal are opposed to the decision of a Division Bench of this Court in Viswanathan & Co. v. State of Tamil Nadu [1990] 76 STC 221, and
(v) the penalty levied is also opposed to the decision of a Division Bench of this Court in State of Tamil Nadu v. Abdul Samak Sahib Sons [1984] 57 STC 68.
6. In this case, it is not in dispute and it is also the finding recorded by the original assessing authority as well as the Appellate Assistant Commissioner and also by the Appellate Tribunal that the dealer purchased goods such as bush, coupling, etc., of the value of Rs. 1,29,699 from unregistered dealers. It is also not in dispute that the dealer used such goods in the manufacture of other goods. Such purchases were shown in the accounts of the dealer but not shown in the monthly returns as being subjected to sales tax. On these facts, the authorities below have found that section 7A is attracted, because the dealer had in the course of its business purchased the goods not from a registered dealer, but from an unregistered dealer. Such a sale was subjected to sales tax under the provisions of section 3 of the TNGST Act. At the point of purchase, it did not suffer any sales tax, because it was sold by an unregistered dealer and the purchaser also did not show such purchases in its returns. Such goods were also used in the manufacture of other goods for sale or otherwise. Section 7A of the TNGST Act has been considered by the Supreme Court in State of Tamil Nadu v. Kandaswami [1975] 36 STC 191. On analysing the section, the Supreme Court has held that sub-section (1) of section 7A contains the following ingredients :
"(1) The person who purchases the goods is a dealer;
(2) The purchase is made by him in the course of his business;
(3) Such purchase is either from 'a registered dealer or from any other person';
(4) The goods purchased are 'goods, the sale or purchase of which is liable to tax under this Act';
(5) Such purchase is 'in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be'; and (6) The dealer either -
(a) consumes such goods in the manufacture of other goods for sale or otherwise or
(b) despatches all such goods in any manner other than by way of sale in the State or
(c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce."
In the instant case, there is no dispute about the existence of ingredients (1) to (4) and (6). The contention is that ingredient (5), viz., that the purchases in question are not made "in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be", does not exist. This aspect of the matter has been considered by the Supreme Court in the very same decision as follows :
"The meaning and scope of the phrase ' ........ in circumstances in which no tax is payable under section 3, 4 or 5' and its co-existence with ingredient (4) can be best understood by applying it to the cases in hand.
In all the forty appeals under consideration, the goods in question, namely, arecanuts, gingelly seeds, turmeric, grams, castor seeds and butter are 'goods, the sale or purchase of which is generally taxable under the Act.' This is to say, they are 'taxable goods'. The sales of arecanuts, gingelly seeds, turmeric and gram were not liable to tax in the hands of the sellers as they were agriculturists and the goods were the produce of the crops raised by them. Similarly, butter was purchased by the assessees concerned directly from the householders whose sales are not liable to tax under the Act. Castor seeds are said to have been purchased by the assessees concerned from unregistered dealers under bought notes. If this is a fact, then such sales may not be liable to tax under the Act.
Thus, in all these cases, the purchases have been made by the dealers of 'goods, the sale or purchase of which is generally liable to tax under the Act', but because of the circumstances aforesaid no tax was suffered in respect of the sale of these goods by the sellers. If it is a fact that the gingelly seeds (vide Civil Appeals Nos. 1046 to 1048, 1054 to 1057, 1059 to 1069 of 1973) and castor seeds (vide Civil Appeal No. 1043 of 1973) were crushed into oil and the butter (vide Civil Appeals Nos. 1049, 1050, 1058, 1067 of 1973) was converted into ghee by the purchaser-dealers concerned, the condition in clause (a) of sub-section (1) of section 7A would be satisfied and section 7A would be attracted. If in the case of arecanuts (vide Civil Appeals Nos. 1040 to 1044 of 1973), turmeric and gram (vide Civil Appeals Nos. 1051 to 1053 of 1973), the purchasing dealers transported these goods outside the State for sale on consignment basis, their case would also be covered by clause (b) or (c) of section 7A and such dealers would be liable to tax on the purchase turnover of these goods.
It may be remembered that section 7A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. The view taken by the High Court is repugnant to this cardinal canon of interpretation.
In Ganesh Prasad Dixit v. Commissioner of Sales Tax , section 7 of the Madhya Pradesh General Sales Tax Act, 1959 (for short, "Madhya Pradesh Act"), was under challenge. That section was as follows :
'Every dealer who in the course of his business purchases any taxable goods, in circumstances in which no tax under section 6 is payable on the sale price of such goods and either consumes such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any manner other than by way of sale in the State or despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under section 6 :
Provided ...........' The assessee therein was a firm of building contractors and was registered as a dealer under the Madhya Pradesh Act. The firm were purchasing building materials which were taxable under the Act and were using them in the course of their business. The Sales Tax Officer served a notice upon them to show cause why "best judgment assessment" should not be made against them. The assessees did not offer any explanation. The Sales Tax Officer assessed the turnover in respect of the sales as 'nil' and assessed the firm to purchase tax under section 7 on the purchase turnover. One of the questions that fell for decision was, whether, in the facts and circumstances of the case, the applicant was a dealer during the assessment period under the Act and the imposition of purchase tax on him under section 7 of the Act was in order. Answering the question in the affirmative, this Court observed :
'The phraseology used in that section is somewhat involved, but the meaning of the section is fairly plain. Where no sales tax is payable under section 6 on the sale price of the goods, purchase tax is payable by the dealer who buys taxable goods in the course of his business, and (1) either consumes such goods in the manufacture of other goods for sale, or (2) consumes such goods otherwise; or (3) disposes of such goods in any manner other than by way of sale in the State; or (4) despatches them to a place outside the State except as a direct result of sale of purchase in the course of inter-State trade or commerce. The assessees are registered as dealers and they have purchased building materials in the course of their business; the building materials are taxable under the Act, and the appellants have consumed the materials otherwise than in the manufacture of goods for sale and for a profit-motive. On the plain words of section 7 the purchase price is taxable.' The impugned section 7A is based on section 7 of the Madhya Pradesh Act. Although the language of these two provisions is not completely identical, yet their substance and object are the same. Instead of the longish phrase, "the goods, the sale or purchase of which is liable to tax under this Act" employed in section 7-A of the Madras Act, section 7 of the Madhya Pradesh Act conveys the very connotation by using the convenient, terse expression "taxable goods". The ratio decidendi of Ganesh Prasad is, therefore, an apposite guide for construing section 7A. Unfortunately, that decision, it seems, was not brought to the notice of the learned Judges of the High Court."
Therefore, it is clear that what is material to be seen is whether such purchases being liable to sales tax, whether suffered sales tax. It does not matter whether they are purchased from a registered or any unregistered dealer. The only exception is when such purchases are made from the producers as mentioned above. In the light of the aforesaid authoritative pronouncement, we find it very difficult to agree with the contention of the learned counsel for the revision petitioner that the case falls within the scope of the decision of a Division Bench of this Court in Viswanathan & Co. v. State of Tamil Nadu [1990] 76 STC 221. There is no doubt that the said case also related to section 7A. As the judgment is a short one, we would like to reproduce the same to point out that the decision of the Supreme Court referred to above had not been brought to the notice of the Division Bench :
"The petitioner is a dealer in oil and oil-cakes. It used to purchase oil-seeds from shandy dealers and agriculturists. We are concerned here with the purchase of gingelly oil-seeds amounting to Rs. 4,08,053, both from the shandy dealers and agriculturists. It may be mentioned that gingelly oil-seeds, being declared goods, are liable to tax at the point of first sale in the State. The assessing officer taxed the said turnover of Rs. 4,08,053 under section 7A of the Tamil Nadu General Sales Tax Act (hereinafter called "the Act"). The contention of the assessee was that whatever be the liabilities of the petitioner so far as the purchases of gingelly oil-seeds were made from agriculturists, the purchases from the shandy dealers (unregistered dealers) cannot be taxed at the hands of the petitioner by invoking section 7A of the Act. In other words, as per section 4 of the Act, a dealer in 'declared goods' is liable to pay tax irrespective of the quantum of turnover in a year. 'Dealer' includes both registered and unregistered dealers. If so, the sale by an unregistered dealer of declared goods is liable to be taxed at his hands irrespective of the quantum of turnover. Therefore, according to the petitioner, it is not liable to pay sales tax under section 7A of the Act in so far as the turnover related to purchases of gingelly oil-seeds from shandy dealers (unregistered dealers). This contention was not accepted both by the assessing officer as well as by the Appellate Assistant Commissioner and also by the Tribunal. Hence the present tax case. The same argument is reiterated before us. Mr. S. V. Subramaniam, learned counsel appearing for the petitioner, submitted that details of purchases from shandy dealers and also agriculturists have already been furnished with break-up figures. Therefore, it is for the Revenue to find out the unregistered dealers from whom the petitioner has purchased gingelly oil-seeds and assess the turnover accordingly. The Revenue cannot shift the point of taxability merely on the ground that the seller is a small unregistered dealer/shandy dealer.
4. The learned Additional Government Pleader (Taxes) is not in a position to controvert the argument of the learned counsel for the petitioner.
5. We find force in the argument of the learned counsel for the petitioner.
6. As rightly contended by the learned counsel for the petitioner, the tax is attracted on the first sale of gingelly oil-seeds as per section 4 read with entry 6(ii) of the Second Schedule to the Tamil Nadu General Sales Tax Act. Therefore, the sales by unregistered dealers are exigible to tax only at the hands of the seller and not at the hands of the purchaser. However, in the case of purchase from agriculturists, section 7A of the Act is undoubtedly attracted. We have noticed earlier that details of purchases have already been given by the petitioner. Learned Additional Government Pleader argues that the Revenue will have to verify whether the particulars of shandy dealers given by the petitioner are correct. If, on verification, the Revenue finds that the details given by the petitioner regarding the purchases from shandy dealers are either incomplete or false, to that extent, the petitioner will be liable to pay tax under section 7A of the Act. We think, no exception can be taken to this argument.
7. As we have laid down the law, the case has to be remanded for the purpose of verification as to the correctness or otherwise of the details given by the petitioner regarding the purchases of gingelly oil-seeds from the shandy dealers (unregistered dealers).
8. In the result, we hold that that part of the turnover relating to purchases of gingelly oil-seeds from agriculturists is exigible to tax under section 7A of the Act and regarding the remaining part of the turnover alleged to have been purchased from shandy dealers (unregistered dealers) the matter is remitted to the assessing officer to find out the correctness or otherwise of the particulars given by the petitioner. It is for the petitioner to establish to the satisfaction of the assessing officer that the purchases were from shandy dealers (unregistered dealers). The assessing officer shall give relief from tax liability in respect of purchases by the petitioner from unregistered shandy dealers on his satisfying with such purchases. The tax case is accordingly partly allowed and remitted in the above terms. However, there will be no order as to costs."
If only the aforesaid judgment of the Supreme Court had been brought to the notice of their Lordships who constituted the Division Bench, probably, the decision would have been quite different. Therefore, the decision is Viswanathan & Co. [1990] 76 STC 221 (Mad.) is per incuriam. As such it cannot be accepted as laying down a binding precedent in the light of the judgment of the Supreme Court referred to above, interpreting the very same provision contained in section 7A of the TNGST Act.
7. The contention of the learned counsel for the revision petitioner that the Tribunal has failed to consider whether penalty is leviable; therefore, the order of the Tribunal is vitiated, cannot also be accepted. It may be pointed out that the Tribunal was exercising the power of revision and as long as the order under revision passed by the Appellate Assistant Commissioner, contained reasons for imposing the penalty and those reasons were not disapproved by the Tribunal, all that can be said is that the Tribunal had approved those reasons and upheld the penalty. In the case of affirmation of the order of the lower authority by the appellate or revisional authority, the judgment need not be as elaborate as the original or the first appellate order.
8. In the facts and circumstances of the case as noticed by the Appellate Assistant Commissioner, and the Appellate Tribunal, we are of the view that the penalty levied under section 12(5)(iii) of the TNGST Act is correct, because the return to that extent was incorrect, and incomplete, and the accounts of the dealer had been approved, the same were not discharged, as such it was not best judgment assessment.
9. The contention of learned counsel for the petitioner is that this is a case of revision of assessment under section 16 of the TNGST Act; therefore, penalty could not have been levied. We must first point out that the proceeding was not the one taken out under section 16 but it was initiated under section 7A of the Act. As pointed out by the Supreme Court in the aforesaid Kandaswami's case [1975] 36 STC 191, section 7A is at once a charging as well as a remedial provision, the object of which is to plug leakage and prevent evasion of tax. Though section 16 may provide for a procedure for reassessment, but in the facts and circumstances of the case the tax is levied only under section 7A. Hence section 12(5) of the TNGST Act is attracted as it is a case of incorrect and incomplete returns.
10. As far as the decision in State of Tamil Nadu v. Abdul Samak Sahib Sons [1984] 57 STC 68 is concerned, it may be pointed out that, while the levy of sales tax and penalty can be held to have been made under section 7A read with sub-section (5) of section 12 of the Act, the same cannot help the petitioner in any manner.
11. For the reasons stated above, all the contentions urged by learned counsel for the petitioner are negatived. Accordingly, the tax case is rejected.
12. Petition dismissed.