Karnataka High Court
Harison And Company vs The Additional Commissioner Of ... on 15 December, 2004
Equivalent citations: ILR2005KAR1078, [2006]146STC609(KAR), 2005 AIR - KANT. H. C. R. 325, (2005) 58 KANTLJ(TRIB) 38
Author: H.L. Dattu
Bench: H.L. Dattu, Manjula Chellur
JUDGMENT H.L. Dattu, J.
1. Appellant, a dealer in cotton yarn was a partnership firm and was registered both under the Karnataka Sales Tax Act, 1957 ('KST Act' for short) as well as the Central Sales Tax Act, 1956 ('CST Act' for short). During the period 1.11.1978 to 21.10.1979, the appellant firm was dealing in cotton yarn and according to the appellant firm, it had transferred cotton yarn worth Rs. 89,04,733.05 ps, to its branch office in Ponda-Goa. The appellant firm had filed its annual returns in Forum-4 both under the KST Act as well as CST Act and in so far as its CST turnover is concerned, it had declared that its taxable turnover is 'nil'. The assessing authority had passed an order under the provisions of CST Act, as 'nonassessable'. This order came to be reviewed by the Deputy Commissioner of Commercial Taxes (Admn.), Belgaum, who was of the view that the order passed by the assessing authority requires to be revised, since the same is improper, illegal and prejudicial to the interest of the revenue and therefore, had referred the matter to the revisional authority to initiate proceedings to revise the order passed by the assessing authority for the assessment period in question.
2. The revising authority after verifying the Forum 'F' declarations produced by the assessee before the assessing authority in support of its claim of stock transfer, being of the view that the assessing authority without verifying any of the transactions relating to the consignment transfer and the movement of goods thereon, has mechanically accepted the 'F'form declarations, had issued notice to the assessee under Section 22-A(1) of the KST Act, interalia directing him to show cause why the order passed by the assessing authority for the assessment year in dispute under CST Act should not be revised and a direction to the assessing authority to redo the assessment in so far as CST assessments should not be passed. The revising authority after considering the objections filed in response to the notice, had set aside the order passed by the assessing authority under CST Act and had remanded the matter to the assessing authority to pass a fresh order in accordance with law.
3. The assessee, being aggrieved by the remand order passed by the revisional authority, had questioned the same before the Karnataka Appellate Tribunal and the Tribunal while dismissing the appeal had only observed that the revising authority while remanding the matter had not issued any directions nor has made any observations which would be binding on the assessing authority and therefore, the dealer cannot have any grievance with the order passed by the revising authority. This order of the Tribunal was challenged by the assessee before this Court in STRP No. 77/1991 and this Court by its order dated 3.7.1991, has rejected the petition, but had reserved liberty to the assessee to raise all such contentions which are available to it including certain issues raised in the petition before the appropriate forurn, in the event, the assessee has to question the order of assessment that may be passed pursuant to the remand order passed by the revisional authority.
4. After all these proceedings, the assessing authority had issued several notices calling upon the assessee to produce the books of accounts for the purpose of verification and to complete the assessment proceedings under CST Act. The assessee though had requested time to produce the books of accounts maintained in its regular course of business, failed to produce the same. However, had filed its written objection interalia contending that the form 'F' declaration produced at the time of concluding KST assessment for the relevant period would itself prove that there was movement of goods from one State to another not by way of interstate sales but by way of stock transfers or consignments to its agent at Ponda-Goa and the burden cast upon him under Section 6-A(1) of CST Act is sufficiently discharged and therefore, the assessing authority was not justified in proposing to treat the branch transfers as interstate sales merely because the assessee is unable to produce the books of accounts of the year 1978-1979.
5. The assessing authority after receipt of the written objections filed by the assessee and in order to give one more opportunity to the assessee to produce the books of accounts for verification of the transactions with reference to 'F' form declarations produced, had issued one more revised proposition notice, proposing to determine the total and taxable turnover for the period 1.11.1978 to 21.10.1979 at Rs. 89,04,733.50 ps. and Rs. 89,04,733.00 respectively, since it failed to produce the books of accounts and other relevant documents in support of its claim of stock transfer of cotton yarn amounting to Rs. 89,04,733.50 ps. to its branch office at Ponda-Goa made in Form-4 returns filed for the period ending on 20.10.1979. In the notice so issued, the dealer was called upon to produce the dispatch particulars, sale bills of the branch for having sold the goods received by way of stock transfer to its customers that the goods received at its branch was not pursuant to any prior contract with the purchasers. It was also informed to the assessee that if the dealer fails to produce the required document in support of its claim of stock transfer of cotton yarn to its branch office at Ponda-Goa, the proposal made in the revised proposition notice would be confirmed. Though the notice was served on the assessee, since it did not respond to the notice, the assessing authority has concluded the best judgment assessment by confirming the proposal made in the revised proposition notice dated 8.10.1992, since the assessee failed to produce any documentary evidence to prove that there has been branch transfer of goods and that no interstate sales were effected.
6. The assessee aggrieved by the order of assessment passed by the assessing authority under Section 9(2) of the CST Act read with Section 12(3) of the KST Act dated 7.1.1992 had preferred the first appeal before the first appellate authority and the same came to be registered as appeal No.CST.42/92-93/B-2351. In the appeal it was contended that the burden of proving stock transfer is no-doubt on the assessee under Section 6-A of Act, but the said burden was discharged at the time of original assessment by producing Form 'F' declarations which is one of the modes or the method prescribed for discharging the burden, the assessing authority instead of rebutting the evidence so produced was not justified in giving a finding that the assessee has not properly discharged the burden cast upon him by producing corroborative evidence that the movement of goods from one State to another was occasioned otherwise than by way of sale. Secondly, it is stated, even assuming that the burden of proving that any movement of goods from one State to another was occasioned otherwise than by way of sale, even then to reject the exemption claimed and to treat the transactions as interstate sales, the burden lies on the assessing authority as held by the Supreme Court in the case of Commissioner of Sales Tax v. Suresh Chand Jain-{1988} 70 STC 845. Nextly, it is stated that even if the books of accounts are not produced or could not be produced for various reasons, still it is for the department to prove that the branch transfers effected by the assessee is interstate sales as provided under Section 3-A of the CST Act and there can be no presumption as to the interstate sales transactions. It is further contended that the assessee had filed 'F' form declarations in respect of claim of branch transfers, which is one of the mode prescribed under Section 6-A of the CST Act, and since the same had been accepted while passing the order initially under KST Act, the assessing authority could not have disallowed the claim unless the particulars furnished in the form 'F' are proved to be false and it is further stated that the assessing authority having not pointed out any pre-existed order with the Goa Branch and at the same time, such pre-existing orders are wrongly presumed, the assumption of the assessing authority is contrary to the provisions of Section 3(a) of CST Act. Lastly, the assessing authority could not have drawn adverse inference merely because the assessee failed to produce the books of accounts in support of its claim of stock transfer of its branch office at Ponda-Goa, since under Rule 26(10) of the Karnataka Sales Tax Rules, the assessee is expected to keep the books of accounts only for a period of five years from the end of the assessment year.
7. The first appellate authority, while considering the appeal filed by the assessee has raised only one question for his consideration and decision i.e., whether the order of assessment passed by the assessing authority is in accordance with law? While answering this issue, the first appellate authority firstly notices that the assessing authority has drawn adverse inference against the assessee, since it failed to produce books of accounts and other evidence to prove the correctness of the contents of form 'F' declarations filed along with the return of turnover filed for the relevant assessment period and according to the first appellate authority, the same could not have been done in view of Section 6-A(2) of the CST Act and further the assessing authority while concluding the assessment under Section 12(3) of the KST Act, dated 21.3.1981, had given a clear finding that the sales of cotton yarn made by the assessee to its branch office at Ponda-Goa is in order and the said sales are supported with 'F' form declaration and the assessing authority has not made any attempt to disprove the same while making fresh assessment order, pursuant to the remand order passed by the revisional authority. The other reason assigned by the first appellate authority for allowing the appeal is, that, in view of the judgment of Bombay High Court, the assessee was not expected to retain and preserve the books of accounts after the assessment and appeal proceedings are complete and since the SMR proceedings being supervisory and not continuation of assessment proceedings, a dealer under the Act need not preserve the books of accounts beyond the period prescribed under Rule 26 of the KST Rules and therefore, mere fact that the account books were not produced, is not sufficient to hold branch transfers as interstate sales unless each transactions covered under Forum 'F' are proved otherwise on its own merits and lastly, the transactions between the Head Office of the appellant with its branch office at Ponda-Goa does not satisfy the ingredients required under Section 3(a) of CST Act. In conclusion, the first appellate authority has come to the conclusion that the turnover of the assessee amounting to Rs. 89,04.733.50 ps represents the stock transfer and not liable to tax under CST Act.
8. The revising authority had issued a notice dated 11.12.1997 under Section 22-A(1) of the KST Act, proposing suo-motu to revise the order passed by the first appellate authority dated 21.12.1993 setting aside the order of assessment passed by the assessing authority dated 7.1.1993 for the period from 1.11.1978 to 21.10.1979 under Sec. 9(2) of CST Act on the ground that the order passed by the first appellate authority was erroneous and prejudicial to the interest of the revenue. The revisional authority in its notice proposed to set aside the order passed by the first appellate authority on the ground that the first appellate authority had wrongly granted exemption from payment of tax under CST Act without verifying anything including the books of accounts by treating the appellant's transaction with its branch office at Ponda-Goa as stock transfer and therefore, had directed the assessee to show cause why the order passed by the first appellate authority dated 21.12.1993 should not be set aside and restore the assessment order passed by the assessing authority under Section 9(2) of the CST Act dated 7.1.1993.
9. In response to the notice, the appellant had filed its reply by way of objections contending, among other grounds, that the order passed by the first appellate authority is neither erroneous not prejudicial to the interest of the revenue for the revisional authority to invoke revisional powers conferred under Section 22-A(1) of the Act.
10. The revisional authority by his order dated 2.3.1998 has confirmed the proposal made in the show cause notice dated 11.12.1997 and in that, has considered each one of the objections filed by the assessee to the show cause notice issued and served on the assessee. We will refer to the objections filed by the assessee to the show cause notice and the findings and conclusion reached by the revisional authority, while considering the submissions of the learned Counsels for the parties at the time of hearing of the appeal.
11. Sri B.P. Gandhi, learned Counsel for the appellant relying heavily on the observations made by a Larger Bench of the Apex Court in ASHOK LEYLAND v. STATE OF TAMILNADU, (2004) 134 STC 473 -would contend, that for the purpose of Section 6A of CST Act, the burden of proving that any movement of goods from one State to another was occasioned otherwise than by way of sale is no-doubt on the dealer claiming exemption from payment of tax under CST Act, but that burden gets discharged the moment the dealer produces 'F' form declarations in support of its claim and once this initial burden is discharged, the burden would shift on the revenue to prove that the transaction is an interstate sales exigible to tax under CST Act. Therefore, the assessing authority was not justified in rejecting the claim of the assessee that its transaction is a stock transfer or consignment sale to its branch office, solely on the ground that the assessee had failed to produce the books of accounts for the relevant assessment period.
12. The other contention canvassed by the learned Counsel for the appellant is that, a dealer is not expected to maintain the books of accounts beyond a period prescribed under the Rules and therefore, the assessing authority was not justified in drawing adverse inference against the assessee merely because the assessee failed to produce the books of accounts at the time of passing fresh assessment orders, pursuant to the remand order passed by the revising authority. In aid of this submission, a learned Counsel has placed reliance on the observations made by the Bombay High Court in the case of Commissioner Of Sales Tax v. Ramdas Laxmidas, 38 STC 354.
13. Before we advert to the various issues canvassed by learned Counsels for the parties, we intend to notice the law laid down by a Larger Bench of Apex Court in the case of Ashok Leyland v. State of Tamilnadu - (2004) 134 STC 473, since heavy reliance was placed by learned Counsel for the appellant on the said decision.
A Division Bench of the Apex Court in ASHOK LEYLAND v. UNION OF INDIA, (1997) 107 STC 152 had observed that an order passed by the assessing authority under this Section accepting form 'F' could be reopened by that authority at the time of final assessment or even in reassessment under Section 16 of Tamilnadu General Sales Tax Act. But a Larger Bench of the Apex Court, in ASHOK LEYLAND v. STATE OF TAMILNADU has overruled this decision only on this point and has held that the separate order accepting the correctness of form 'F' filed by an assessee is final and cannot be reopened at all unless that order was obtained by fraud, collusion, misrepresentation or suppression of material facts or giving or furnishing false particulars or when that order was illegal or void-ab-initio or otherwise voidable. Mere change of opinion of the assessing authority will not confer jurisdiction on that authority to reopen the proceedings but discovery of new materials giving rise to jurisdictional error may be a ground for reopening. In our opinion, the Supreme Court nowhere in the order has observed that once the form 'F' declaration is filed by the assessee, the assessing authority is bound to accept the same and give the benefit under the provisions of CST Act. Therefore, in our view, the learned Counsel Sri B.P. Gandhi is not justified in contending that once form 'F' declaration is filed by the assessee in support of its claim that its transaction with its branch office at Ponda-Goa was occasioned otherwise than by way of sale.
14. Section 6-A of the CST Act provides for burden of proof in case of transfer of goods claimed otherwise than by way of sale.
Section 6-A(1) of the CST Act is clearly in two parts. The first part throws the burden of proof on the dealer to prove that a particular movement of goods has been occasioned otherwise than as a result of sale. In order to prove this fact, the second part of the Section throws the burden on the dealer. The dispatching dealer should obtain 'F' form declaration from the consignee and furnish the same to the assessing authority along with the evidence of despatch of the goods and satisfy the authority about the correctness of the particulars contained in the declarations. Failure to produce this declaration or otherwise to satisfy the assessing authority about the nature of the transaction or about the correctness of the particulars given in the form, the assessing authority will be well within his jurisdiction to treat the transaction as interstate sales under the CST Act. The burden of proof that movement of goods is only by way of branch transfer and not by way of interstate sales is always upon the assessee/dealer and never shifts on the revenue. Failure by the dealer to discharge this burden would lead to the irresistible inference that there have been sales under the CST Act.
15. In Government Of Andhra Pradesh v. Guntur Tobaccos, (1965) 16 STC 240, the Supreme Court has observed that normally under the Sales Tax Laws, the onus of proving that a transaction is a sale, is on the taxing authorities and it is not incumbent on the assessee to prove to the contrary. This view is reiterated by the Apex Court in the case of COMMISSIONER OF SALES TAX v. SURESH CHAND JAIN, (1988) 70 STC 45, wherein the Supreme Court has observed that the onus of proving the nature of sale whether it is interstate or intrastate is on the revenue. Section 6-A of the CST Act, reverses the principles and throws the burden on the assessee to prove that the transaction is not a sale prior to the date of coming into force of the amendment made to Sub-section (1) of Section 6-A of the CST Act, that is prior to 11th May 2002. The filing of form 'F' by a dealer who sent the goods to another State on consignment or stock transfer was optional and he could prove his claim for non-levy of tax under the Act by producing alternative evidence such as correspondence, delivery challans, etc. Submission of "F" form declarations is not conclusive evidence that the movement of goods is a branch transfer/stock transfer and not a sale. The sales tax authorities can investigate and make enquiries whether the declaration is genuine and true and reject the 'F' forms, if the transaction is found to be not genuine. Section 6-A of the CST Act lays down a particular mode of proof and it is implied that the production of such proof will dispense with the necessity of adducing any other or further evidence and will suffice for the grant of the benefit. But Section 6-A(2) of the CST Act goes a little further and provides for the possibility of an enquiry being conducted by the assessing authority. It is open to the assessing authority to make further enquiry to satisfy himself that the particulars contained in form 'F' declarations are true. It is only then that the assessing authority is enjoined to pass an order in the matter. An order passed under Section 6-A(2) of the CST Act is nothing but a step in aid or process, which leads only to the ultimate computation of assessment of tax liability. In other words, Section 6-A(2) of the CST Act authorises the assessing Officer to make enquiry that particulars contained in the declaration furnished by the dealer are true and for this purpose, other evidence produced by the dealer is also requires to be considered. The assessing authority is also authorised under Section 6-A(2) of the CST Act to call for other information to verify the correctness of the particulars contained in the 'F' form declarations. It is for the dealer to prove that the details provided in form 'F' are correct and true. The Madras High Court in the case of D. Dhandapani v. State Of Tamilnadu, (1995) 96 STC 98, while interpreting the provisions of Section 6-A(2) of the CST Act has observed that even after submission of 'F' forms, the authority can make further enquiry to satisfy himself that particulars contained in the declaration in 'F' form are true and correct. If the dealer fails to satisfy the assessing authority about the genuineness and the correctness of the contents in 'F' form declarations, the transfer of goods can be taken as on account of interstate sales. Sub-section (2) of Section 6-A of the CST Act places a duty on the assessing authority to scrutinise the declarations furnished by the dealer and pass an order accepting the correctness thereof. On such an order being passed, the transfers made by the dealer to the out of State branches or agents will be deemed to have been made otherwise than as sales. The assessing authority has the power to make further enquiries to have an independent verification of the particulars furnished by the dealer in the declarations and other documents furnished by the dealer and in the course of enquiry, it is open to the assessing authority to call for any other information from the dealer in order to verify the truth or otherwise of the particulars contained in the declaration in 'F' form and the other information maintained by the dealer in its regular course of business. This appears to be settled legal position in law. Therefore, reference to various decisions of this Court and other Courts may not be necessary.
16. In the present case, initially the assessing authority while concluding the assessment under CST provision had not verified any of the transactions relating to consignment sales and had accepted the form 'F' declarations and had declared that the CST turnover of the assessee as 'non-assessable'. This order came to be reviewed by the revisional authority and being of the view that the assessing authority without proper verification of 'F' form declarations could not have granted exemption from payment of tax under the CST Act, had remanded the matter to the assessing authority to pass a fresh order in accordance with law after verifying each one of the transaction declared in form 'F' declaration. The assessee had questioned the remand order unsuccessfully both before the Karnataka Appellate Tribunal and also before this Court.
17. In pursuance to the remand order passed, the assessing authority had directed the assessee to produce the books of accounts and other records, if any, to support its claim of branch transfers and to ascertain the genuineness of such stock transfers. Inspite of issuing several notices, the assessee had failed to produce any documentary evidence to show that there has been branch transfer of goods and no interstate sales were effected during the assessment period in question. As we have already noticed, the burden is on the assessee to prove that the transaction is not a sale but a branch transfer or a consignment sale, but though several opportunities were provided to the assessee to discharge its burden as prescribed under Section 6-A of the CST Act, it has failed to do so, and therefore, the assessing authority had no other option but to reject the form 'F' declarations filed by the assessee. The first appellate authority for allowing the appeal filed by the assessee against the fresh order of assessment made by the assessment authority points out that the assessing authority has not proved single instance of prior contract for movement of goods to the assessee's branch office at Ponda - Goa, forgetting for a moment, that though sufficient opportunity was provided by the assessing authority to produce books of accounts and other evidence to verify the genuineness of the contents of the 'F' form declaration. The first appellate authority without keeping this aspect of the matter in view, has shifted the burden on the assessing authority to prove that the transaction is a interstate sales and not stock transfer as claimed by the assessee, without realizing that under Section 6-A of the CST Act, the burden to prove that the transaction is not a sale but stock transfer is on the assessee. Therefore, in our view, the revisional authority was justified in concluding that the order passed by the first appellate authority is erroneous and prejudicial to the interest of the revenue.
18. The other contention that was canvassed by Sri B.R Gandhi, learned Counsel for the appellant was that the assessee was not bound to maintain the records and produce after lapse of several years from the date of conclusion of assessment proceedings and therefore, the assessing authority was not justified in drawing adverse inference against the assessee because the assessee did not produce the books of accounts maintained by it at the time of passing fresh assessment order. In aid of this submission, the learned Counsel has relied on the observations made by the Bombay High Court in the case of COMMISSIONER OF SALES TAX v. RAMDAS LAXMIDAS (Supra) . In the said decision, the Bombay High Court was considering the provisions of Section 12-A(3) of the Bombay Sales Tax Act and Rule 41-A of Bombay Sales Tax Rules, 1946 and the issue before the Court was whether an assessee under the Act was obliged to present the books of accounts and documents even after completion of assessment proceedings? While answering this issue, the Court has noticed that 'the rule of prudence that even after the expiry of the statutory period, the dealer, though not under any statutory obligation to do so, should preserve his evidence until the proceedings are completed, would apply not only until the conclusion of the assessment proceedings but also till the disposal of any appeal, revision or reference therefrom but not thereafter',
19. Rule 26(10) of the Karnataka Sales Tax Rules, provides for the time limit to preserve the account books, declarations, etc,. by a dealer under the Act.
20. Rule 26(10) reads as under"
"The accounts maintained by dealers and licensees together with all vouchers, bills, declarations, way bills and delivery notes relating to stocks, deliveries, purchases output and sales shall be preserved by them for a period of five years after the close of the year to which they relate and shall be kept at the place of business mentioned in the registration certificate."
21. Rule 26(10) of the Rules came up for construction before this Court in the case of Sri KOTTURESWARA RICE AND OIL MILLS AND ANR. v. THE STATE OF KARNATAKA AND ORS., (1988) 71 STC 356 In the said decision, the Court has observed as under:
"Held, that as a rule of prudence, even after the expiry of statutory period, the dealer, though not under any statutory obligation to do so, should preserve his evidence until the proceedings were completed. Rule 26(10) of the Karnataka Sales Tax Rules as amended by Karnataka Sales Tax (Amendment) Rules 1986 was meant to achieve the same object and was therefore meant to be observed by the dealers. This rule was required to be applied to all pending assessments since, there was no time- limit to complete the assessments under Section 12(3) of the Karnataka Sales Tax Act and it was more procedural in nature and did not create or divest any right of the dealer."
We agree with the view taken by the learned Single Judge of this Court in the aforesaid decision.
22. In the present case, the assessing authority for the period from 1.11.1978 to 22.10.1979, had concluded the assessment proceedings by determining the total and the taxable turnover of the assessee both under the KST Act and the CST Act by his order dated 21.3.1981. The revising authority within the time limit prescribed under the Act, had initiated revisional proceedings being of the view that the order passed by the assessing authority under the provisions of Central Sales Tax Act is erroneous and prejudicial to the interest of the revenue and by his order dated 23.10.1989 had set aside the assessment order passed under the CST Act and had directed the assessing authority to pass a fresh assessment order. The assessee was fully aware of these proceedings and as a prudent businessman, in order to support its claim from payment of tax under the CST Act, should have preserved the documents until all the proceedings are completed and therefore, it cannot plead that it was not obliged to preserve the documents beyond the time limit provided under Rule 26(10) of the Rules.
23. In view of the above discussion, in our opinion, there is no merit in any one of the contentions canvassed by the learned Counsel for the appellant. Accordingly, appeal fails and it is rejected. Ordered accordingly.