Kerala High Court
Deputy Commissioner Of Sales Tax (Law), ... vs Hajee M.K. Cheriya Mamoo And Brothers on 10 January, 1986
Equivalent citations: [1987]66STC332(KER)
Author: T. Kochu Thommen
Bench: T. Kochu Thommen
JUDGMENT K.P. Radhakrishna Menon, J.
1. The Revenue is the revision petitioner. The assessee, the respondent, is a dealer in hill produce, having its office at Robinson Road, Kozhikode.
2. The only dispute that requires settlement in the revision is the one pertaining to exemption claimed by the assessee on the turnover of Rs. 6,45,406.90 relating to the inter-State purchases of pepper, arecanut and ginger from Mahe Produce Traders, Mahe and V.M. Abdul Rehiman, Mahe.
3. According to the assessee, they effected purchases of these commodities from the dealers at Mahe and got them transported to Kerala from Mahe. These purchases, therefore, cannot be treated as local purchases. The appellant, therefore, has claimed exemption on this turnover. In support of the above contention the assessee produced before the assessing officer purchase bills from the above dealers in Mahe, the details of which are :
Commodity Quantity Recorded purchased value 1. Pepper 486.00.000 Qtl. 2,92,203.00 2. Areca 542.00.000 " 2,41,871.00 3. Dry ginger 38.10.000 " 18,232.00
4. On verification, the assessing authority was satisfied that the above purchase bills were not genuine and hence he decided to disallow the claim for exemption. This resulted in the assessing officer issuing a pre-assessment notice which reads as follows :
I have examined the question of exemption : As early as January, 1972, Indian Pepper and Spice Traders Association brought it to the notice of the Government, the Board of Revenue and other departmental authorities that various dealers of Tellicherry, Calicut, etc., are carrying on clandestine business in pepper, ginger and other commodities actually brought from places within the State by transporting such goods to places outside the State under the cover of R.Cs. obtained from the Mahe sales tax authorities either in the name of fictitious persons or in the name of their stooges and thereby evading the purchase tax on these commodities. They were actually doing business from Tellicherry or Calicut but were creating records so as to make it appear that such goods are purchased and despatched from Mahe. It was brought to the notice of the authorities that such goods, viz., pepper, ginger, etc., which are taxable at the point of last purchase in the State and purchased from within the State at Tellicherry and other places and the records like invoices, bills, delivery notes, etc., are prepared in the name of persons in whose names the R. Cs. were obtained from Mahe and that actually such goods are moved outside the State from Tellicherry and other places within the State. The purchases are alleged to have been effected from Mahe. It is important to note that Mahe is a place which is only 5 sq. miles in extent. It is also equally significant to note that Mahe is neither a producing centre nor a marketing centre for pepper, ginger and arecanut. The total annual production in the whole of Pondicherry State will be much less than the alleged purchase by the dealers in this State from the so-called Mahe dealers. Here the assessees have produced bills in their names of the alleged Mahe dealers and accounted transport charges in the ledger for the alleged transport from Mahe. Under ordinary circumstances those would be sufficient materials to establish the purchase but in the face of the abovesaid notorious facts it is essential to insist on more notable and clinching evidence.
The important piece of evidence would be proof of the payment of price to the alleged Mahe dealers. The assessee have not produced any evidence except their own book entries. Another notable phenomenon is that the signatures in all the tax bills of different sellers are the same. It is admitted that the transport of the goods were in lorries. But they have failed to adduce evidence in a majority of the cases to show that the goods were transported from Mahe to Calicut in any transport means en route Muttungal where the bills will not escape the seal of the sales tax check post. However in respect of the following cases the bills were found to bear the seal of the sales tax check post, Muttungal.
25-10-71 Arecanut 90.00.000 Rs. 39,220.00
24-10-71 Pepper 70.00.000 Rs. 45,132.60
24-10-71 Pepper 70.00.000 Rs. 45,147.90
25-10-71 Pepper 72.00.000 Rs. 44,556.00
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212.00.000 Rs. 1,34,836.40
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Except the cases referred to above in all the remaining cases there is no shred of evidence to show that the goods were passed en route Muttungal which is the only main and shortest route connecting Mahe and Calicut. There is also no other convenient highway to facilitate the transport except the one touching to Muttungal sales tax check post. In these cases the argument advanced was that the transports were made without touching the check post at Muttungal. No prudent businessman will select a route, covering so many miles through illicit roads and by passes to reach Calicut when a shortest route is available. The motive behind the alleged selection of such a circuitous route is very clear especially when in the cases referred to above the goods were transported en route Muttungal check post. The records relating to the lorries in which the transports were effected have not been made available so as to examine whether such lorries have necessary route permits to ply through such circuitous routes. Even in cases where the bills bear the seal of the sales tax check post at Muttungal it cannot be taken for granted that the goods were actually transported from Mahe, as in the face of the above facts the probability is that such goods were brought from within the State only and transported through the check post under the cover of the bills of the so-called Mahe dealers in order to create the evidence in their favour.
Under these circumstances, the claims advanced that the purchases of pepper, dry ginger and arecanut referred to above were inter-State purchases from Mahe is totally misleading and opposed to facts. The claim is obviously advanced to escape the tax liability actually courted within the State. It is obvious that the purchases of the goods in such cases were effected only within the State but the bills of the so-called Mahe dealers were so obtained as to make it appear that the purchases were made at Mahe and the dealers are trying to avoid payment of the tax due to the State by adopting such dubious devices.
5. The assessee-respondent submitted his explanation to the pre-assessment notice. Relevant portions thereof read :
You have admitted in the notice that we have produced bills of the Mahe dealers and accounted'for transport charges from Mahe to Calicut and under ordinary circumstances these would be sufficient materials to establish the purchases. But you say that more clinching evidence is necessary in the face of the abovesaid notorious facts as you have put it. The so-called notorious facts are only wrong information as stated above and it is improper to build up any adverse conclusion on such'unfounded information. Apart from that when you are in receipt of any information, that may at the most give room for you to suspect the genuineness of the bills of the Mahe dealers and our own accounts but at any rate that is not material evidence to conclude that the bills and entries in accounts are bogus. You have not made your own enquiries about the genuineness of the bills and gathered any material evidence to establish that they are not genuine. You have stated that one important piece of evidence is proof of payment of the price to the Mahe dealers and we have not produced any evidence except our own accounts. Kindly note that our own accounts are the best evidence and we have produced the same...Apart from that absence of the check post seal in some of the bills does not convey any adverse significance. When once the goods are entrusted with the lorry drivers for transport, nobody bothers by which route the goods are transported. In order to avoid the inconvenience of stopping the vehicle at the check posts and keeping them stationary for pretty long time according to the will and pleasure of the inspectors and allowing the goods to be inspected, sometimes by damaging the goods and paying the 'mamools' at times the drivers choose to go by alternative routes. From Mahe to Calicut there are other convenient routes which are only two or three miles long. At Muttungal check post, at that time there was no cross bar across the road and lorry drivers taking away the vehicle through the check post without stopping especially at nights when the watchman on duty in the check post would be fast asleep, was not uncommon feature. Therefore, just because in some bills there was no seal of the Muttungal check post you cannot jump into the conclusion that the bills are not genuine bills or the goods have not been transported.
6. After considering the above explanation as also the arguments advanced on the side of the assessee-respondent, the assessing authority rejected the purchase bills and entered the finding that they are not genuine and accordingly disallowed the exemption claimed. The purchases, therefore, were treated as local purchases and the sales tax was levied on the turnover.
7. The assessee-respondent challenged the above order of assessment, before the Deputy Commissioner (Appeals), Agricultural Income-tax and Sales Tax, Kozhikode by filing an appeal. Relying on a decision of the Appellate Tribunal, Trivandrum in T.A. No. 205 of 1970 dated 11th October, 1973, disposing of a similar case (relating to Mahe purchases) the Deputy Commissioner (Appeals) dismissed the appeal upholding the order of assessment. Relevant portion of the order reads :
The questions now arise for consideration are whether Mahe is a producing or marketing centre for pepper and other produces as alleged and whether the turnover of Rs, 5,45,406.90 claimed as inter-State purchases from the two Mahe dealers referred to above can be allowed exemption on the strength of the documents produced before the assessing authority. It may be noted here that the onus of proving an exemption is on the assessee who claims it. Simply because the appellant-firm produced some bills in the name of Mahe dealers for purchases of pepper, arecanut and ginger, such bills cannot be accepted as genuine without proper enquiries. The appellant-firm has not proved the payment of purchase price to the abovementioned Mahe dealers. The entries in their accounts regarding the price cannot be relied on in the absence of proof of payment. It is a well-known fact that Mahe is neither a producing centre nor a marketing centre for pepper and other produces. The nearest market is Tellicherry. The daily newspapers quote the rate of commodities in Tellicherry market, but they do not mention anything about the so-called Mahe market. In fact, Mahe has not been a marketing centre for produces as alleged by the learned Advocate. In this connection, I quote below the observations made by the Sales Tax Appellate Tribunal, Trivandrum in T. A. No. 205 of 1970 dated 11th October, 1973, in a similar case relating to Mahe purchases. The first contention in that appeal before the Tribunal was that the purchases of pepper and ginger from Mahe should not have been taxed as local purchase.
'As regards the first contention it is a notorious fact that Mahe is neither a producing centre nor a marketing centre for pepper and ginger but the Tellicherry pepper dealers are duping the Government of Kerala by accounting their local purchases as purchases from Mahe by obtaining registration certificates in Mahe in the names of their stooges and thereby evading the purchase tax on these commodities. The total production of pepper in the whole of Pondicherry State is only 10 tons per year as per the Government publications of the Pondicherry Government whereas the alleged purchase of pepper from Mahe of each pepper dealer in Tellicherry is much more than that. While it is claimed that the purchases of pepper were inter-State purchases from Mahe, it is a known fact, the so-called pepper dealers of Mahe are not paying any tax to the Government of Pondicherry on the alleged sales nor are they sales tax assessees. Here the assessees have produced bills in their names of the alleged Mahe parties and accounted transport charges in the ledger for the alleged transport from Mahe. Under ordinary circumstances these would be sufficient materials to establish the purchases, but in the face of the abovesaid notorious facts, at which we cannot shut our eyes and act in blissful ignorance, as the final fact finding body we will be failing, in our duty unless we insist on more reliable and clinching evidence. One important piece of evidence would be proof of the payment of the price to the alleged Mahe parties. The assessees have no evidence except their own book entries.
* * * In the circumstances, we are unable to accept the contention of the assessee.' It is admitted that Mahe Produce Traders and V.M. Abdul Rehiman are one and the same entity. The submission that the case will not fall within the notorious types of evasion mentioned in the assessment order cannot be accepted. This is another type of evasion under the guise of Mahe purchases. On the basis of facts found by the Tribunal in the order referred to above and in the circumstances of this case, I am convinced that the purchases to the tune of Rs. 5,45,406.90 were effected from the places within the State of Kerala such as Tellicherry, that the Mahe purchase bills produced were not genuine and the officer is justified in rejecting them and taxing the so-called inter-State purchases as local purchases.
8. Aggrieved by the above order of the Deputy Commissioner (Appeals), the assessee filed a second appeal before the Appellate Tribunal. The Appellate Tribunal allowed the appeal and the said order was under challenge before this Court in T.R.C. No. 26 of 1978 [Deputy Commissioner of Sales Tax v. M.K. Cheriya Mammoo & Brothers [1980] 45 STC 108). This Court set aside the order of the Tribunal and remanded the matter for a de novo disposal, by judgment dated 15th February, 1979. Taking note of the order of the Full Appellate Tribunal in T.A. No. 205 of 1970 dated 11th October, 1973, this Court observed thus :
We are impressed by this contention raised by the learned Government Pleader. We think the Tribunal was wrong in ruling out as irrelevant material, what appears to be very vital and crucial, namely, whether the purchases in question can possibly and reasonably be said to have been effected from Mahe. It is then and then alone, that the purchases qualify for exemption on the ground of inter-State purchases. As the entire approach of the Tribunal has been vitiated as a result of this initial mistake made by the Tribunal, we are obliged to set aside the judgment of the Tribunal and to remit the appeal back to the Tribunal for reconsideration in accordance with law and in the light of the observations contained in this judgment.
9. The Appellate Tribunal thereafter has disposed of the appeal by its order dated 21st August, 1-980, wherein it has been held thus :
It cannot be disputed that when the appellants are claiming exemption, the burden of proving the same is on them. Though the assessing officer has taken the stand that apart from producing the bills and books of accounts, they have to prove that they have been paid the consideration for the purchases from Mahe, the bills and books of accounts produced by the appellants show that price has actually been paid to the Mahe dealer and consequently as we have already stated in paragraph 9 of our earlier order dated 31st October, 1977, we are of the view that no other evidence is necessary to prove that price has been paid. In these circumstances, we are of opinion that the appellants have already proved their case producing proper evidence and we do not find any reason to disbelieve their version.
10. On going through the rather longish order of the Tribunal, we are convinced that the Tribunal has not considered any of the aspects, this Court in the judgment in T.R.C. No. 26 of 1978 (Deputy Commissioner of Sales Tax v. M.K. Cheriya Mammoo & Brothers [1980] 45 STC 108) had highlighted. This Court has categorically stated in the judgment that the decision of the "Full Appellate Tribunal" in T.A. No. 205 of 1970 dated 11th October, 1973, is a relevant material; not only that it is "very vital and crucial, namely; whether the purchases in question can possibly and reasonably be said to have been effected from Mahe". The Appellate Tribunal in the order in T. A. No. 205 of 1970 has rejected a similar claim on the ground that the purchases effected in Mahe are not genuine because "it is a notorious fact that Mahe is neither a producing centre nor a marketing centre for pepper and ginger but the Tellicherry pepper dealers are duping the Government of Kerala by accounting their local purchases as purchases from Mahe by obtaining registration certificates in Mahe in the names, of their stooges and thereby evading the purchase tax on these commodities. The total production of pepper in the whole of Pondicherry State is only 10 tons per year as per the Government publications of the Pondicherry Government whereas the alleged purchase of pepper from Mahe of each pepper dealer in Tellicherry is much more than that. While it is claimed that the purchases of pepper were inter-State purchases from Mahe, it is a known fact, the so-called pepper dealers of Mahe are not paying any tax to the Government of Pondicherry on the alleged sales nor are they sales tax assessees". The above material evidence clinches the issue, in that the transactions called "the Mahe purchases" can never be treated as genuine and if that be so, the exemption claimed by the respondent-assessee is liable to be rejected. No doubt, the assessee could have established its case by producing further and better evidence in proof of the fact that the purchases in Mahe are genuine. The assessee could have in this connection summoned the dealers in Mahe with whom it had had these transactions. They could have summoned them to produce their accounts to show that they have paid them for the purchases effected in Mahe. The assessee-respondent could have at least summoned the Mahe dealers to produce the inner foils of the invoices and also statements of accounts pertaining to these transactions. Details available on record and relating to these transactions would show that the assessee had paid by way of purchase money, large amounts, amounts much more than Rs. 2,500 per transaction and if that be so, under Section 40A(3) of the Income-tax Act, 1961 such payments can be made only by crossed cheque drawn on a bank or by a crossed bank draft. These documents would positively prove that the transactions are genuine. The assessee, in these circumstances, must be held to have failed to discharge the burden of proving that the exemption claimed is allowable under law.
11. The assessing authority, therefore, has rightly included the turnover relating to the transactions, called "the Mahe purchases" in the taxable turnover of the assessee.
12. The Appellate Tribunal in not considering the scope of the decision of a Full Tribunal which, according to us, is binding on the Tribunal, has failed to comply with the directions contained in the judgment of this Court in disposing of T.R.C. No. 26 of 1978 (Deputy Commissioner of Sales Tax v. M.K. Cheriya Mammoo & Brothers [1980] 45 STC 108).
13. On going through the entire files, we are satisfied that the assessee-respondent has effectively evaded payment of tax by accounting its local purchases as purchases effected in Mahe. In this context, it is worth recalling the finding of the Full Appellate Tribunal in T.A. No. 205 of 1970 dated 11th October, 1973, that "it is a known fact, the so-called pepper dealers of Mahe are not paying any tax to the Government of Pondicherry on the alleged sales nor are they sales tax assessees".
14. The method of accounting adopted by the assessee-respondent, is nothing but a device to evade payment of tax and, therefore, the assessing authority has rightly rejected the claim of the assessee for exemption of the turnover of Rs. 5,45,406.90. as inter-State purchases from For the reasons stated above, the tax revision case is allowed, but in the circumstances no order as to costs.