K.P.Rafeeque vs The Stateof Kerala on 27 April, 2012

[Cites 12, Cited by 0]

Kerala High Court

K.P.Rafeeque vs The Stateof Kerala on 27 April, 2012

The above said revision petitions are filed by the same party. O.T.R No.97/2012 relates to the assessment year 2007-'08 whereas O.T.R.No.101/2012 relates to the assessment year 2008-'09. Questions raised in these revision petitions are similar.

2. The revision petitioner is an assessee under the Kerala Value Added Tax Act, 2003 hereinafter referred to as "the Act". He is a registered dealer under the Act. He imported flooring materials from China,allegedly took delivery of the same from Cochin Port and transported the same to his place of business at Vatakara. The Assessing Officer by Annexure-A order in both the cases took the view that the purchase turnover (import) of the flooring materials reported in the annual return for the years in question was far lower than the amount shown as per the bill of entry and other import documents produced by the petitioner. OTR No.97/2012 & con. case 2

3. For the assessment 2008-'09 the value as per the bill of entry was Rs.1,10,10,032/-, customs duty paid Rs.3378399/- and the total amount was Rs.1,43,88,431/-. Purchase turnover was shown as Rs.1,36,25,610.35 in the return. Thus, it is found that there was a suppression of purchase turnover of Rs.7,62,820.65 and the return was found to be untrue and incorrect. Therefore, it was proposed to re-open the assessment under section 25(1) of the Act. Purchase turnover as aforesaid and also 8% gross profit of Rs.61026/- were added to the total sales return of Rs.1,49,07,164.62/-.

4. Objections were called for. In the objection the petitioner took up the contention that assessment proposed on the basis of the purchase value adopted by the Customs department was illegal. It is contended that the payment to the foreign seller and the customs duty paid were by cheques or drafts. Main contention appears to be that estimated value adopted by the Customs department for assessment of customs duty cannot be counted as no such payment was made to the foreign seller. It is seen contended that if the purchase price adopted by the Customs department is accounted, there would OTR No.97/2012 & con. case 3 be excess cash value as per the accounts.

5. The Assessing Officer found that the dealer did not file an appeal against the assessment of the Customs department estimating the value of the goods imported and the same would amount to an indirect admission of the purchase suppression.

6. In appeal, it was found, inter alia, that the valuation of the imported goods was done as per the Customs Act. It is also found that on going through the bills of entry and estimation made, the appellant had failed to account the amount incurred by them relating to cost of transportation to the place of import, insurance, loading, unloading and handling charges. As the petitioner failed to include these expenses into the cost of goods sold, the Customs Authority has estimated these expenses and collected customs duty on the said amount. These expenses it was found should be form part of the purchase turnover. The assessing authority has taken these amounts from the best judgment assessment made by the Customs department. Therefore, the contention of the petitioner was rejected. Relief was granted in respect of interest holding that as assessment was completed on best judgment basis, it would accrue from the date OTR No.97/2012 & con. case 4 of assessment only.

7. In further appeal the Appellate Tribunal found that petitioner did not establish that all the expenses in question had been properly accounted by him. It was held that apart from the invoice value, all these expenses should be accounted so as to reflect the correct purchase value of the goods. Merely counting the invoice value alone would not be sufficient and the value addition on the invoice value was not the correct sale price. Value addition should be on the purchase value, which should include all the expenses till the goods reach the petitioner's place of business. It is held that if the expenses were not included in the purchase cost of the imported goods, the corresponding sale price as fixed by the petitioner would be price below the actual cost. It was further held that the sale price conceded by the petitioner could not be accepted, since it is based on value addition of incorrect purchase cost. On the said basis, the addition made by the Assessing Officer was upheld and the appeals from which these revisions arise were dismissed.

8. For the other assessment year, the amount varies but the contentions are same and we need not advert to the facts OTR No.97/2012 & con. case 5 separately.

9. We have heard learned counsel for the petitioner and also learned Government Pleader appearing on behalf of the respondent.

10. The following questions of law are raised in both the revision petitions:-

"1) Is it not illegal and unreasonable to take the purchase value estimated for the purpose of valuation of customs duty for determining the purchase value of goods under the Act?

2) Is not the decision of the Appellate Tribunal unsustainable in law insofar as the revision petitioner has included in the purchase value, the customs duty paid and other expenses for transportation of goods to the place of business and has effected the sale earning reasonable profit?

3) The Appellate Tribunal as well as the authorities below is justified in relying on mere presumption and surmises and justifying the estimation made for reasons stated in the impugned orders?

4) Has not the Appellate Tribunal committed an error in not adverting to the facts of the case and contentions raised by the revision petitioner OTR No.97/2012 & con. case 6 before it and following the factually incorrect statement of facts relied on by the first appellate authority?

5) Is not the findings of fact arrived at by the authorities and Tribunal perverse?"

11. It is submitted by Dr.K.B.Mohammedkutty learned senior counsel that there is no purchase value suppression. Whatever has been paid by way of purchase value to the foreign seller has been accounted in the returns filed. The said amount represents the purchase value for the purpose of the Act. Under the Custom Act valuation is done as per the Act and Rules. It may be true that on the basis of the said Act and Rules, Customs authority has fixed the value. But the petitioner poses the question as to how the said valuation can be adopted for the purpose of taxation under the Act. He would draw our attention to the following provisions in section 2 of the Act:

"xxxviii "purchase price" shall be construed from the words "sale price".

'xliv "sale price" means the amount of valuable consideration received or receivable by a dealer for the sale of goods less any sum allowed as cash discount, according to the OTR No.97/2012 & con. case 7 practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods or services at the time of or before delivery thereof, excise duty, special excise duty or any other duty or taxes except the tax imposed under this Act."

12. The petitioner, therefore, contends that the Tribunal has clearly acted illegally in supporting the orders of the Assessing Officer, relying on the value fixed by the Customs authority. He would submit that no such price as found by the Customs authority was paid to the foreign seller. He contends that the petitioner sold the goods after import on reasonable gross profit and the goods were purchased not from the local market. According to the petitioner, no appeal was preferred against the estimated customs valuation, as it would have been disadvantages to him, since he has to pay heavy demurrage on different occasions for retention of the goods at the Customs till the disposal of the appeal. He pointed out that section 14 of the Customs Act deals with valuation for the purpose of the Customs Tariff Act 1975 or other law in force. Reliance is placed on a OTR No.97/2012 & con. case 8 decision of the Apex Court in Moriroku Ut India (P) Ltd. V. State of U.P. & Others, 2008 (16) KTR 345.

13. Per contra, the learned Government Pleader would support the orders. He would submit that adopting the contention of the petitioner would result in the anomalous position that the petitioner would be selling his goods at a loss. He actually paid the amount as found by the Customs Officers and, therefore, if he has calculated his profit with reference to the price which he claims he paid to the foreign seller and without taking into account the amount which he has paid pursuant to the valuation made by the Customs Officers he would be doing his business at a loss, which would be a completely untenable position. The authorities are well within their right in adopting the value which is estimated by the Customs Officers.

14. The orders in question are purported to be passed under section 25 of the Act. Section 25(1) reads as follows:-

"25. Assessment of escaped turnover.--(1) Where for any reason the whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year or return period or has been under assessed or has been assessed at a rate OTR No.97/2012 & con. case 9 lower than the rate at which it is assessable or any deduction has been wrongly made therefrom, or where any input tax or special rebate credit has been wrongly availed of, the assessing authority may, at any time within five years from the last date of the year to which the return relates, proceed to determine, to the best of its judgment, the turnover which has escaped assessment to tax or has been under assessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction in respect of which has been wrongly made or input tax or special rebate credit that has been wrongly availed of and assess the tax payable on such turnover or disallow the input tax or special rebate credit wrongly availed of, after issuing a notice on the dealer and after making such enquiry as it may consider necessary."

15. Under the Act, as we already noticed, purchase price is construed from sale price. As far as sale price is concerned, it is the amount of valuable consideration which is received or receivable by the dealer for the sale of any goods less any cash discount, according to the practice in the trade. It is also to include any amount charged for anything done by the seller in OTR No.97/2012 & con. case 10 respect of the goods before delivery. They include special excise duty of any other duty or tax except the tax imposed under the Act. Since the purchase price is to be construed from sale price, the argument of the petitioner would appear to be that the petitioner being the purchaser who imported goods from China need only to take as the purchase price, the amounts which he paid as consideration to the seller less any discount and any amount paid for any service anything done by the seller up to the time of delivery. No doubt it could also include any other tax or duty. Customs duty would also be included.

16. In this case the authorities have proceeded on the basis that the amount which the petitioner has returned cannot be accepted, as the Customs authorities on the basis of Customs Act and Rules arrived at value for the purpose of the Customs Act, no doubt, at a higher amount than what was declared by the petitioner. As far as the customs duty is concerned in this case, even proceeding on the argument of the petitioner, the amount which has been paid would be to be part of the purchase turnover being part of the sale price and therefore purchase price.

OTR No.97/2012 & con. case 11

17. In this connection, the learned counsel for the petitioner made available notice under Section 25 of the Act and the statement showing analysis of purchase cost and other expenses. Foreign invoices, which is produced, show delivery was on 'C' and 'F' basis and vouchers for rate clearing and forwarding charges, trading and profit and loss and bill of entry are also produced.

18. We are of the view that the Act provides for determination of purchase price from the sale price. The sale price is, as already noted, defined as the amount of consideration which was received or receivable by a dealer for the sale of the goods. Therefore, the first question to be considered would be what is the actual consideration which moved from the petitioner to his foreign seller. Further more what was the amount actually receivable. According to the petitioner, the amount which was payable or receivable is reflected in the invoices and the account of the petitioner. If actually the amount which is paid by the petitioner to the foreign seller or payable to the foreign seller is less than the amount which was found by the Customs officials as payable, there is merit in the contention of the petitioner that the OTR No.97/2012 & con. case 12 authorities under the Act had acted illegally and erroneously to arrive at conclusions based on the valuation by the Customs officers. If actually the Customs officers valued the goods at a higher amount and also imposed customs duty on the said basis, even though the petitioner would have paid customs duty on the said basis, the actual valuation made by the officer in so far it is an excess of the actual amount paid and payable by the petitioner to the foreign seller, that difference in valuation, in our view, cannot be taken into consideration for the purpose of arriving at the purchase value under the Act, in view of the definition of the word "purchase price" and "sale price". This proposition would apply in regard to determination of purchase turnover, if the taxable event is purchase.

19. In this connection we must bestow our attention of the judgment of the Apex Court reported in 2008 (16) KTR 345 (Supra). In the said decision, the court was dealing with the question as to whether the valuation of goods under the Central Excise Act can be applied and read into section 3 of the U.P Trade Act, 1948. It was held that under the Excise law, tax is levied on the "assessable value" under section 4 of the Act. Under the OTR No.97/2012 & con. case 13 Sales Tax Act, it is levied on the "commercial transaction" ie., on the aggregate amount for which goods brought or sold.

20. In this case, we must however, consider as to what exactly has been done by the authorities under the impugned proceedings. Tax is levied on the petitioner under the Act. The tax is levied on the sales turnover. It is important to notice that tax is not levied on the purchase turnover as such. The assessment was reopened under section 25 of the Act on the basis that purchase turnover did not include the amount, which should have been included. In other words, it did not include the value of goods purchased as per the bill of entry and also the customs duty paid.

21. In this case, the finding of the first appellate authority which has been accepted by the Appellate Tribunal is as follows :

"... But on going through the bills of entry ans estimation made by the customs authority it is found that appellant failed to account amount incurred by them relating to cost of transportation to the place of import, insurance, loading, unloading and handling charges. As the dealer failed to include this expenses into the OTR No.97/2012 & con. case 14 cost of goods sols the customs authority has estimated these expenses should be form part of the purchase turnover. The assessing authority has taken this amount from the best judgment assessment made by the customs department. The Commercial Tax Officer has estimated the sales turnover against the purchase suppression in the right perspective. The contention of the appellant in this regard is rejected..."(emphasis supplied)

22. Annexure-A in both the revisions are the orders of assessment. The value as per the bill of entry as also customs duty paid for 2007-'08 together comes to Rs.74,08,423/-. The officer has proceeded to take the sales turnover of Rs.56,20,954.45. To that the difference in purchase turnover (i.e.,Rs.11,30,686/-), which is found to be not disclosed and GP 8% i.e., Rs.1,13,069/- were added. The learned Government Pleader, in fact, would submit that even though the purchase turnover is shown as Rs.74,08,423/-., there was a closing stock of Rs.12,00,000/- for the year 2007-'08. We find that there is no discussion at all in the order. The learned senior counsel for the petitioner would point out that there was a similar position for OTR No.97/2012 & con. case 15 the other year also.

23. It is true that there is assessment of the value by the customs authorities. The learned senior counsel for the petitioner would point out that there can be no objection in taking the customs duty paid, as that would certainly form part of the cost and represent the actual amount paid. The amount, which is assessed as the value by the customs authority, was not actually paid, he contends. It may be the case that the matter was not contested for the reason which we have already set forth.

24. The learned Government Pleader would submit that when the valuation by the customs authorities is accepted and the petitioner has remitted customs duty without demur, it can be presumed to be correct. We are of the view that the matter should be remitted to the Commercial Tax Officer-I, Vatakara. It is also necessary that we should advert to some principles. As already noted in this case, the matter is re-opened on the basis of powers under section 25 of the Act, which enables the officer to make best judgment assessment. Here the tax is not being levied on purchase turnover as such. What is alleged is that there is suppression of purchase turnover and resultantly, the sales OTR No.97/2012 & con. case 16 turnover is not correctly computed. It is true that it may be open to the officer to refer to the assessment arrived at by the customs officer. At the same time, it is also open to the petitioner to show that the amount arrived at was not the actual value paid by him to the foreign seller or payable to him. The officer, to whom the matter is remanded, will also consider the principles laid down in the decision reported in 2008 (16) KTR 345 (Supra). As far as the customs duty paid, it will be open to the officer to reckon it as part of the purchase turnover. (It is the case of the petitioner that, that is already included in the accounts). According to the petitioner, all the amounts, which represent various expenses, are already included in the accounts. It is open to the petitioner to produce documents to substantiate his contention. If the petitioner produce the same, the officer will consider the same and take an independent decision in the matter. It is always open to the officer not to accept the accounts for valid reasons.

25. With these observations, the impugned order is set aside and the matter is remitted to the Commercial Tax Officer-I, Vatakara, who will issue notice to the petitioner and complete the OTR No.97/2012 & con. case 17 proceedings within a period of two months.

Sd/-

K. M. JOSEPH, JUDGE Sd/-

K. HARILAL, JUDGE.

nkm/sou.

                            /True copy/    PS to Judge.

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