Kerala High Court
M/S.Daeshan Trading India (P)Ltd vs State Of Kerala on 24 September, 2012
Author: K.M. Joseph
Bench: K.M.Joseph, K.Harilal
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.M.JOSEPH
&
THE HONOURABLE MR.JUSTICE K.HARILAL
MONDAY, THE 24TH DAY OF SEPTEMBER 2012/2ND ASWINA 1934
ST.Rev..No. 84 of 2012 ()
-------------------------
TA.568/2009 of SALE TAX APPELLATE TRIBUNAL ADDL.BENCH,ERNAKULAM
REVISION PETITIONER/APPELLANT :
---------------------------------------------------
M/S.DAESHAN TRADING INDIA (P)LTD
41/3957-A, PROVIDENCE JUNCTION
OLD RAILWAY STATION ROAD, COCHIN - 18.
BY ADVS.SRI.ANIL D. NAIR
SRI.J.R.PREM NAVAZ
SMT.NIVEDITA A.KAMATH
RESPONDENT/RESPONDENT :
-----------------------------------------
STATE OF KERALA
REPRESENTED BY ITS FINANCE SECRETARY,
SECRETARIAT, THIRUVANANTHAPURAM 695001
BY GOVERNMENT PLEADER SRI. BOBBY JOHN PULIKKENPARAMBIL
THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION
ON 24-09-2012, THE COURT ON THE SAME DAY PASSED THE
FOLLOWING:
BP
ST.Rev..No. 84 of 2012 ()
APPENDIX
PETITIONERS ANNEXURES :
ANNEXURE A: COPY OF ASSESSMENT ORDER FOR THE YEAR 2001-2002.
ANNEXURE B: COPY OF APPELLATE ORDER FOR THE YEAR 2001-02
ANNEXURE C: COPY OF THE ORDER OF THE SALES TAX APPELLATE TRIBUNAL,
ERNAKULAM IN T.A. NO. 568/2009 FOR THE YEAR 2001-02.
RESPONDENT'S ANNEXURES : NIL.
//TRUE COPY//
P.A. TO JDUGE
BP
K. M. JOSEPH & K. HARILAL, JJ.
----------------------------------------------
ST. REV. CASE NO.84 OF 2012
-----------------------------------------------
Dated this the 24th September, 2012
JUDGMENT
K.M. Joseph, J.
Revision Petitioner is the assessee. Assessment was completed under the KGST Act by Annexure A order rejecting the return filed by the assessee. The following reasons were stated:
1) The trade result in the case of medicines and soap is less whereas in the case of second sales there is abnormal profit of 102.25%. There appears to be misclassification of taxable sales under second sales. So turnover of second sales will be limited by adding average profit margin of 4.10% to the cost price of goods sold.
2) The company has claimed exemption on Rs.1,95,12,010.00. This amount represents collection of Rs.850.00 peer member against supply of two bottles of medicines and one executive bag, ST.REV.CASE NO.84/2012 2 the cost of which can be estimated at Rs.550.00 and 300.00 respectively. Being first sale of medicines and executive bag the turnover is liable to tax @8% and 12% respectively.
3) The company has claimed branch transfer of medicines for Rs.21,31,844.40 and membership for R.2,86,910.00. In the absence proof of branch transfer the claim will be disallowed and the goods will be treated as sold in Kerala. The turnover will be estimated at Rs.22,19,250.02 and Rs.2,98,673.31 respectively and will be subjected to levy of tax.
4) The assessee has collected
Rs.1,23,52,320.84 against tax due of
Rs.87,14,007.24. The excess tax collection of Rs.36,38,313.57 is liable to be forfeited to the government."
2. Aggrieved by the assessment order, the revision petitioner filed first appeal which was rejected. Against the same, the revision petitioner field appeal before the tribunal which also met with the same fate.
ST.REV.CASE NO.84/2012 3
3. We heard the learned counsel for the petitioner and the learned Government Pleader. Two questions of law have been pressed before us and they are as follows:
"(i) In the facts and circumstances of the case in hand, ought not the Tribunal have held that the membership fee recovered by the Company will not partake of the characteristic of the sale?
(ii) In the facts and circumstances of the case, ought not the Tribunal have held that the estimation of turnover for declaration of gross profit is bad in law, more so relying on the judgment of the Hon'ble Supreme Court reported in (1998) 68 SCC 55?"
4. According to the learned counsel for the revision petitioner, its products are marketed through the net work of dealers, called members/distributors. It is contended that only members registered with the company are entitled to sell the products of the company. For such enrollment, a fee is collected from the members. Along with the membership card, prospectus of ST.REV.CASE NO.84/2012 4 the company and a kit containing the distributor training and sales promotional materials are given. Among the sale promotion items, free samples of the goods dealt with by the revision petitioner is also provided. The amount so recovered has been brought to tax by the authorities under the assessment order and it has been affirmed by the impugned order.
5. It is the case of the petitioner that it is against the definition of the word "sale" under Section 2(xxi) of the KGST Act. Learned counsel for the petitioner would rely on the aforesaid definition. Learned Government Pleader, on the other hand, would draw our attention to Explanation (2) to Section 2(xxi) of the Act. Section 2(xxi) and Explanation (2) of the Act are extracted hereunder:
"2. Definitions: In this Act, unless the context otherwise requires:
(xxi) "Sale" with all its grammatical variations and cognate expressions means every transfer, whether in pursuance of a contract or not, of the property in goods by one person to another in the ST.REV.CASE NO.84/2012 5 course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge.
Explanation (2): The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm or any association or body of persons, whether incorporated or not to its members for cash or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act."
6. A perusal of the Explanation can leave us in no doubt that there is sale involved when the petitioner gave goods on receipt of the fee to its members. Admittedly, there is supply or distribution of the goods. It is for cash. It is not even necessary that it should be in the course of business, going by the terms of the Explanation. There can be no scope for any doubt that assessing the petitioner for the amounts involved cannot be objected to, on the ground that there is no sale involved.
7. The second issue relates to the misclassification done by ST.REV.CASE NO.84/2012 6 the assessee. The assessing officer has found, as already noted, that the trade result in the case of medicines and soap is a loss, whereas in the case of second sale, there is an abnormal profit of 102.25%. The assessing officer, therefore, limited the turnover of second sales by adding average profit margin of 4.10% to the cost price of the goods sold. The petitioner, we note, has raised the following contentions before the tribunal:
"2. The confirmation of the appellate authority regarding the gross profits received on the premises that there is mis-classification of taxable sales under second sales is contrary to facts on records. As can be seen from the returns till January 2002, when products were stock transferred from its head office/main warehouse in Chennai, Tamil Nadu, the company was always declaring the entire sales as first sales. During the months of February and March 2002, the remaining stocks were sold as second sales as the same were purchased locally from Roshan Commercial Traders Pvt. Ltd. instead of being stock transferred from Chennai. The appellant has been maintaining all documents like stock register for first sale goods and second sale ST.REV.CASE NO.84/2012 7 goods. Further more, the products cannot be sold at a price beyond the approved price list and the sale price is same to all customers. It is submitted that the Assessing Authority went wrong in coming to the conclusion that there is a mix up between the first sale items and the second sale items. It is submitted that the same is contrary to facts on record as there was no second sale during the period up to January 2002. Further more, mere declaring of low gross profit would not by itself be a reason for making addition by rejecting accounts. Rather as per the accounting policy of the company, the profit margin on stock transfer items were not disclosed to the branch and goods were transferred at a notional price. Trading accounts were not prepared for the respective states separately but were consolidated at the head office in Chennai. Thus, there is no point is comparing the profit margin on sale during two separate periods."
8. Learned counsel for the revision petitioner would submit that the tribunal has given no reasons for rejecting the contention. It is pointed out that all that was stated is as follows:
"In the issue regarding the gross profit, the ST.REV.CASE NO.84/2012 8 company has failed to prove separate gross profit for taxable and non-taxable item."
On the above basis, the finding impugned before it was found to be just and reasonable. Learned counsel for the petitioner would contend that the petitioner had given reasons, namely that till January 2002, goods were being stock transferred and they were being classified as first sale, whereas in February and March, the petitioner had acquired goods from a local supplier which had also suffered tax and in the hands of the petitioner, they were treated as second sales. Learned counsel for petitioner also relied on the Judgment of the Madras High Court in Vel Metal Industries v. The State of Tamil Nadu (1988 STC 55).
9. Per contra, learned Government Pleader would submit that this is a case where the assessing officer has relied on the aspect of misclassification among other factors for finding the return unacceptable and thereafter he has estimated the turnover and when that is done, it is a mere question of fact. Secondly, he drew our attention to a Bench decision of this Court in M/s. ST.REV.CASE NO.84/2012 9 K.P.K. & Sons, Ernakulam v. State of Kerala (1998 (6) KTR 676 Ker.). Therein, it was a case where, on the same goods, the petitioner had shown a gross profit of 36.57% on the sales tax paid goods. Much lesser gross profit at 13.26% was shown on the taxable sales. The court, inter alia, held as follows:
"3. On these facts, the assessee absolutely failed to explain successfully before the assessing authority as well as before the Tribunal as to how there was such a big variation in the gross profit rate on the tax paid goods and taxable goods sales. The Tribunal observed that when the assessee was dealing in the same commodity - taxable or non-taxable, then, it was not understandable as to how there was more public demand of non-taxable or tax paid goods.
5. Before us also, learned counsel for the assessee failed to explain successfully as to how there was such a big variation in the gross profit rate on the taxable goods and tax paid goods or non-taxable sales. When proper accounts were not maintained, the assessing authority was free to make the best judgment assessment."
ST.REV.CASE NO.84/2012 10
10. This is a case where the petitioner had returned a loss in respect of taxable sales. For the same commodities which are non- taxable being second sales, on the other hand, petitioner has declared a net profit of over 100%. We notice further that the learned counsel for the petitioner would submit that as far as the State of Kerala is concerned, petitioner has not maintained a stock register for taxable and non-taxable sales of the very same commodities. In the circumstances, we do not think that the petitioner has made out a case for interference with the order of the tribunal. Accordingly, we dismiss the St.Rev.Case.
Sd/= K. M. JOSEPH, JUDGE Sd/= K. HARILAL, JUDGE kbk.
//True Copy//