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The assessment order passed by the first respondent on 29.04.2014, for the tax period 2008-09 to January, 2012, is questioned in this Writ Petition as being arbitrary, illegal, without jurisdiction, partly barred by limitation, in violation of principles of natural justice and contrary to the provisions of the A.P. VAT Act, 2005 (hereinafter called the Act).

The petitioner, a proprietary concern, is a registered dealer under the Act and under the Central Sales Tax Act, 1956 on the rolls of the first respondent. They carry on wholesale and retail business in edible oils i.e., groundnut oil, palm oil, sun flower oil, rice bran oil, cotton seed oil etc. It is their case that they purchase edible oils from various registered VAT dealers from all over the State and sell the same within the State; they are entitled to 100% input tax credit, of the tax paid by them to their vendors on the purchases made by them, as per Section 13(1) of the Act; the only condition prescribed therein, for being entitled for input tax credit, is that the dealer should be in possession of the tax invoices issued by the selling VAT dealer; for the earlier tax period 2005-06 and 2006-07 (Part), the first respondent issued assessment and penalty proceedings; the Writ Petition filed thereagainst was admitted and conditional stay was granted; the said Writ Petition is pending; for the subsequent tax period from 2008-09 to January, 2012, the first respondent issued show-cause notice dated 06.03.2014, beyond the period of limitation of four years prescribed under Section 21 of the Act, for a part of the said period; they submitted their reply taking various objections including the ground of limitation; the first respondent passed an assessment order dated 29.04.2014 disallowing input tax credit and raised a demand of Rs.46,78,605/-; the first respondent disallowed input tax credit in respect of edible oils purchased by the petitioner from eight dealers who, at the time of the purchases, were all admittedly real and existing registered VAT dealers in the State with TIN numbers and had issued tax invoices in favour of the petitioner; they had also issued way bills obtained from the Commercial Tax Department; the first respondent held that, though these eight dealers were existing and registered VAT dealers in the State and had issued tax invoices clearly showing collection of tax, they had physically not sold the edible oils to the petitioner, and had only issued paper bills to them; the petitioner had purchased edible oils from outside the State of A.P and had sold the same within the State of A.P; they had used the bills issued by these eight dealers for claiming input tax credit on such sales; this finding of the first respondent is illegal, contrary to the facts, and based on mere assumptions, presumptions and conjectures; the petitioner purchased goods only from local registered VAT dealers; there were no inter-state purchases made by them; M/s.Sri Lakshmi Oil Traders, Jaggaiahpet had delivered groundnut oil to the petitioner through heavy vehicles only, and had issued tax invoices and way bills to them; the petitioner, in turn, had sold palm oil to the said vendor; these transactions were supported by tax invoices and way bills; this is sufficient to claim input tax credit under Section 13(1) of the Act; the first respondent treated this transaction as a bogus transaction; he held that only a paper bill was issued by the vendor without physical delivery of the goods on the ground that firstly, on verification of the vehicle numbers in the Transport Department portal, they were found with the description status and registration status for the vehicles, as data not found, light motor vehicles, two wheelers, tractors etc.; as these vehicles are heavy vehicles, they would not be found under light motor vehicles, two wheelers, tractors category; the other ground is that no payment was made by the petitioner to the vendor for these purchases; as there were some disputes between the petitioner and the said vendor regarding quality of oil, which was later settled, the petitioner had supplied RBD palm oil in lieu of payment; such incidents are common in the nature of their business; with regards purchases from M/s. Sai Kendriya Trading company, Nellore the first respondent disbelieved the same on the ground that, on enquiry from the assessing authority of that dealer, it was informed that, though the said dealer was a registered dealer, he was carrying on business in prawn seeds, aqua culture and not edible oils; the said dealer did business upto June, 2011 and had left the place of business without intimation; on this basis, the first respondent concluded that the said dealer had not made any sales of edible oils to the petitioner, but had issued only sale bills; in the invoices and way bills issued by the dealer, edible oils were clearly mentioned; if there was any violation of the registration certificate by the said dealer, it is for the department to take action against him, but the transaction could not disbelieved; the first respondent further held that, though the purchases by the petitioner from said dealer were made through two different agents, the tax invoices and way bills were signed by a single person i.e., Sri K.L.N. Reddy as the proprietor; on this ground the first respondent had strangely concluded that the transactions were not genuine; another irrelevant ground taken by the first respondent was that the vendor had supplied oil to the petitioner by the same tankers through which they had obtained the same from outside the State; the first respondent also held that, though the vendor was situated at Nellore, payments were made by the petitioner at Proddatur; as per the instructions of their vendor, the petitioner had made payments by bank transfer to the vendors account at Proddatur; this cannot be a ground for rejection of the transaction; in the case of purchases made from M/s. Kaveri Oil Trading Company, Naidupet, the first respondent disbelieved the same on the ground that the selling dealer did not report the sales made to the petitioner, and the whereabouts of the proprietor of the said dealer was not known; these are not valid grounds for disbelieving the transactions; the first respondent disbelieved purchases made from M/s. New Sreenivasa Traders, Piler on the ground that, though the said dealer was a registered dealer, he was dealing in confectionary, atta, maida, dry chillies, tamarind, copra, spices etc; the tax invoices and the way bills issued by the said dealer clearly mentions edible oils; the registration certificate of the said dealer does not contain details of any commodities; in respect of the said dealer and three other dealers viz., SrI Lakshmi Srinivasa Traders, Cumbum, Nellore District, Sri Lakshmi Venkateswara Traders, Nellore and Sri Ganesh Trading Company Tirupati, the assessing authority disbelieved the transactions on the ground that the sale invoices of these four dealers were signed by one person ie Sri Y. Rajendra Prasad; as Sri Y. Rajendra Prasad is the proprietor of the said four concerns, there is nothing wrong in his signing the sale invoices issued by the four concerns; likewise, the first respondent took an objection that Sri K.L.N. Reddy had signed the invoices in respect of two firms viz., Sri Kendriya Trading Company, Nellore and Sri Hari Traders, Tirupati; as the said person was authorised to sign on behalf of the said two firms, there was no basis for the first respondent to disbelieve the transactions; the selling dealers of the petitioner are real and existing; they were registered dealers and had issued sale invoices and way bills to the petitioner; these dealers became liable to pay tax as first sellers; it is for the department to make assessment and collect taxes from them; the duty of the second seller is only to produce the tax invoices issued by a real and identifiable first seller; payment was made by the petitioner to their vendors by way of cheques and RTGS; this is sufficient to prove the genuineness of the transactions; way bills were issued to the dealers by the Commercial Tax Department manually during that period; the dealers had to submit details of utilisation of way bills to their respective assessing authorities; as the vendors of the petitioner had issued way bills, and had submitted utilization statements to their respective assessing authorities, their genuineness could not be doubted; in respect of a part of the period, the assessment order is barred by limitation of four years stipulated under Section 21(3) of the Act; the first respondent is not justified in holding that, as the petitioner had wilfully evaded tax, the period of limitation applicable was six years as per Section 21(5) of the Act; the petitioner had reported their turnover, and had submitted documents such as tax invoices, way bills, payment particulars and all its records; none of these transactions were unreported or suppressed; and it is Section 21(3) and not Section 21(5) which is applicable to them.

With regards M/s. Sai Kendriya Trading Company, Nellore, the show cause notice records the report of the Commercial Tax Officer, Nellore that they had taken VAT registration for carrying on business in prawn seeds and aqua culture, but not for edible oils; the office records revealed that they had carried on business upto June, 2011 and had left the place of business without intimation; it was evident that the dealer had made sales of bills only; they had neither reported the turnover nor had they paid taxes to the department; it was clear that they had not sold edible oils to the petitioner; and the input tax credit claimed by them ought to be disallowed. The show cause notice further records that, on verification of the tax invoices and way bills attached thereto, it was clear that the petitioner had not purchased goods directly from M/s. Sai Kendriya Trading Company, Nellore, but through their agents at Proddutur i.e., M/s. Sree Sai Trading Company, Proddutur and M/s. Sadguru Trading Co, Proddutor; though the agents were different, all the invoices and way bills were signed and issued by one single person i.e., Sri K.L.N. Reddy as the proprietor of M/s. Sai Kendriya Trading Company; this showed involvement of third parties in the transactions, instead of the registered VAT dealer; the way bills enclosed with the tax invoices showed that the goods were consigned from Nellore to Vijayawada; the CTO, Nellore had reported that only sale of bills had taken place, and not of goods; the entries in the way bills, that the goods were consigned from Nellore to Vijayawada, were also incorrect; the said way bills were used with the malafide intention of causing revenue loss to the Government; the petitioner had made all payment, in favour of M/s. Sai Kendriya Trading Company, Proddutur instead of M/s. Sai Kendriya Trading Company, Nellore though the tax invoices made no mention of the existence of a branch at Proddutur nor were there any instructions on the said tax invoice for payment to be made in favour of Proddutur Branch only; it was evident that the petitioner did not purchase goods from the registered VAT dealer, but from a third party; the tax invoices were also issued by a third party which had no validity and sanctity; while the way bills enclosed to the invoices showed that goods were consigned from Nellore to Vijayawada, the General Information Service (GIS) data showed that, in a large number of cases, the vehicle had passed through the State by obtaining transit passes; the vehicles had entered the State through one check post and had exited from another; curiously, during the very same period, the sales invoices raised in the name of M/s. Sai Kendriya Trading Company showed that edible oil been sold by using the same tanker, and was delivered to the petitioner; this data showed that the goods were not actually consigned from Nellore to Vijayawada, but was coming from out of the State; the petitioner was the first seller in the State; and they had claimed input tax credit, producing false tax invoices, in connivance and collusion with agents at Proddutur.

The show-cause notice dated 06.03.2014 alleges that M/s. Sri Lakshmi Oil Traders, Jaggaiahpet had issued fraudulent sales tax invoices to accommodate input tax credit to the petitioner, and to enable them to avoid payment of output tax at their end; transfer of property had not taken place; the whereabouts of the proprietor of the selling dealer was not known; the petitioner was not eligible to claim input tax credit as the selling dealer was involved in fraudulent issue of invoices without transfer of property; and the petitioner had acted in collusion with the above said dealer, and had wrongly claimed input tax credit for which they were not eligible. With regards M/s. Sai Kendriya Trading Company, Nellore, the show cause notice alleges that the said dealer had taken VAT registration for carrying on business in prawn seeds and aqua culture, but not for edible oils; they were not carrying on any business after June, 2011; the dealer had made sales of bills only and had not sold edible oils to the petitioner; the petitioner had not purchased goods directly from M/s. Sai Kendriya Trading Company, Nellore, but through their agents at Proddutur; the way bills enclosed with the tax invoices showed that the goods were consigned from Nellore to Vijayawada; the GIS data showed that, in a large number of cases, the vehicle had passed through the State by obtaining transit passes; the very same vehicle, which had entered the State through one check post and had exited from another, were shown to have transported edible oil from the selling dealer to the petitioner; this showed that the goods were not actually consigned from the selling dealer to the petitioner; the goods came from outside the State; and, though the petitioner was the first seller in the State, they had claimed input tax credit producing false tax invoices in connivance and collusion with agents at Proddutur. Similar allegations are made with respect to the edible oil which the petitioner claimed to have purchased from Sri Kaveri Oil Trading Co. Naidupet, M/s. New Sreenivasa Traders, Piler, Sri Lakshmi Srinivasa Traders, Cumbum, Nellore District, Sri Ganesh Trading Company, Tirupati and Sri Hari Traders, Tirupati. The show-cause notice concludes by stating that the petitioner had taken delivery of edible oil coming from outside the State, without disclosing the out of State purchase of edible oil; they had obtained bogus tax invoices, through agents at Proddutur, and were claiming input tax credit with the malafide intention of benefiting therefrom; they were restricting payment of output tax, in the shadow of local purchases, claiming input tax credit though they were the first seller in the State; and, right from the initial stage of these transactions, the petitioners intention was to evade payment of the legitimate tax due to the State exchequer, by adopting dubious methods.

The show cause notice dated 06.03.2014 refers to the reports received by the first respondent from various commercial tax officers. With regards Sri Lakshmi Oil Traders, Jaggaiahpet, Krishna District, the CTO, Nandigama circle, in his report dated 30.04.2012, informed that he had visited the business premises mentioned in the registration report; no business activity was taking place therein; he had conducted a panchanama; the neighbours had stated that they had never seen any business activity and no business was being conducted by the proprietor Sri Jammula Gowri Shankar except for a painting board in the said premises. With respect to M/s.Sai Kendriya Trading company, Nellore, the CTO Nellore III, in his report dated 04.07.2012, informed that, on verification of the office record, it wa found that the dealer had carried on business upto June, 2011, and had left the place of business thereafter without intimation; and it was clear that the dealer had made sales of bills only, and had neither reported the turnover nor had paid tax to the Government. With respect to M/s.Kaveri Oil Trading Company, Naidupet, the CTO, Gudur circle, in his report dated 07.07.2012, informed that, when they visited the place of business and on enquiry with the neighbours regarding the firm/proprietor of the firm or any authorized person, it was revealed that the whereabouts of the proprietor was not known. With regards M/s.New Sreenivasa Traders, Piler, the CTO, Madanapalle, by his report dated 16.02.2013, informed that the dealer had not reported the turnover for the period from February, 2009 till date. With regards Sri Lakshmi Venkateswara Traders, Nellore, the CTO, Nellore, in his report dated 25.06.2013, informed that, on visit of the dealers premises, the proprietor of the firm was nowhere to be found; and, on enquiry, the neighbours had informed that his whereabouts were not known. It is evident, therefore, that the aforesaid selling dealers were neither carrying on business nor were their whereabouts known. Failure of the first respondent to summon dealers, (who were not even carrying on business in the said premises and whose whereabouts were not known), for being subjected to cross-examination by the petitioner cannot be said to be in violation of principles of natural justice. As the said dealers were not even available for examination by the concerned commercial tax officers, the question of making them available for cross-examination by the petitioner does not arise.