THE  MADRAS  ELECTRIC  TRADES  ASSOCIATION
(REGD. UNDER THE SOCIETIES REGN. ACT NO:XXI  OF 1860)
93, GOVINDAPPA NAICKEN STREET, II FLOOR,CHENNAI-600 001.
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To
All the Members of Our Association.

Dear Sir,

                We are pleased to communicate the gist of the judgment reported, in VST Cases Volume 30 part 4, Page No. 356, 416, 426 for your kind information and guidance.

Thanking You,

Yours Faithfully,
FOR THE MADRAS ELECTRIC TRADES ASSOCIATION,

[CHANCHAL RAJ KHIMSURA]
HON. GENL. SECRETARY.

[IN THE BOMBAY HIGH COURT]

STATE OF MAHARASHTRA

v.

KETAN ENTERPRISES AND ANOTHER

V.C. DAGA and K.K. TATED

January 29, 2010.

        SALES TAX –REASSESSNEBT–JURISDICTION– NO REASON RECORDED BY ASSESSING OFFICER IN SUPPORT OF DECISION TO ISSUE NOTICE – ASSUMPTION OF JURISDICTION – REASSESSMENT SET ASIDE – “REASON TO BELIEVE” MEANING OF – BOMBAY SALES TAX ACT (51 OF 1959), S. 35(1)

        The expression “reason to believe” in section 35(1) of the Bombay sales Tax Act, 1959, postulates belief and the existence of reasons for that belief. The words suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Sales Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The existence of reason(s) to believe is supposed to be the check, a limitation upon the power to reopen the assessment, The satisfaction arrived at by the officer concerned is immune from challenge but where the satisfaction is not based on any material or it cannot withstand the test of reason, which is an integral part of it, then it falls through and the court is empowered to strike it down. Belief may be subjective but reason has to be objective. The existence of reasons for the belief is certainly justifiable but not the sufficiency of the reason. lt is, therefore, necessary for the assessing officer to record reasons so that they can be supplied to the assessee in the event of demand by him. In the event of challenge, the higher forum is entitled to examine, it being justiciable. In short, the expression “reason to believe” mandates that before jurisdiction under Section 35(1) is invoked by the assessing officer, he has to record his reasons for doing so or before issuing notice under section 35(1) of the Bombay Sales Tax Act.

        The assessee, a reseller in sulphur, iron and steel, was assessed to nil tax under section 33(2) of the Bombay Sales Tax Act. Thereafter based on a letter fro the Sales Tax Officer (Enforcement branch) that the assesses had effected purchases of sulphur during the relevant period on high seas basis from MMTC and sold it locally without payment of tax the assessing officer issued a notice to the assessee and after hearing the assessee passed the assessment order under section 35(1) (b) of the Bombay Sales Tax Act raising a demand,. On an appeal preferred by the assessee the order of reassessment was confirmed. The Tribunal on second appeal set aside the order of reassessment and the order of the first appellate authority. The Department’s application for rectification of the order was rejected. On a writ petition:

        Held, dismissing the petition, that, it was seen from the material available that no reason had been recorded by the assessing authority in support of his decision to issue notice. There was nothing to show that the Sales Tax Officer took any step to ascertain the factual matrix before issuing notice. The proceedings for reassessment were initiated without application of mind,, ascertaining the facts and recording reason in support of the belief formed by the Sales Tax Officer under section 325 of the Bombay Sales Tax Act. The assessing officer had assumed jurisdiction by initiating reassessment proceedings. The assessment order was thus rightly set aside by the Tribunal. (The court observed that sine the decision had been given on the basis issue holding erroneous assumption of jurisdiction by the assessing officer, it was not necessary to examine the merits or demerits of the reassessment order.)

[IN THE MADRAS HIGH COURT]

LAKSHMI ELECTRICALS.

v.

STATE OF TAMIL NADU

D. Murugesan and P.P. S. Janarthana Raja.

February 17, 2010.

        SALES TAX – PENALTY – SUPPRESSION OF TURNOVER – STOCK BOOK AND PURCHASES NOT WRITTEN UP TILL DATE OF INSPECTION – PURCHASE BILLS RAISED LONG AFTER DELIVERY CHALLANS – SUPPRESSION ARRIVED AT BY ADDDING GROSS PROFIT AS SHOWN IN PRECEDING YEAR TO PURCHASE VALUE OF EXCESS STOCK – PROPER –– LEVY OF PENALTY JUSTIFIED – TAMIL NADU GENERAL SALES TAX ACT(1 of 1959), s.12(3)B.

        For the assessment year 1993-94 the Tribunal confirmed the order relating to sales suppression recording the findings that at the time of inspection on December 7, 1993, the day book was written up to December 4, 1993 and the cash balance was not struck from May 3, 1993 that since the appellant had not maintained the stock account for purchases made from outside the state the inspecting Officers had to verify the correctness of the stock with reference to a value based trading account, which revealed an excess stock of Rs. 50, 546 and adopt an over all gross profit of 42 per cent as revealed from the books of accounts for the previous year 1992-93. The Tribunal held that the explanation that the appellant had purchased the goods under the cover of delivery challan and the connected purchase bills were received subsequently was not acceptable as the purchase bills were raised long after the raising of delivery challan. Holding that but for the inspection by the enforcement wing the excess stock would have gone unnoticed, the tribunal sustained the actual sales suppression arrived at by adding 42 per cent gross profit to the purchase value of excess stock and confirmed the levy of penalty under section 12 (3) (b) of the Tamil Nadu General Sales Tax Act, 1959. On a revision petition:

        Held, dismissing the petition, that the Tribunal had considered all the facts and circumstances of the case and rendered a factual finding. There was no illegality or irregularity in the order passed by the Tribunal.

[IN THE KERALA HIGH COURT]

STATE OF KERALA

v.

CROMPTON GREAVES LTD

C.N. RAMACHANDRAN NAIR and V.K.MOHANAN JJ.

October 14, 2010.

        SALES TAX – CENTRAL SALES TAX – INTER –STATE SALES – CONCESSIONAL RAE OF TAX – MERE PRODUCTION OF FORM C NOT SUFFICIENT PROOF – GOODS TRANSPORTED FROM FACTORIES IN NORTH INDIA TO KERALA AND FROM THERE TO MAHE – ASSESSING OFFICER ENTITLED TO CALL FOR PROOF OF INTER-STATE MOVEMENT OF GOODS – CENTRAL SALES TAX ACT (74 Of 1956), s. 3(a), (b).

        Mere production of C form is not sufficient proof of physical transport of goods from one State to another. The C form only shows that an inter-State purchase for local sale is accounted by a dealer in one State. If dealers in two States collude, the dealer can account local sales as inter-State sales by getting the dealer in the other State to account bogus inter-State purchase sand sales. Since the sale covered by section 3(a) or (b) of the Central Sales Tax Act, 1956 should necessarily involve movement of goods from one State to another, it is within the powers of the assessing officer to demand documents towards proof to transport of goods from the depot of the dealer to the purchaser in the other State. It is up to the Department to cross-check the documents of transport with entries in the check-post register to verify whether there was physical transport of goods.

        MUTHU AND COMPANY v. INTELLIGENCE OFFICER (IB) (2008) 17 VST 300 (Ker) relied on. The respondent-dealer was engaged in the sale of products manufactured by it. The manufacturing facilities were outside Kerala and the local office was a selling branch engaged mostly in local sales. During the year 1999-2000, the dealer accounted inter-State sales to Mahe. Even though C forms were produced to claim the concessional rate of tax, the assessing officer demanded form the dealer proof of transport of goods from the depot in Kerala to the buyer in Mahe, which the dealer failed to produce. Consequently the C forms were rejected and the turnover was assessed under the Kerala General Sales Tax Act, 1963. The dealer’s appeals were dismissed, but the Tribunal based on the C forms produced by the dealer allowed the appeals. On a revision petition:

        Held, allowing the petition, that the transaction was suspicious because the goods had reached from manufacturing facilities in North India to Kerala and again they were transported t dealers in Mahe for local sale there and the dealer would suffer heavy loss on account of unnecessary transportation of the very same goods for 500 kilometers. In other words, the sale could have been made by the dealer’s factory directly to the dealer in Mahe or at least its branch could have made inter-State sales in the course of movement of the goods form the factory to the branch at Cochin thereby saving freight for 500 kilometers. Failure of the dealer to prove inter-State movement would justify assessment of the turnover under the Kerala Act. The order of the Tribunal allowing the appeal just based on the C forms produced was not sustainable. However, one more opportunity could be granted to the dealer to produce available proof of inter-State movement of gods before the assessing officer for the officer to reconsider the matter and if required, cross-check the check-post records if available. If proof of inter-State movement was produced for substantial quantity of the turnover, then the entire claim should be allowed. If the dealer failed to produce documents of substantial turnover of inter-State sales, the Tribunal’s order would stand reversed and the assessments made under the Kerala Act stand confirmed.