Brindavan Steel Industries vs Additional Commissioner of Commercial Taxes, Zone I and Others

B.V. Nagarathna, J.—This appeal is filed by the assessee challenging the order dated August 30, 2008 passed by the first respondent herein and the assessment order dated October 14, 2004 passed by the Additional Commissioner of Commercial Taxes, Zone 1, Bangalore, first respondent herein and seeking confirmation of the order dated February 14, 2005 passed by the third respondent herein.

The facts of the case are that the appellant-assessee is a partnership firm dealing in iron and steel products. For the year 2001-02 the appellant had filed returns declaring its total turnover at Rs. 1,58,10,198 and had claimed exemption under the KST Act on the ground that the entire iron and steel purchased by it was from registered dealers within the State and being second and subsequent dealers in the State was not liable to pay taxes. The second respondent hereinafter verifying the appellant''s books of accounts, had passed an order of assessment determining the appellant''s total and taxable turnover at Rs. 1,91,13,566.47 and Rs. 33,03,367.50, respectively, and had levied tax of Rs. 1,32,135.

Being aggrieved by the said order, the appellant had preferred an appeal before the third respondent herein who allowed the appeal with a direction to the assessing authority to re-compute the total and taxable turnover in the light of the observations made in his order and to calculate the tax and issue revised demand notice. On verification of the order in appeal, the first respondent initially issued an order of stay of the appellate order dated February 14, 2005 by its order dated February 26, 2008. Thereafter notice u/s 22A of the KST Act was issued to the appellant, to which detailed objections were submitted. Though opportunity was granted, the appellant did not appear. The revisional authority, namely, the first respondent herein, held that there was no proof for seeking exemption of payment of taxes in the absence of production of form 32B, as that is the only piece of evidence requisite for seeking exemption in accordance with law. Since the appellant also had failed to appear to represent the case, the claim for exemption sought by the appellant was rejected u/s 6A of the Act and the assessing authority was directed to levy tax at four per cent on the purchases of iron and steel at Rs. 32,63,367.50 in the absence of form 32B. The said order has been questioned in this appeal.

We have heard Sri Ashok S. Menasinakai, learned Counsel for the appellant and Smt. Geetha Menon, learned Additional Government Advocate for the respondent/State.

It is contended on behalf of the appellant that the first dealers of the material in question were South Central Railway (Rs. 11,15,106) and Panyam Cements (Rs. 11,01,759). u/s 38 of the Act for goods worth Rs. 22,16,865, the appellant claimed exemption. Initially, the assessing authority rejected the exemption on the ground that form 32B was not produced, but the appellate authority had passed an order of exemption. However, the first respondent herein had exercised suo motu revisional power and had restored the order of the assessing authority on the ground that form 32B had not been produced by the appellant. According to the Counsel for the appellant, the production of form 32B declaration cited in the Rules is only a technical formality. That South Central Railway is a Central Government organization and not a registered dealer in the State of Karnataka and therefore it could not issue such a form and when the said entity as well as Panyam Cements had collected sales tax on the purchase of goods, the appellant was not liable to pay tax on subsequent sale, as he is only a subsequent dealer of goods. According to the learned Counsel for the appellant, the appellant could not produce form 32B, as the same were not counter-signed and hence a separate application has been filed producing the said forms and therefore,, on the basis of the said material, relief be granted to the appellant.

Per contra, it is contended on behalf of the respondent/State that as per Section 6A of the Act, the burden of proof for any transaction not being liable to tax lies on the dealer and any exemption claimed in the instant case must be sought in accordance with law. But in the instant case, in the absence of there being a declaration in form 32B any other evidence cannot be accepted for the purpose of seeking exemption and therefore, the revisional authority was justified in setting aside the order of the appellate authority and restoring the order of assessment. She therefore, submits that the appeal requires to be dismissed.

On perusal of the material on record, it is not in dispute that the railway is not a registered dealer in Karnataka from whom scrap was purchased by the appellant. It is also not in dispute that scrap material was also purchased from M/s. Panyam Cements and Mineral Industries and in respect of the said transactions, declaration in form 32B was not produced. u/s 6A of the Act, the burden of proving any transaction or any turnover of the dealer being not liable to tax, lies on such dealer. A dealer u/s 6A(2) of the Act a dealer in any of the goods is liable to tax in respect of the first sale or first purchase in the State is deemed to be the first seller or first purchaser and shall be liable to pay tax accordingly on his turnover of sales or purchases relating to such goods, unless he proves that the sale or purchase, as the case may be, of such goods had already been subjected to tax under the Act. The proviso however, states that where goods liable to tax are iron and steel mentioned in Sl. No. 2 of the Fourth Schedule, every dealer of such goods shall furnish a declaration duly filled and signed by the registered dealer from whom such goods are purchased containing prescribed particulars in prescribed form obtained from the assessing authority to prove that the sale or purchase, as the case may be had already been subjected to tax and seller of such goods shall issue the declaration to the buying dealer. In respect of transactions which have concluded by March 31, 1996 and March 31, 1997 the buying dealer may prove that the goods have already been subjected to tax notwithstanding his failure to furnish the declarations specified.

Thus for claiming exemption on the purchase of goods liable to first purchase, the assessee should prove that the purchases by the earlier dealers are liable to tax. But the burden of proving that the purchase of assessee is the last purchase, is on the Department. Normally, when form 32B is filed, it should be accepted unless it is proved by positive evidence that the assessee is the first dealer liable to tax. In view of Section 6A of the Act in order to claim any exemption, it is mandatory to furnish the declaration form and not by providing any alternative or secondary evidence.

In the application filed under Order XLI, Rule 27 read with Section 151 of the CPC by the appellant, it is stated that since form 32B was not countersigned by the first sellers at the relevant point of time, the appellant could not produce the said forms, but he produced only the purchase bills. In view of form 32B now being counter-signed by the sellers, the same has been produced.

On perusal of the said documents, it is seen that the date of issue of the same is July 10, 2001, but have been handed over to the appellant only recently, i.e., subsequent to the order of the revisional authority impugned in this appeal. In response to the said application it is stated that before the assessing authority or the revisional authority, the said documents were not produced and that form 32B produced along with the application does not comply with Rule 6A of the KST Rules and the said documents are not the relevant documents and therefore, the said application has to be rejected. Though the above objections have been filed to the production of the said documents, considering the fact that if the said documents are in order and in compliance with Section 6A read with Rule 6A, the appellant would be entitled to seek exemption, then the interest of justice would demand that the matter be remanded to the assessing authority to take into consideration the said documents and consider as to whether the appellant would be entitled to exemption in accordance with law and pass orders accordingly. As the said documents are produced before this Court for the first time, we do not express any opinion on the correctness or otherwise and validity of the said documents.

For the aforesaid reasons, the order passed by the revisional authority dated August 30, 2008 is set aside and a direction is issued to the second respondent to consider the said documents and pass an order in accordance with law. Since we are remanding the matter to the assessing authority, the said authority is also directed to consider the case of the appellant with regard to the exemption sought by the appellant in accordance with law. In view of this order, the order passed by the appellate authority (third respondent herein) would also have no effect.

Accordingly, the appeal is allowed. The matter is remanded back to the second respondent with a direction to consider the additional evidence filed in this appeal in terms of the relevant provisions of the Act and the Rules and pass orders accordingly.