Prem Narain and Company vs State of Punjab

B.S. Walia, J.—Vide order dated 24.9.2010, VAT Tribunal, Punjab, Chandigarh, has referred the following question of law to this Court for its opinion:-

"Whether in the facts and circumstances of the case where the contention of the appellant/assessee that the goods had been returned by the dealer i.e. the present applicant/appellant to M/s. Escorts Ltd. Faridabad, on cancellation of the agency and the bills had been duly verified with books of accounts by the assessing authority at the time of assessment, then penalty under Section 14-B(7)(ii) of PGST Act on the ground that the goods were not accompanied by proper and genuine documents shall be sustainable."

Brief facts of the case are that truck No. PLS-9349 carrying goods while leaving the State of Punjab was intercepted and checked by the ETO at ICC Shambhu on 06.05.2001. The truck driver reported at the ICC while leaving the State of Punjab. On production of documents relating to the goods i.e. tractor parts the detaining officer observed that the documents were not proper and genuine. A representation was made on behalf of the dealer before the detaining officer and bill book from which bill Nos. 1655, 1656 to 1681 had been issued was produced. However the same was found to be not from the current bill books. The same was also found to be not mentioned in the account books. The matter was reported to the authorized officer, who after going through the facts of the case and hearing counsel for the appellant imposed a penalty of Rs.1,65,000/- u/s 14-B(7)(ii) of the Punjab General Sales Tax Act, 1948 (in short "the Act") vide order dated 27.11.2001. An appeal filed against order dated 27.11.2001 was dismissed by the Joint Director (Enforcement), Patiala, vide order dated 06.08.2002. A further appeal before the Value Added Tax Tribunal, Punjab, Chandigarh (for short ''Tribunal''), was dismissed vide order dated 07.04.2003. Thereafter an application u/s 22(1) of the Act was filed for referring the matter for the opinion of the High Court on 9 questions of law. The Tribunal vide its order dated 21.08.2008 referred only the below mentioned composite question of law for the opinion of the High Court:

"Whether in the facts and circumstances of the case where the contention of the appellant/assessee that the goods had been returned by the dealer i.e. the present applicant/appellant to M/s. Escorts Ltd. Faridabad, on cancellation of the agency and the bills had been duly verified with books of accounts by the assessing authority at the time of assessment, then penalty under Section 14-B(7)(ii) of PGST Act on the ground that the goods were not accompanied by proper and genuine documents shall be sustainable."

The High Court, vide its order dated 30.04.2010 in VATREF No. 2 of 2008 held that the reference made needed further examination by the Tribunal, therefore, remitted the case to the Tribunal for a fresh statement of case and questions to be framed on the basis of facts given in the first order of the Tribunal. It is in the aforementioned circumstances that the brief facts of the case, as have been referred to above, were prepared.

The order of reference further mentions that as per argument of the counsel for the appellant, the appellant was agent of M/s. Escorts Ltd. Faridabad. The agency was cancelled vide letter dated 18.07.2000 and goods being carried were not for sale, but were being returned to M/s. Escorts Ltd. Faridabad. A declaration at the ICC had been duly generated and even a written statement was filed before the AETC, explaining the factual as well as legal position. It is in the aforementioned circumstances that the question referred to the High Court for its opinion was formulated and as has been referred to at the outset.

We have heard learned counsel for the parties and perused the paper book, as also the orders attached therein and are of the view that the reference has to be answered in favour of the assessee for the reasons mentioned hereunder.

A perusal of the paper book (order of the VAT Tribunal, Punjab dated 21.08.2008) reveals that the appellant was an agent of M/s. Escorts Ltd. Faridabad and that its agency was cancelled vide letter dated 18.07.2000. The goods being carried were not for sale and were being carried for being returned to M/s. Escorts Ltd. Faridabad. Information regarding this fact was duly generated at the ICC and even a written statement was filed before the AETC explaining the factual and legal position. Assessment for the year 2001-02 had been completed by the assessing authority and all books and documents had been produced and the assessing authority, after duly verifying the documents relating to return of goods of the value of Rs.5,58, 557/- against bill Nos. 1655 and 1656 to 1681 had accepted the position as taken by the appellant and framed assessment vide order dated 05.05.2008. A copy of the assessment order dated 05.05.2008 has been produced before us. A relevant extract of the same is reproduced below:-

"The books produced by the firm have examined at length and during the course of examination of books of accounts it was noticed that the dealer has made goods returned to Escorts Ltd., Faridabad on cancellation of agency/dealership through bill Nos. 1655, 1656 to 1681 are in continuation and the same are for Rs.558557/-. These bills were duly cross verified with books of accounts. The goods returned as mentioned above is only on account of termination of dealership as such no tax is payable on these goods."

It would be relevant to mention here that against the order of the Tribunal dated 07.04.2003, CWP No. 6435 of 2005 had been filed in the High Court, which was dismissed as withdrawn vide order dated 13.12.2006, granting permission to the petitioner to avail remedy of reference, where after reference was filed.

A penalty of Rs.1,65,000/- had been imposed under Section 14-B(7)(ii) of the Act, in view of the conclusion of AETC, ICC, (Export), Mehmoodpur that the goods were meant for trade as they were not covered by proper and genuine documents and an attempt to evade tax is proved. A perusal of the order of Tribunal dated 21.08.2008 reveals that during the course of arguments, the appellant had produced record i.e. credit note issued by M/s. Escorts Ltd., Faridabad, for goods so received, on cancellation of agency, as also assessment proceedings as finalized and bill books and contention of the appellant having been accepted by the assessing authority that the goods of the value of Rs.5,58,557/- against bill Nos. 1655 and 1656 to 1681, had been returned on cancellation of the agency.

On the other hand, the sole argument on behalf of the department was that the AETC, ICC, (Export), Mehmoodpur, had come to the conclusion that bills were not from the regular bill books and therefore goods were meant for trade and reflected an attempt to evade tax being not covered by proper and genuine documents. Likewise, perusal of order dated 06.08.2002 passed by the Joint Director (Enforcement), Patiala Division, Patiala, in appeal filed by the assessee, was on the basis that there was no mention of stock transfer in the bills accompanying the goods and the bills in question not having been issued from regular bill book and the appellant had failed to establish the bona fide of the documents, therefore, it was held to be an attempt had been made to evade tax. The AETC, ICC, (Export), Mehmoodpur, had imposed a penalty of Rs.1,65,000/- vide order dated 27.11.2001 by observing that bill No. 1661 to 1700 had been issued and that said bill book had been produced but the said bill book did not find mention in the current account books and further that bills prior to the date of transaction in issue in the instant case did not find place in any account books. The AETC, ICC, (Export), Mehmoodpur by referring the provisions of Section 6(A) of the Central Sales Tax Act held that the burden was cast on the dealer to prove that the goods were transferred by him otherwise than by way of sale, but that the dealer had not produced any document to substantiate that it was a case of stock transfer of goods and that no account books, stock register for verification of accompanying bill was produced and that only document produced was bill book which conclusively proved that bills were not issued from the regular bill books. In the light of the above, the AETC, ICC, (Export), Mehmoodpur, held that the goods were meant for trade and were not covered by proper and genuine documents therefore there was an attempt to evade tax for which penalty of Rs.1,65,000/- under Section 14-B(7)(ii) of the Act was imposed.

The question referred to this Court has to be answered in favour of the assessee for the reason that once the agency stood cancelled and M/s. Escorts Ltd., Faridabad had given a credit note for the goods (facts that have gone unchallenged by the revenue), besides assessment having been framed, bill books and the stand of the appellant having been accepted by the assessing authority that the goods of the value of Rs.5,58,557/- against bill Nos. 1655 and 1656 to 1681, had been returned by the appellant to M/s. Escorts Ltd., Faridabad, on cancellation of the agency, there was no question of there being any attempt to evade tax. A perusal of Section 14(B)(7)(ii) of the Act reveals that the sine qua non for imposing penalty is a conclusion on the basis of an enquiry by the concerned officer that there has been an attempt to avoid or evade tax under the Act. The bill Nos. 1655, 1656 to 1681 were produced before the AETC, ICC, (Export), Mehmoodpur, alongwith bill books. However, the same was disbelieved on the ground that the bill book did not find place in the current account books. Once the assessing authority has finalized the assessment proceedings vide order dated 05.05.2008 by accepting the stand of the assessee that the appellant had returned the goods to M/s. Escorts Ltd., Faridabad, through bill Nos. 1655, 1656 to 1681 dated 05.05.2001 to M/s. Escorts Ltd., Faridabad on cancellation of its agency/dealership and the bills were duly cross verified with the books of accounts and finding was recorded that goods returned as per bill given were only on account of termination of dealership, there was no liability to pay tax on such goods. Therefore, there is no further scope to doubt the stand of the appellant or to impose penalty particularly when the documents produced by the assessee have not been proved to be incorrect.

Accordingly it is held that the penalty imposed on the appellant u/s 14-B(7)(ii) of PGST Act on the ground that the goods were not accompanied by proper and genuine documents despite the stand of the appellant/assessee that the goods had been returned by it to M/s. Escorts Ltd. Faridabad, on cancellation of the agency and despite the bills having been duly verified with the books of accounts by the assessing authority at the time of assessment vide order dated 05.05.2008 is held to be legally unsustainable. The question of law is answered accordingly.

Resultantly, orders dated 27.11.2001 passed by AETC, ICC, (Export), Mehmoodpur, order dated 06.08.2002 passed by the Joint Director (Enforcement), Patiala Division, Patiala, in the first appeal, as also order dated 07.04.2003 passed by the Tribunal in appeal u/s 20(2) of the Act, are unsustainable.

As a consequence thereof, the Assistant Excise & Taxation Commissioner, Information Collection Centre (Export), Mehmoodpur would take steps to refund the sum of Rs.1,65,000/- imposed by way of penalty to the appellant along with interest @ 12% p.a. w.e.f. the date of deposit of penalty amount by the appellant till date of refund, within a period of 3 months from the date of receipt of certified copy of this order.