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Judgment
S.L. Subramanya, CTM
The appeal filed u/s 22(1) of the Karnataka Sales Tax Act, 1957 (for short, ''KST Act, 1957'') is directed against the appeal order passed u/s 20(5) of KST Act, 1957 bearing No. KST.AP. 165/07-08, dated 16-7-2010 passed by Joint Commissioner of Commercial Taxes (Appeals-2), Bangalore (for brevity, ''FAA''), in which he dismissed the appeal confirming the orders u/s 12-A of KST Act, 1957 passed for the assessment year 2001-02 by Deputy Commissioner of Commercial Taxes (Transition-22), Bangalore (for short, ''AA'') on 30-3-2007. The facts leading to the appeal are as under:
The appellant is a dealer in edible oils. After scrutinising the returns (original and revised), AA concluded assessments on 7-5-2003 by accepting the books of accounts u/s 12(2) of KST Act, 1957.
The assessment under KST Act, 1957 was assessable case. The assessment u/s 9(2) of the Central Sales Tax Act, 1956 was not assessable and hence case was declared non-assessable.
As there was an error in KST assessment in which turnover tax u/s 6-B on second sales of rice bran oil was not levied, reassessment notice u/s 12-A for escapement of above turnover from tax was issued on 18-5-2004. The proposal u/s 12-A was dropped by proceedings issued on 7-7-2004.
AA found a mistake in admission of exemption on inter-State consignment sales of edible oil supported by sale patties, he rectified non-assessable CST assessment passed u/s 9(2) of CST Act, 1956 and allowed exemption on the turnover he noticed that was not considered for exemption u/s 6-A(1) of CST Act, 1956 by order u/s 9(2) of CST Act, 1956 read with Section 25-A of KST Act, 1957 on 3-3-2004.
It is worthwhile to note that AA did not pass order u/s 6-A(2) of CST Act, 1956 before granting exemption on inter-State consignment sales supported by sale patties as such order was mandatory to be passed by him.
AA initiated proceedings u/s 9(2) of CST Act, 1956 read with Section 12-A of KST Act, 1957 by issuing notice on 11-1-2005. As he has received a report from officers of Intelligence Wing of the Department of Commercial Taxes by which it was reported that the stock transfer of edible oils made to the consignment agents outside the States (Tamil Nadu and Kerala) by the appellant had not been reflected in the returns filed by them before sales tax authorities in the respective States and thereby taxable sales relating to the above stock transfers had not been offered to local taxes. AA reopened the assessment under CST Act, 1956 by which he proposed inter-State consignment sale of edible oils to CST by considering it as inter-State sale liable to tax u/s 3 read with Sections 6 and 8 of CST Act, 1956 at 2% as per Government Notification No. FD 32 CSL 97(22), dated 31-3-1997 as per which inter-State sales of edible oils u/s 8(2) of CST Act, 1956 were liable to be calculated at the above rate in the notice issued u/s 9(2) of CST Act, 1956 read with Section 12-A of KST Act, 1957 on 11-1-2005. Along side the above notice, he issued notice u/s 12-A(1-A) of KST Act, 1957 read with Section 9(2) of CST Act, 1956 proposing penalty for obtaining exemption on inter-State consignment sales by tendering bogus documents willfully.
The appellant indulged in filing elaborate objections and documents in support of the claim for exemption on inter-State consignment sales of edible oils. He filed triplicate copies of delivery note in Form 39 and declaration with freight bills of the transporter in support of proof of stock transfer to consignment agents outside the State for sales. He submitted that the claim of exemption on account of the above was in accordance with documents maintained by him and exemption allowed on such stock transfers was also proper according to law u/s 6-A(1) of CST Act, 1956.
The above proceedings to treat the inter-State consignment sales as inter-States liable to tax were given up without passing any order under the same provisions he initiated reopening of assessments with penalty by notice issued on 11-1-2005.
However, he issued revised notice u/s 12-A of KST Act, 1957 on 18-3-2005 in which he proposed inter-State consignment sales allowed as exempt as local taxable sales liable at 4% together with cess and penalty u/s 12-A(1-A) of KST Act, 1957. With the issue of above notice, the KST assessment came to be reopened. The above proceedings were within the limitation period prescribed u/s 12-A of KST Act, 1957.
As there was change in pecuniary jurisdiction, the present AA continued the above proceedings initiated by Assistant Commissioner of Commercial Taxes, 13th Circle, Bangalore by issuance of notice u/s 3-C of KST Act, 1957 read with CST Act on 12-7-2005.
After considering the objections, the present AA passed order u/s 12-A of KST Act, 1957 read with Section 9(2) of CST Act, 1956 with penalty u/s 12-A(1-A) of KST Act, 1957 read with Section 9(2) of CST Act, 1957 on 30-3-2007. The AA observed that the stock transfers to Kerala consignments agents were bogus and no such stock transfers were made by the appellant for Rs. 85,49,450/-. Seal in Form 39 from the boarder check-post was not obtained which proved that goods have not moved out of the State and thereby local sales of edible oils have been effected. He also observes that documentary evidences in support of stock transfers relating to consignment sales outside the State were not also submitted in the course of proceedings of reassessment. Finally he holds the above turnover as local sales to tax at 4.2% at Rs. 3,59,077/- and levies penalty at Rs. 1,80,000/- also.
The appellant has challenged the aforesaid turnover, tax and penalty determined by respective orders in appeal before FAA. The appeal came to be dismissed by accepting the views of AA as per respective orders passed by him.
The appellant challenged the appeal order passed by FAA in regard to turnover, tax and penalty in appeal filed u/s 22(1) of the KST Act, 1957.
It is submitted in the grounds that the impugned orders are hit by Section 22-B(1) of KST Act, 1957. Secondly, it is submitted that the orders of lower Courts are unjustifiable for disentitling the valid claim of stock transfer relating to inter-State consignment sales supported by documents and law. It is prayed to set aside the orders of lower Courts and render justice.
The records of lower Courts are verified.
The learned Counsels are heard.
The Counsel for the appellant while reiterating the grounds of appeal submitted alternatively to hold inter-State consignment sales as inter-State sales liable to tax at 2% as applicable and set aside penalty u/s 12-A(1-A) as there was no willful concealment of turnover with a view to evade tax.
The learned State Representative submitted with reference to the written arguments that the orders of lower Courts are justifiable in the circumstances of the case and were correctly passed in accordance with law.
In the light of the aforesaid reasons, the following point arises for our consideration:
Whether, in facts and circumstances, is our interference in the orders of lower Courts required?
19-A. While answering the above point affirmative, the following reasons are assigned:
REASONS
As far as the arguments of proceedings hit by Section 22-B(1) of KST Act, 1957 are concerned, we observe and hold, the impugned proceedings u/s 12-A and Section 12-A(1-A) of KST Act, 1957 are not hit by the above provisions. Therefore, the impugned proceedings are valid according to law.
The AA had not passed order u/s 6-A of CST Act, 1956 in the respective orders passed by him before initiation of proceedings u/s 12-A of KST Act, 1957, though it was mandatory while allowing exemption on stock transfers relating to consignment sales outside the State. Consequently, the aforesaid stock transfers were considered by him as validly admissible in accordance with Section 6-A(1) of CST Act, 1956.
Question of check-post seal on triplicate copies of Form 39 does not arise as it is the copy for the appellant to keep on his file according to law. The finding of absence of check-post seal on triplicate copies of Form 39 by AA is hence erroneous.
The AA has mechanically applied the report of intelligence authorities in the reassessment proceedings. He has not obtained proof of edible oils not being moved out of the State from the Check-post Authorities after verification of sale patties, triplicate Form 39 and declaration with copies of transport bills. He has not also obtained any report from inter-State sales tax authorities in support of his findings of the goods not moved out of the State and received by the respective inter-State consignment agents.
The lower Court records establish that the lower Courts have relied entirely on the reports of the intelligence authorities of the Department of Commercial Taxes without bringing further evidence or proof that goods shown to have sent out of the State for consignment sale have been sold within the State liable for local sales tax.
The lower Court records indicate that copies of incriminating evidences and report of Intelligence Officers had not been enclosed to the notices of reassessments marking the initiation of such proceedings u/s 12-A of KST Act, 1957. The above inaction of the lower Courts would offend the principles of natural justice.
The lower Courts have come to an opinion of local sales corresponding to inter-State stock transfers relating to consignment sales allowed as exempt u/s 6-A(1) of CST Act, 1956 on suspicion or assumption basis without any solid evidence of proof of local sales effected out of the above stock transfers which were allowed as exempt.
In the circumstances, we are of the opinion that view taken by AA as inter-State sales liable to tax at 2% as per Government Notification No. FD 32 CSL 97(22), dated 31-3-1997 in the notice of reassessment issued on 11-1-2005 while disallowing inter-State stock transfers pertaining to consignment sales allowed as exempt in the earlier orders is justified. Inconsequence thereof, the impugned order passed u/s 12-A of KST Act, 1957 read with Section 9(2) of CST Act, 1956 on 30-3-2007 would stand modified in terms of the aforesaid discussions for tax at 2% under CST Act, 1956 as per the above Government Notification,
Penalty u/s 12-A(1-A) of KST Act, 1957 read with Section 9(2) of CST Act, 1956 is levied without proper application of mind by the lower Courts. The degree of proof required for assessment or reassessment must be of higher order in levy of penalty under the above provisions as it is not only punitive but also deterrent. Penalty u/s 12-A(1-A) could be levied only on proof of the fact that escape from assessment was due to willful non-disclosure of assessable turnover by the appellant. In other words, there must have been an element of mens rea or guilty intention or contumacious conduct on the part of the appellant in failure to declare assessable turnover.
The appellant has all along in the proceedings of rectification or reassessment furnished the details with copies of documents available with him in addition to contesting the adverse contents of the notices as against law. This attitude indicates that there was no willful conduct to suppress the impugned turnover from being assessed to tax. On the other hand the lower Courts had exempted the impugned turnover as admissible in terms of Section 6-A(1) of CST Act, 1956 in the earlier orders before indicting the appellant for availment of wrong or illegal exemption on inter-State stock transfers relating to consignment sales. The facts indicate that the impugned turnover has not been brought on record for the first time by the lower Courts according to their investigations or enquiries. The matter in dispute in regard to proceedings u/s 12-A was debatable throughout till impugned final orders of reassessment and penalty passed on 30-3-2007. It is also a fact that lower Courts have not proved that local sales have been effected against stock transfers allowed as exempt u/s 6-A(1) of CST Act, 1956.
In the light of the aforesaid reasons, impugned penalty levied u/s 12-A(1-A) of KST Act, 1957 is unjustifiable and therefore, unsustainable according to law.
In the circumstances, penalty levied under the above provision would stand set aside. The following is passed for the above reasons:
ORDER
The appeal is partly allowed.
The impugned order passed on 30-3-2007 u/s 12-A of KST Act, 1957 read with Section 9(2) of CST Act, 1956 is modified so far as impugned sale is concerned as inter-State sale of edible oil liable to tax at 2% as per Government Notification No. FD 32 CSL 97(22), dated 31-3-1997.
The impugned order u/s 12-A(1-A) of KST Act, 1957 read with Section 9(2) of CST Act, 1956 levying penalty is set aside.
The appeal order passed by FAA stands modified in terms of the above order.
The office of this Tribunal is directed to send lower Court records along with a copy of judgment.