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Judgment
T.S. Sivagnanam, J.—The challenge in this writ petition is to an order passed by the Sales Tax Appellate Tribunal, the third respondent, in
T.A. No. 485/01 dated 21.12.2005. The issue involved in the present writ petition relates to levy of penalty u/s 16(2) of the Tamil Nadu General
Sales Tax Act, 1959, (hereinafter referred to ""as the Act""), which contemplates that the escape from the assessment to tax, if due to willful non-
discloser by the dealer shall attract penalty in addition to the tax assessed.
Facts leading to the filing of the writ petition:
The petitioner is a registered dealer on the file of the first respondent, engaged in the export of readymade garments. The Sales Tax assessment
for 1998-99 was completed and an order of assessment dated 05.08.1999 was passed by the first respondent. On 26.10.1999, the place of
business of the petitioner was inspected and the documents available were verified and it revealed that the petitioner received premium from the
transfer of the quota entitlement certificate issued to them by the Apparel Export Promotion Council (AEPC) for Rs. 9,28,925/- during the year
1998-99, which according to the department is liable to tax at 11 %. During the course of the inspection a sworn statement of the proprietrix was
recorded. On 29.10.1999, the petitioner appear to have paid the entire tax demanded by two cheques for Rs. 1,02,181.75/- for the period 1998-
99 and Rs. 1,68,898.83 for the period 1999-2000(upto September 1999). A representation was also made on the said date, wherein the
petitioner stated that they have made payments fully for the period from April 1998 to March 1999 and from April 1999 to September 1999 and
under took to pay the tax in the succeeding months to the Commercial Tax Officer, Kilpauk Assessment Circle, if there is quota sales.
Thereafter a notice was issued to the petitioner alleging that they have failed to disclose either in their returns regarding the AEPC quota sales
nor paid the tax due thereon and at the time of check of accounts, the trading accounts were filed and details regarding receipt of premium on
AEPC quota sales did not find place in the trading accounts and it has been intentionally suppressed, hence levy of penalty u/s 16(2) is warranted
at 150 % of the tax due was proposed in the said notice and the penalty was quantified at Rs. 1,53,273. The petitioner was given opportunity to
submit their objections and the gist of the objections are that they were under the impression that there was no liability on quota sales and at the
time of inspection, it was pointed out to the petitioner about the liability and therefore a statement was given on 26.10.1999 that they would consult
their Auditor about such liability. The first respondent considered the objections and by order dated 27.12.1999 confirmed the proposal of the
total taxable turnover as well as penalty. In doing so, the first respondent observed that at the time of production of accounts, the petitioner filed
trading accounts, which did not disclose receipts towards AEPC quota sale and incomplete production of accounts clearly proved willful
suppression.
Aggrieved by the order passed by the first respondent, the petitioner preferred an appeal before the second respondent and the second
respondent by order dated 15.02.2001, dismissed the appeal, as against the said order, the petitioner preferred an appeal to the third respondent-
Tribunal in T.A. No. 485/01 and the third respondent by order dated 21.12.2005 dismissed the appeal and confirmed the orders passed by the
respondents 1 & 2. Aggrieved by such order of the third respondent Tribunal the petitioner is before this Court.
Contentions:
Mr. N. Inbarajan, learned Counsel appearing for the petitioner would contend that the disposal of quota sale was available in the books of
accounts, which was seen by the first respondent and the original assessment was completed on 05.08.1999 and in such circumstances, it cannot
be stated that there is an escaped assessment, which is willful. It is further submitted that there is no finding as regards mens rea and in the absence
of such findings there cannot be a levy of penalty u/s 16(2) of the Act. The conduct of the petitioner in having paid the entire tax liability within three
days from the date of inspection would itself establish that there was no intention to evade payment and once the tax has been paid , it cannot be
stated there is willful non-disclosure of any assessable turnover. The learned Counsel relied upon another order of the Tribunal in T.A. No.
309/2001, which according to the petitioner was under similar circumstances, and therefore the Tribunal ought to have allowed their appeal.
The learned Counsel would further contend that under serial No. 46A in part-D of the first schedule to the Act, tax was leviable at 11% on sale
of goods described as REP license/Exim scrip. This entry was in force from 05.03.1997 to 07.08.1998, and was subsequently modified as
Patents, trade marks, import licences including exim scrips, export permit or license or quota and other goods of incorporeal or intangible
character and this entry was inserted by gazette dated 19.05.1997 with retrospective effect from 05.03.1997. The learned Counsel would submit
that the Hon''ble Supreme Court in the case of Vikas Sales Corporation and another, etc. etc. Vs. Commissioner of Commercial Taxes and
another, etc. etc., held that REP license and exim scrips are goods as defined u/s 2(j) of the Act and are liable to tax. The Hon''ble Supreme Court
only on 06.08.2008 in Yasha Overseas Vs. Commissioner of Sales Tax and Others, held that REP licences and ""DEPB"" credit qualify as goods
under the Sales Tax Act. Therefore, the learned Counsel would submit that the law remained unsettled as to whether these quota sales are goods,
since it was contended that as they are actionable claims and cannot be treated as goods. In view of the said position, the learned Counsel
contended that the petitioner should not have been treated to have willfully suppressed the quota sales. In support of his contention the learned
Counsel placed reliance on the Hon''ble Division Bench Judgment of this Court, that no penalty was leviable as there is no willful suppression, in
State of Tamil Nadu v. Estate of V.U. Paneer Nadar By P. Parameswari (Wife) 1979 (44) STC 300, E.I.D. Parry (I) Ltd v. Assistant
Commissioner of Commercial Taxes and Anr. 2000 117 STC 457 (SC)
The learned Counsel would further submit that the account books were produced and accepted by the first respondent and assessment made
based on such materials were not estimates and have to be regarded as assessment made u/s 12(1) to which penal provision of Section 12(3) was
not attracted. In support of the said contention, the learned Counsel relied on the Hon''ble Division Bench Judgment of this Court in Krishna Alloy
Steels Vs. Registrar, Tamil Nadu Taxation Special Tribunal and Another, . On the above submissions the learned Counsel prayed for setting aside
the impugned order.
Per contra, Mr. Haja Nazirudeen, learned Special Government Pleader appearing for the respondents would contend that the case on hand was
a case of willful suppression, since a perusal of the assessment order, dated 05.08.1999, reveals that the petitioner reported the entire turnover as
export sales and therefore, the assessing authority determined the total and taxable turnover at nil under the provision of TNGST Act. The learned
Special Government Pleader would further submit that what was produced was only the trading account and the amount towards the quota sale
was not shown and the entire turnover was shown as export sale, which itself would establish the conduct of the dealer warranting penalty u/s
16(2). The learned Special Government Pleader further contented that the issue relating to the scope of Entry 46-A in the first schedule to the Act
was not raised by the petitioner before the Tribunal nor before the statutory authorities and it has been raised for the first time before this Court. In
any event, the learned Special Government Pleader would submit the amendment to Entry 46A from 08.09.1999, by incorporating the words
Patents, trade marks, import licenses including exim scrips, export permit or license or quota etc., was only clarificatory in nature and it is not the
case of the petitioner/dealer that the REP licence was in any manner different from that of the ""quota"". It is further submitted that on account of the
trade policy of the Government of India, new incentives are offered to importers and exporters and the terminology alone differs and it does not
change the character of the benefit granted to either the importer or the exporter. Further, the petitioner being an export house was very well aware
of the said position and the suppression of the quota sales is willful. It is further contended by the learned Counsel that the law on the subject,
namely as to whether REP licenses and Exim Scrip are goods was settled by the Hon''ble Division Bench of this Court as early as on 04.04.1994
in the Judgment reported in P.S. Apparels v. Deputy Commercial Tax Officer, T. Nagar East Assessment Circle, Madras (and Ors. cases) 94
STC 139 and affirmed by the Hon''ble Supreme Court in Vijay Sales Corp. v. Commissioner of Commercial Taxes 102 STC 106 and the
contention of the petitioner that there was a genuine doubt as regards the taxability of the quota sales is incorrect, more so when no such plea was
raised before the respondents 1 to 3. The learned Counsel would further submit that the order passed by the Tribunal in T.A. No. 309/01 is not
applicable to the facts and circumstances of the present case as it was factually held in the said case that the sales found place in the books of
accounts. The learned Special Government Pleader would further contend that but for the inspection on 26.10.1999, the above illegality would not
have been brought to light and therefore the order of the Tribunal calls for no interference.
Discussion:
Section 16(2) of the Act is relevant for deciding the present issue, which reads as follows:
16(1). ...
16(2). In making an assessment under Clause (a) of Sub-section (1), the assessing authority may, if it is satisfied that the escape from the
assessment is due to wilful non-disclosure of assessable turnover by the dealer, direct the dealer, to pay, in addition to the tax assessed under
Clause (a) of Sub-section (1) by way of penalty a sum which shall be:
(a) fifty per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is not more than ten per cent of the tax
paid as per the return;
(b) one hundred per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is more than ten per cent but
not more than fifty per cent of the tax paid as per the return;
(c) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, if the tax due on such turnover is more
than fifty per cent of the tax paid as per the return;
(d) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, in the case of self-assessment referred
to in Sub-section (1) of Section 12:
Provided that no penalty under this Sub-section shall be imposed unless the dealer affected has had a reasonable opportunity of showing cause
against such imposition.
Section 16 provided for reopening of the completed assessment by the same authority who made it so as to include any turnover, which had
escaped taxation and also to rectify cases were lower rate of tax had been levied. Sub-section 2 of Section 16 provides for levy of penalty for
willful non disclosure of assessable turnover. This power to levy penalty being discretionary, it is incumbent upon the authority to record reason
before proceeding to levy penalty. The language employed in Sub-section 2 of Section 16 is that the assessing authority should be satisfied that the
escape from the assessment is due to ""willful non-disclosure"" of assessable turnover. The Hon''ble Division Bench of this Court in The State of
Tamil Nadu v. Estate of V.U. Panneer Nadar By P. Parameswari (Wife) 44 STC 300 held that before it could be stated that a turnover, which
had escaped assessment was willfully not disclosed by an assessee, the department had to establish that the assessee had the necessary mens rea
and the mere use of the expression suppression in the order is not enough. Therefore, mens rea is necessary to assess penalty u/s 16(2) and the
burden is on the department to prove that the dealer willfully and deliberately avoided his obligation under the Act.
Having examined the scope of Section 16(2) as stated above, if the facts of the present case are looked into, it is seen that the assessment
came to be completed on 05.08.1999 and in the said order the turnover reported was Rs. 9,18,75,265.50/- and it has been mentioned that the
entire amount as export sales and consequently the first respondent held that the total and taxable turnover of the dealer is determined at Rs. Nil
under TNGST Act. In the order of assessment, it has been stated that the check of accounts revealed that the entire sales were export only and
hence the export sales are to be dealt under CST Act. The documents, which were produced by the dealer where the day book, purchase and
sales register, ledger and bill of lading.
The learned Counsel appearing for the petitioner would strenuously contend that the order of assessment having been made based on the
accounts cannot be treated to be a best Judgment assessment and the analogy applicable to Section 12(1) and 12(3) of the Act could be applied
and it has to be held that penalty cannot be levied. Heavy reliance was placed on the Hon''ble Division Bench Judgment of this Court in the case of
Krishna Alloy Steels Vs. Registrar, Tamil Nadu Taxation Special Tribunal and Another, . as referred supra. Countering the said submission the
learned Special Government Pleader would submit that it is the specific case of the department that only trading accounts were produced by the
dealer and the details of receipt of premium on quota sales did not find place in the trading accounts and the dealer proceeded to show the entire
turnover as export sales. At this juncture, it is worthwhile to note that the petitioner is an exporter presumed to be well-versed in the export
procedures and there is a clear distinction between export sales and premium received on quota sales. Quotas are incentives granted by the
Central government under various schemes announced from time to time. In the instant case, the quota was issued by AEPC, which the petitioner
earned on account of export to non quota countries during the relevant point of time. This quota is a freely transferable commodity, hence falling
within the definition of goods u/s 2(j) of the Act. In fact this position came to be examined in respect of REP license and exim scrips, which were
held to be goods by the Hon''ble Division Bench of this Court in P.S. Apparels v. Deputy Commercial Tax Officer, T. Nagar East Assessment
Circle, Madras (and other cases) 94 STC 139. The Hon''ble Division Bench held:
...In our view, the rights to import conferred under the licences in question are very valuable rights and as slips of paper or memoranda
evidencing the entitlement and right to import goods of the category and of value from outside the country into this country, in a sense by itself
could be regarded as an article of merchandise and, therefore, would constitute ""goods"" capable of themselves being bought or sold in the market.
The submission that the licences under consideration are actionable claims, therefore, is not tenable.
...The licences under consideration can hardly be claimed to satisfy this criteria also. Therefore, we are of view that the licences under
consideration which have been held by us to be ""goods"" do not fall within the excluded category or class of goods so as to take them outside the
purview of the sales tax laws in force in the state.
...The fact that such licences are issued in favour of an exporter as an incentive or a privilege to encourage export or earn for the country the
required foreign exchange does not in any manner alter the position that the privilege or right embodied in the form of a document constitutes
goods"", the sale or transfer of which for consideration attracts liability to sales tax either under the State Act or under the Central Act as the case
may be.
Further the Hon''ble Supreme Court in the case of Yasha Overseas, referred supra the Hon''ble Supreme Court held:
...REP licences had always a market. There were people willing to sell and others willing to buy REP licences at all times. Their innate value
coupled with free transferability made REP licences into a marketable commodity. They were ""goods"" properly so called having innate value and a
ready market.
...Under the Duty Entitlement Passbook (DEPB) Scheme, an exporter is eligible to claim credit as a specified percentage of the job value of
exports made in freely convertible currency. The credit is available against such export products and at such rates as may be specified by the
Director General of Foreign Trade by a public notice issued in this behalf. The DEPB is exactly the same as REP licence. Like the REP licence it
has an innate value which makes it a marketable commodity. The DEPB credit is also clearly ""goods"" within the meaning of the sales tax laws.
From the facts of the present case, it is evident that the suppression was willful and the assessee failed to disclose the premium received
towards sale of quota, in view of the same, we find no reason to upset the factual findings of the original authority, appellate authority as well as the
Tribunal on this aspect of the matter. Therefore, the contention raised by the learned Counsel that there was substantial doubt as regards whether
the quota was goods within the scope of Section 2(j) of the Act and therefore the dealer should not be penalised and that the said issue was finally
decided by the Hon''ble Supreme Court on 06.05.2008 in the case of Yasha Overseas, referred supra, though appears to be attractive at the first
blush, does not merit acceptance, since factually, the case of the petitioner was not as projected by the learned Counsel appearing for the
petitioner.
In fact in the statement given by the proprietrix of the petitioner on 26.10.1999, what was stated is that for the quota sales tax due the
proprietrix shall consult her auditor and pay the tax due if any within a period of a week. Therefore, the law had been settled by the Hon''ble
Division Bench of this Court in the case of P.S. Apparels, as referred supra, on this aspect as regards taxability of the quota sale as early as on
04.04.1994, the question of entertaining any doubt does not arise. In the typed set of papers a photo copy of what is stated to be the quota sales
account ledger bearing page No. 125 has been filed. Similarly photo copy sales accounts has been filed, bearing page No. 127. The learned
Counsel appearing for the petitioner would submit the sales account was produced at the time of original assessment and the assessing authority on
perusal of the same affixed his seal and signature on 29.07.1999, which is official proof that the assessment was based on records produced. It is
to be noted that there is no seal or signature in the quota sales accounts sheet and it is a finding of fact that what was produced was only a trading
account. In any event, we do not propose to re-appreciate the documents, which are stated to be produced before the assessing authority by
invoking the writ jurisdiction. In our view the first respondent after issuing a notice to the petitioner, appreciated the documents on record and
stated that the contention raised by the petitioner does not merit acceptance, and we find no reason to upset such finding of fact recorded by the
original authority, confirmed by the appellate authority as well as by the Tribunal. The learned Counsel placed reliance on the Judgment of the
Hon''ble Division Bench of this Court in the case of Krishna Alloy Steels, referred supra. In view of the factual finding rendered in the previous
paragraph, it has to be necessarily held that the said Judgment is not applicable to the facts and circumstances of the case. As, we have already
held that there could be no confusion in the minds of the petitioner/dealer as to whether the sale of such quota would be taxable, the Judgment of
the Hon''ble Supreme Court in the case of E.I.D. Parry (I) Ltd, referred supra also would not apply to the facts of the present case.
Conclusion:
In the result, we find that there is no error or any perversity in the approach of either the original authority or the appellate authority or the
Tribunal and we are convinced that the finding of fact recorded by the original authority as confirmed on further appeals establishes willful non-
disclosure of the assessable turnover by the petitioner. The law relating to as to whether the REP license and exim scrips are goods within the
definition of Section 2(j) of the Act, having been settled by the Judgment of the Hon''ble Division Bench of this Court on 04.04.1994 in case of
P.S. Apparels as referred supra, cannot be stated to have created any confusion in the minds of the petitioner/dealer, when on facts also such was
not the case of the petitioner. Hence, the writ petition fails and accordingly the same is dismissed. Consequently, connected miscellaneous petition
is also dismissed. No costs.