M.A.K.AZAD Proprietor, International Trade Links v. State of Kerala

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** ## **&** **THE HONOURABLE MR.JUSTICE T.V.ANILKUMAR** **THURSDAY, THE 20TH DAY OF FEBRUARY 2020 / 1ST PHALGUNA, 1941** **ST.Rev..No.29 OF 2019** **AGAINST THE ORDER IN TA 42/2015 DATED 25-03-2019 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM** ## **REVISION PETITIONER/APPELLANT:** **M.A.K.AZAD PROPRIETOR, INTERNATIONAL TRADE LINKS, PANAMPALLY NAGAR, COCHIN-682 036** **BY ADVS. SRI.C.JOSEPH ANTONY SHRI. JOHN MANJOORAN** ## **RESPONDENT/RESPONDENT:** **STATE OF KERALA REPRESENTED BY SALES TAX OFFICER, SECOND CIRCLE, THRIPUNITHURA-682 301** ## **R1 BY GOVERNMENT PLEADER** ## **OTHER PRESENT:** **SRI.RAJU JOSEPH(SR.) FOR REVISION PETITIONER, SRI.V.K.SHAMSUDIN, SR.GP** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 20.02.2020, ALONG WITH ST.Rev..30/2019, ST.Rev..32/2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** S.T. Rev. Nos.29, 30 & 32/2019 -2- # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MR.JUSTICE T.V.ANILKUMAR** **THURSDAY, THE 20TH DAY OF FEBRUARY 2020 / 1ST PHALGUNA, 1941** ## **ST.Rev..No.30 OF 2019** **AGAINST THE ORDER IN TA 1/2012 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM** ## **REVISION PETITIONER/APPELLANT:** **M.A.K.AZAD PROPRIETOR, INTERNATIONAL TRADE LINKS, PANAMPALLY NAGAR, COCHIN - 36** **BY ADV. SRI.C.JOSEPH ANTONY** ## **RESPONDENT/RESPONDENT:** **STATE OF KERALA REPRESENTED BY SALES TAX OFFICER, SECOND CIRCLE, THRIPUNITURA - 682 301** ## **R1 BY GOVERNMENT PLEADER** ## **OTHER PRESENT:** **SRI.RAJU JOSEPH(SR.) FOR REVISION PETITIONER, SRI.V.K.SHAMSUDIN, SR.GP** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 20.02.2020, ALONG WITH ST.Rev..29/2019, ST.Rev..32/2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** S.T. Rev. Nos.29, 30 & 32/2019 -3- # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MR.JUSTICE T.V.ANILKUMAR** **THURSDAY, THE 20TH DAY OF FEBRUARY 2020 / 1ST PHALGUNA, 1941** **ST.Rev..No.32 OF 2019** **AGAINST THE ORDER IN TA 2/2012 DATED 25-03-2019 OF AGRL.I.T.ADDITIONAL BENCH, ERNAKULAM** ## **REVISION PETITIONER/APPELLANT** **M.A.K.AZAD PROPRIETOR, INTERNATIONAL TRADE LINKS, PANAMPALLY NAGAR, COCHIN-682036** **BY ADVS. SRI.RAJU JOSEPH (SR.) SRI.C.JOSEPH ANTONY** ## **RESPONDENT/RESPONDENT:** **STATE OF KERALA REPRESENTED BY SALES TAX OFFICER, SECOND CIRCLE, THRIPUNITHURA-682301** ## **R1 BY GOVERNMENT PLEADER** ## **OTHER PRESENT:** **SRI.RAJU JOSEPH(SR.) FOR REVISION PETITIONER, SRI.V.K.SHAMSUDIN, SR.GP** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 20.02.2020, ALONG WITH ST.Rev..29/2019, ST.Rev..30/2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** S.T. Rev. Nos.29, 30 & 32/2019 -4- ## **C.K. ABDUL REHIM, J. & T.V. ANILKUMAR, J.** ------------------------------------------------- ## **S.T. Rev. Nos.29, 30 & 32 OF 2019** ------------------------------------------------DATED THIS THE 20[th] DAY OF FEBRUARY, 2020 ## **O R D E R** ## Abdul Rehim, J: Since all these revision petitions are filed by the same assessee, challenging a common order of the Sales Tax Appellate Tribunal, we have considered these revision petitions together and disposed of them through this common judgment. 2. The assessment years concerned are 1998-1999, 19992000 and 2000-2001. Dispute for consideration in all these revision petitions relate to the correctness of the assessments made under Section 17(3) of the Kerala General Sales Tax Act, 1963 ('the KGST Act', for short), with respect to the turnover upon which exemption was claimed as second sale, with respect to goods purchased from two registered dealers, namely M/s.A-One Traders, Vadanappally and M/s.Star Trading Company at Panampilly Nagar, Ernakulam. 3. With respect to the assessment year 1998-99, on the basis of a search conducted at the business premises of the S.T. Rev. Nos.29, 30 & 32/2019 -5- petitioner on 2.2.2001, penalty proceedings was initiated alleging suppression of turnover with respect to interstate purchases made and also with respect to purchases made from the above mentioned two traders. The assessee compounded the offence by conceding the irregularities, except with respect to the goods purchased from M/s.Star Trading Company and on remitting the compounding fee of Rs.1 lakh. Hence the turnover relating to the goods purchased from the above said firms were assessed with tax liability, by adding 100% on to the turnover, towards probable omissions and suppressions. Similar additions were made with respect to the assessment year 1999-2000 also. With respect to the year 2000-2001, assessment was completed on the basis of suppression detected, by adding an equal amount of the turnover towards probable omissions and suppression. 4. The petitioner took up the matter in appeal before the Deputy Commissioner (Appeals), Commercial Taxes, Kannur. With respect to the assessment year 1998-1999, the first Appellate Authority accepted the claim of the assessee with respect to the purchases made from M/s.Star Trading Company and M/s.A-One Traders, based on production of Bank Statements, on arriving at a finding that payments with respect S.T. Rev. Nos.29, 30 & 32/2019 -6- to the respective purchases were made through Bank transactions and also on the basis of proof adduced to the effect that those two establishments are registered dealers. The Appellate Authority found that, as regards M/s-A-One Traders and M/s.Star Trading Company, the fact that those payments were made to the Bank accounts of those firms, have been confirmed by the respective Banks. The assessee had also produced copies of the entire Bills of the purchases in order to prove that the sales effected are second sales. It was contended before the first Appellate Authority that, the compounding was made not conceding any suppression of the turnover, but it was only because of non-availability of sufficient documents of proof, for claiming the exemption. The first Appellate Authority observed that, on checking up the Books of Accounts, it was convinced that the assessee is eligible for exemption on the turnover of second sales with respect to purchases made from the above said two registered dealers. Hence, the assessment made with respect to the purchase turnover of goods purchased from those two firms and the additions made thereof, were deleted, by the first Appellate Authority. S.T. Rev. Nos.29, 30 & 32/2019 -7- 5. With respect to the assessment year 1999-2000 also, similar view was taken by the first Appellate Authority and the assessment made with respect to purchase turnover of goods from M/s.Star Trading Company and M/sA-One Traders were deleted. Similarly, with respect to the assessment year 20002001, the additions effected were found to be not sustainable, based on a perusal of the Books of Accounts produced and the assessment made on that count was deleted. However, with respect to all the three years, assessment made with respect to the turnover of alleged sales in transit were upheld by the Appellate Authority. 6. The Revenue had taken up the orders of the Appellate Authority, in further appeal filed before the Appellate Tribunal. The Tribunal, through the common order impugned herein, reversed the findings of the Appellate Authority and restored the original assessments with respect to all the three years. It is aggrieved by the said order, the above revision petitions are filed. The Tribunal found that the main issue to be decided is with respect to purchases effected by the assessee from M/s.Star Trading Company, Kottayam and M/s.A-One Traders, Vadanappally. It was observed that, question to be decided is S.T. Rev. Nos.29, 30 & 32/2019 -8- whether those purchases can be considered as genuine, in order to substantiate the claim for exemption of second sale put forth by the assessee. The Tribunal found that, the assessee had admitted the offence of irregularity with respect to the purchases made from M/s.A-One Traders and the offence was compounded by paying a compounding fee of Rs.1 lakh. According to the Tribunal, the above said aspect, coupled with recovery of the partly used sale bill of M/s.A-One Traders from the business place of the assessee, were omitted notice of the first Appellate Authority. According to the Tribunal, those crucial aspects were not been adverted to by the Deputy Commissioner (Appeals). By placing reliance on a decision of this Court in **I.K.Muneer v. The Commercial Tax Officer & ors. (W.A.No.317/2017)** it was found that, when the assessee compounds the offence, he is admitting two aspects; one is that he did not maintain true and correct accounts and the second is that he agrees the actual turnover suppression. The Tribunal also relied upon another decision of this Court in **Aboobackar v. State of Kerala [2009 (KTR) 88]** to uphold that, proof of purchase suppression leads only to one conclusion that the accounts are incomplete; and if the accounts are incomplete, the S.T. Rev. Nos.29, 30 & 32/2019 -9- recourse left to the Assessing Officer is to make best judgment assessment under Section 17(3) of the Act. Therefore the findings of the first Appellate Authority were set aside. The Tribunal also placed reliance on the report of an enquiry conducted by a team of Officers on the basis of a direction issued from this Court in the revision petitions filed by a sister-concern of the revision petitioner herein; namely, M/s.South Asian Trade Links, to which the wife of the revision petitioner herein is the proprietrix. The Tribunal found that, both the firms were functioning in the same building and the revision petitioner herein is the Power of Attorney Holder of the proprietrix of M/s.South Asian Trade Links and that he was managing the affairs of the said firm. It was noticed from the report of the enquiry that, affairs of M/s.Star Trading Company, Kochi, were also managed by the present revision petitioner and that he was operating Bank transactions of M/s.Star Trading Company, Kochi. The Tribunal observed that, in the enquiry it is found that the bills issued by M/s.Star Trading Company to M/s.South Asian Trade Links were written in the handwriting of the revision petitioner herein and on accepting the enquiry report, this court had dismissed the said Tax Revision Case (S.T.Rev.No.11/2007) of S.T. Rev. Nos.29, 30 & 32/2019 -10- M/s. South Asian Trade Links. The finding of the Tribunal is that, the facts in the case of the present revision petitioner is quite similar to that of M/s.South Asian Trade Links and the stand taken by this court in S.T.Rev.No.11/2007 is squarely applicable in the case of the Second Appeals filed by the Government. The Tribunal had discarded contention raised by the assessee that, in the assessment completed against M/s.Star Trading Company for the year 1999-2000, the purchases made by the assessee herein is truly reflected. It was also pointed out by the assessee that, an appeal filed by M/s.Star Trading Company against the said assessment was already dismissed. The Tribunal found that, such contentions are not admissible because the assessment or penalty proceedings initiated against M/s.Star Trading Company, which includes the sales turnover effected to the assessee herein, does not exclude the liability of the assessee to prove genuineness of the purchases effected from M/s.Star Trading Company. It was noticed that a review petition filed by M/s.South Asian Trade Links, raising identical contentions was already rejected by this court in S.T.Rev.No.11/2007 (through order passed by this Court in R.P.No.258/2012 in S.T.Rev.No.11/2007). Based on findings as mentioned above, orders passed by the first S.T. Rev. Nos.29, 30 & 32/2019 -11- appellate authority in all the three cases were set aside. As a consequence, the assessment impugned with respect to all the three years were restored. 7. The revision petitioner herein raised various contentions assailing the common order passed by the Tribunal. It is mainly contended that the Tribunal had failed to take note of the fact that both the establishments, M/s A-One Traders and M/s Star Trading Company were proved to be registered dealers. It is further pointed out that, assessments of those establishments with respect to the years concerned were completed, and proof regarding the same was adduced before the Tribunal. According to the revision petitioner, those assessments included the transactions which those establishments had with the revision petitioner. It is contended that, merely because those establishments had failed to submit returns conceding the transactions with the revision petitioner, benefit of the second sale cannot be denied to the assessee herein. Further, as found by the first Appellate Authority, there is clear evidence to show that the entire consideration of the purchases were transferred to those establishments through Bank accounts. Therefore the Tribunal ought to have considered S.T. Rev. Nos.29, 30 & 32/2019 -12- as to whether the purchases from those establishments were genuine or not, based on the documents available. According to the revision petitioner, instead of appreciating those aspects the Tribunal had arrived at a conclusion that the revision petitioner had failed in proving the purchases effected from those establishments. It is further contended that, reliance placed by the Tribunal on the findings contained in the enquiry report relating to M/s. South Asian Trade Links, cannot be accepted as relevant material for the purpose of finalizing the assessments against the revision petitioner. Merely because it is stated that the revision petitioner is managing affairs of M/s. South Asian Trade Links, no presumption can be drawn that the purchases made by the revision petitioner from those establishments are bogus purchases, is the contention. It is also argued that, merely because the revision petitioner had compounded the alleged irregularities with respect to the purchases made from M/s. A- One Traders, the assessment could not be made on the basis that the revision petitioner had conceded the suppression. In that respect, learned Senior Counsel appearing for the revision petitioner cited a Division Bench decisions of this court in **Velimparambil Hardwares V. State of Kerala (1994) 92** S.T. Rev. Nos.29, 30 & 32/2019 -13- **STC 98)** and **M/s. Yeses International Bharat Petroleum Corporation V. State of Kerala (2008 (4) KHC 79)** . 8. In **Velimparambil Hardwares** (supra) it is held that, the compounding proceedings and assessment proceedings are distinct and different. Materials in the compounding proceedings may be relevant and may be one of the factors which could be taken into account, along with others, by the sales tax authorities in the proceedings for assessment. But it is open to the dealer to demonstrate by specific pleadings and evidence, in the assessment proceedings, that the details or facts contained in the compounding proceedings are incorrect or untrue or the admissions and statements made in those proceedings were mistakenly made or rendered under peculiar circumstances. It should be so proved by cogent and substantial material. Vague or general or evasive references or casting of doubts will not be enough. The facts found in the compounding proceedings may constitute relevant materials in the assessment proceedings, though they may not be conclusive. 9. In **M/s. Yeses International Bharath Petroleum Corporation (supra)** it is held by a Division Bench of this court that, tax and penalty, like tax and interest, are distinct and S.T. Rev. Nos.29, 30 & 32/2019 -14- different concepts under the tax laws. What is good for levying penalty may not be good for the purpose of passing an order of assessment, reassessment or a best judgment assessment. The Assessing Authority can certainly make use of the information collected by the Intelligence Officer as a piece of evidence while completing the regular or best judgment assessment. But that cannot be the sole basis on which the entire assessment could be made. The Assessing Authority has to make independent verification of the particulars furnished by the dealer in the annual returns filed. In the course of such enquiry, if for any reason, the assessee does not co-operate with the Assessing Authority, he can definitely draw adverse inference against the assessee. 10. Controverting contentions raised by the appellant, the learned Government Pleader had drawn our attention to various factual aspects. It is pointed out that, the assessee had failed to prove through any convincing materials that there occurred genuine sale transactions between the above said two establishments and the revision petitioner. The revision petitioner had not proved through any convincing materials about the fact that such purchases were occurred. On the other S.T. Rev. Nos.29, 30 & 32/2019 -15- hand, during the shop inspection (search) conducted, partly used bill book of A-One Traders was recovered from the business premises of the revision petitioner. Further, it is pointed out that, each Bill of purchase from those establishments covered huge quantity of products, the transportation which is not possible in one vehicle. The provisions contained in the Sales Tax Act insist upon issuance of separate Bills for each transport. The revision petitioner had failed to produce any documents to show that the goods purchased were actually transported into the premises of the revision petitioner. Further it is pointed out that, there occurred discrepancy with respect to the Registration Number of the selling dealer (A-One Traders) noted in the purchase bills. It is also pointed out that, from the records recovered at the time of search or from other evidence available, it was proved that the revision petitioner himself was managing all the affairs of the sister concern, M/s. South Asian Trade Links and also the other establishment, M/s. Star Trading Company. Therefore it is pointed out that, the revision petitioner had failed to prove the purchases made from those establishments and also failed to prove that there were genuine purchases effected from those establishments by actual transportation of the goods. Learned S.T. Rev. Nos.29, 30 & 32/2019 -16- Government Pleader had placed much reliance on a Division Bench decision of this court in **E.M. Purushothaman V. State of Kerala (2004 (1) 34 STC 326 (Ker.)** . It is held therein that, exemption of second sale can be allowed only if declaration under Rule 32 (13) is produced. The burden of proving that any transaction of a dealer is not liable to be taxed under the Act, lie on such dealer itself. The relevant Rule insist that, every dealer in goods taxable at the point of first sale in the state shall, if he is not liable to tax on such goods by reason of his not being the first seller of the goods in the state, obtain a Certificate written and signed underneath or on the other side of the Bill or Cash Memorandum to the effect that the goods covered by the Bill or Cash Memorandum had suffered tax at the seller's hand or at the hands of any other dealer mentioned in the Certificate. None of these requirements were complied with by the revision petition, is the contention. 11. Considering the rival contentions, we take note that the reasons mentioned in the impugned common order of the Tribunal. The Tribunal had arrived at its conclusions mainly on three aspects. Firstly, the finding of the Tribunal is to the effect that the revision petitioner had admitted the offence of irregular S.T. Rev. Nos.29, 30 & 32/2019 -17- claim of second sale from M/s. A-One Traders and compounded offence. Therefore it is observed that the same can be taken as a conclusion with respect to suppression of the accounts and incomplete maintenance of Books of Accounts. Such a proposition cannot be drawn legally in view of the dictum contained in **Velimparambil Hardwares** (supra) and also in **Yeses International Bharath Petroleum Corporation** (supra). For completing the assessment on best judgment basis, the Assessing Authority is bound to independently evaluate the claim raised by the assessee seeking exemption, based on the documents available. Such an attempt was not seen made by the Tribunal while upholding the assessment and also while upholding the additions made based on the alleged suppression. Secondly, inorder to appreciate the contention as to whether the purchases claimed from the two establishments are genuine or not, the Tribunal had not adverted to the documents produced in support, nor the contention of the revision petitioner based on the assessments completed against those establishments were taken into consideration. Of course, as contended by the learned Government Pleader, supported with legal precedents, entire burden to prove that the purchases were genuine and that the S.T. Rev. Nos.29, 30 & 32/2019 -18- assessee is entitled for exemption being second sale made, lies on the assessee himself. But the Tribunal had not adjudicated as to whether the assessee had succeeded in proving those aspects. Thirdly, the reliance placed by the Tribunal on the enquiry report relating to the assessment made against M/s. South Asian Trade Links, cannot be considered as a foul proof evidence to deny benefits to the revision petitioner. At the most it can be considered only as a supporting evidence, subject to the extent to which it would connect dealings of the revision petitioner/assessee. Further, acceptance of the findings rendered by the first Appellate Authority, based on the records produced, was not analysed by the Tribunal with reference to those records. It is also a relevant aspect to examine whether the additions made based on probable omissions and suppressions is warranted in the circumstances of the case, which the Tribunal had omitted to take note of. All the above aspects would persuade us to hold that, findings arrived by the Tribunal is not based on proper reasonings, for reversing the view taken by the first Appellate Authority. We are of the considered opinion that, the matter requires an elaborate reconsideration at the hands of the Appellate Tribunal. S.T. Rev. Nos.29, 30 & 32/2019 -19- 12. Hence, the above revision petitions are hereby allowed and the impugned common order passed by the Sales Tax Appellate Tribunal, Ernakulam in TA No.42/2015, 01/2012 & 02/2012 is hereby set aside. The appeals are remanded to the Tribunal for fresh consideration and disposal, after affording sufficient opportunity of hearing to the Department and to the assssee. It will be left open to the parties to adduce further evidence in the matter. The Tribunal shall take an appropriate decision in the appeals taking into consideration of the findings and observations contained herein and also taking note of the law prevailing on the subject. The Tribunal shall take all earnest endeavour to dispose of the appeals at the earliest, at any rate, within a period of 6 months from the date of receipt of a copy of this judgment. ## **Sd/-** ## **C.K.ABDUL REHIM JUDGE** ## **Sd/-** ## **T.V.ANILKUMAR** **JUDGE** **AMG** S.T. Rev. Nos.29, 30 & 32/2019 -20- ## **APPENDIX OF ST.Rev. 29/2019** **PETITIONER'S/S EXHIBITS:** **ANNEXURE I TRUE COPY OF THE ASSESSMENT ORDER DATED 22.11.2002. ANNEXURE II TRUE COPY OF THE ORDER IN STA NO. 848/2006 DATED 30.06.2010 ANNEXURE III THE TRUE COPY OF THE JUDGMENT IN W.P.(C) NO. 35122 OF 2010 DATED 11.11.2014. ANNEXURE IV TRUE COPY OF THE JUDGMENT IN WA 1395 OF 2015 DATED 03.07.2015. ANNEXURE V TRUE COPY OF THE COMMON ORDER PASSED BY THE SALES TAX APPELLATE TRIBUNAL ADDITIONAL BENCH ERNAKULAM IN TA NOS. 42/2015, 1/2012 AND 2/2012 DATED 25.03.2019.** S.T. Rev. Nos.29, 30 & 32/2019 -21- ## **APPENDIX OF ST.Rev. 30/2019** **PETITIONER'S EXHIBITS:** **ANNEXURE -I TRUE COPY OF THE ASSESSMENT ORDER DATED 30.12.2002 ANNEXURE -II TRUE COPY OF THE ORDER IN STA NO 882/2005 DATED 01.07.2011** **ANNEXURE -III TRUE COPY OF THE COMMON ORDER PASSED BY THE SALES TAX APPELLATE TRIBUNAL ADDITIONAL BENCH ERNAKULAM IN TA NOS. 42/2015, 1/2012 AND 2/2012 DATED 25.03.2019** S.T. Rev. Nos.29, 30 & 32/2019 -22- ## **APPENDIX OF ST.Rev. 32/2019** **PETITIONER'S EXHIBITS:** **ANNEXURE I TRUE COPY OF THE ASSESSMENT ORDER DATED 30.12.2002 ANNEXURE II TRUE COPY OF THE ORDER IIN STA NO.1673/2005 DATED 01.07.2011** **ANNEXURE III TRUE COPY OF THE COMMON ORDER PASSED BY THE SALES TAX APPELLATE TRIBUNAL ADDITIONAL BENCH ERNAKULAM IN TA NOS.42/2015, 1/2012 AND 2/2012 DATED 25.03.2019**