2010 (12) TMI 1106 - HC - VAT and Sales Tax

Whether there was any intention to evade payment of tax to the Government taking shelter under a wrong classification? Held that - In the present case but for the inspection and gathering intelligence report actual suppression of details of this credit card sales would not have come to light but for the lifting of the veil and actual taxable turnover would not have come to light. Therefore it is a case of incorrect returns by giving wrong description of the sales and claiming exemption disclosing wrong information. Therefore it is a case of definitely incorrect returns as there is suppression of details of the actual credit card sales which came to light only after verification of the account books. Hence none of the decisions relied upon by the respondent/assessee would come to its rescue. Hence the contention of the assessee that once the quantum of total turnover shown in the returns filed tallied with the books of accounts question of suppression of details would not come into picture is not applicable to the facts on hand. Therefore the revision petition deserves to be allowed by answering the questions of law raised above in favour of the Revenue and against the assessee. Accordingly the revision petition is allowed by answering the question of law in favour of Revenue and against the assessee.

Issues Involved:
1. Assessment of financial year 2003-04.
2. Misclassification of taxable turnover.
3. Best judgment assessment under Section 12(3) of the KST Act.
4. Imposition of penalty under Section 12(4) of the KST Act.
5. Applicability of precedents and legal principles.

Issue-wise Detailed Analysis:

1. Assessment of Financial Year 2003-04:
The respondent/assessee, engaged in the manufacture and sale of handicrafts, initially declared a total sales turnover of Rs. 23,33,778 within the state and claimed exemption on the entire turnover. Later, upon inspection by the intelligence wing, revised returns were filed, declaring higher turnovers and admitting tax liabilities. The Assistant Commissioner of Commercial Taxes, after inspection and verification, rejected the declared turnover and assessed a higher taxable turnover, imposing a tax and penalty.

2. Misclassification of Taxable Turnover:
The assessing officer found that the assessee had misclassified taxable turnover as second sales turnover with the intention of evading taxes. The assessee's claim of exemption on sales to foreigners within the state was deemed a misconception. The misclassification was identified during the inspection, leading to revised returns being filed by the assessee.

3. Best Judgment Assessment under Section 12(3) of the KST Act:
The Revenue argued that the assessment order constituted a best judgment assessment under Section 12(3) of the KST Act, as the returns filed were incorrect or incomplete. The Tribunal initially held that there was no best judgment assessment, as the total turnover declared in the returns matched the books of accounts. However, the High Court found that the assessing officer's actions, based on the inspection and intelligence report, amounted to a best judgment assessment due to the misclassification and suppression of sales turnover.

4. Imposition of Penalty under Section 12(4) of the KST Act:
The Assistant Commissioner imposed a penalty of Rs. 6,00,000 under Section 12(4) of the KST Act, citing the assessee's failure to maintain true and complete books of accounts. The Tribunal had set aside this penalty, but the High Court reinstated it, emphasizing that the suppression of sales and incorrect returns justified the penalty.

5. Applicability of Precedents and Legal Principles:
The High Court analyzed various judgments cited by both parties. The Revenue relied on cases like Konatham Bhaskar Rao v. State of Andhra Pradesh and M.V. Pavadai Chettiar Sons v. State of Madras to argue that the assessee's fraudulent behavior warranted the penalty. The assessee cited cases like Sree Krishna Electricals v. State of Tamil Nadu to argue against the penalty, contending that mere misclassification without intent to evade taxes should not attract penalties. The High Court distinguished these cases based on the facts and upheld the penalty, concluding that the assessee's actions were not merely a misconception but an intentional misclassification to evade taxes.

Conclusion:
The High Court allowed the revision petition, answering the questions of law in favor of the Revenue and against the assessee. The Tribunal's order was set aside, and the first appellate authority's order was restored, including the imposition of the penalty. The High Court emphasized that the suppression of sales turnover and incorrect returns justified the best judgment assessment and the penalty under the KST Act.

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