TMI Blog1985 (4) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... als and the finished products not being separately maintained? (2) Whether the Board was justified in not holding that in the absence of the separate set of accounts for the two classes of raw materials, the contents of the two classes of raw materials in the finished products sold in S.O.S. were the same ratio as that of the raw materials as such penalty under section 8(2) was leviable to the extent of the raw materials purchased on concessional rate forming part of the finished products sold in S.O.S.?" 2.. The material facts giving rise to this reference, as obtainable from the agreed statement of the case, are these: The assessee-non-applicant herein (hereinafter referred to as the assessee) owns an oil mill at Indore where oil and oil-cake are manufactured for sale. He was assessed to sales tax for the period 1st January, 1970, to 31st December, 1970, by the Additional Assistant Commissioner of Sales Tax, Ujjain Region, Ratlarn, by his order dated 31st July, 1974. The tax was assessed at Rs. 32,999.44 and purchase tax was assessed at Rs. 50,120.22 and penalties were imposed at Rs. 5,052 inclusive of penalty of Rs. 5,000 under section 8(2) of the Act, holding that the non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and set aside the penalty. The relevant part of the order of the Tribunal in which the contention of the assessee as well as the finding of the Tribunal are capsulised is set out hereinbelow: "3. Appellant's contention is that in addition to his purchases of oil-seed on declaration he had also purchased oil-seed worth Rs. 41,92,332 after paying the full rate of tax. Thus it is not that he utilised only oil-seeds purchased on declaration in his oil mill. But he utilised both kinds of oil-seed, more or less, in equal quantity-it was also pointed out here that certain oil-seed was imported and was also purchased from registered dealers. Thus against oil-seed worth Rs. 58.47 lacs purchased on form XII-A, oil-seed not liable for penalty under section 8(2) was worth Rs. 62.52 lacs. As against this 75 per cent of the sales are within the State and in inter-State sale and only 25 per cent had been transferred out of the State. Thus oil sold outside the State was pressed from the oil-seed for which no declaration had been given by the dealer. This contention was opposed by the learned counsel for the department with the argument that the dealer maintained a mixed account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of tax and when the assessee failed to discharge this onus, the only course open in law to the assessing authority was to find out on pro rata basis the quantum of sales outside the State of finished product manufactured out of the raw material purchased at concessional rate of tax and without the concessional rate of tax. 4.. The learned counsel for the assessee has, in his argument in counter, submitted that looking to the nature of the business of the assessee, i.e., the manufacture of oil, it is neither practicable, nor necessary for the assessee to keep two categories of raw material, i.e., the oil seeds separately and to maintain separate and distinct accounts with regard to the oil produced out of these two categories of oil-seeds. He submitted that section 26 of the Act and rule 52 of the Rules do not prescribe the mode of maintenance of such account. He submitted that even assuming that the maintenance of such account was prescribed, even then, ipso facto, on the failure of the maintenance of such account, penalty cannot be imposed on the assessee. He submitted that a distinction has to be made in the matter of assessment and the imposition of penalty. The imposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arguments advanced by the counsel for the parties, the vital point which falls for determination is whether the imposition of penalty under section 8(2) of the Act is penal in nature or is merely an imposition of a balance of tax or an additional tax even when the liability to pay such tax has been designated as penalty under section 8(2) of the Act as it is on this determination that the question of burden of proof will depend. To iterate, the argument of the learned Advocate-General had been that though in section 8(2) of the Act, the imposition of tax provided therein on the contravention of section 8(1) of the Act is named as penalty, on the totality of the reading of the two sub-sections, it becomes evident that in substance and effect, the imposition under section 8(2) of the Act is a tax and not a penalty, and, therefore, all those provisions regarding the burden of proof that are contained in the Act for assessment of the tax should be pressed in service while determining the question of penalty under section 8(2) of the Act. The learned Advocate-General, in support of his argument, relied on the decisions of this Court in Jaswantlal Prahlad Bhai and Co. v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference between the tax payable at the full rate and the tax payable at the concessional rate, the real nature of such a penalty is merely the balance amount of sales tax which ought to have been paid by the assessee at the time of purchase of goods. Although termed as penalty the amount so paid is really sales tax and should be allowed as business expenditure under section 37." [1978] 41 STC 409 (SC): "The burden of showing that the assessees utilised the goods purchased for any other purpose, that is, for a purpose different from that for which the goods were purchased as evidenced by the declarations, would be on the revenue and the revenue may discharge this burden by calling upon the assessees to produce evidence to show, in one case that the goods were resold by them, and in the other, that the goods were used by them as raw materials in the manufacture of goods and the goods so manufactured were sold. This would be a fact exclusively within the knowledge of the assessees and if the assessees do not produce sufficient evidence to establish this fact, it might be legitimate for the revenue to raise an inference that the assessees did not utilise the goods for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to put him in the same position as if he had completely and fully discharged the burden placed upon him. It would be putting him in a better position than he would have been had he set out to discharge the burden and had succeeded in discharging it only partially. There is no logic about raising the presumption which was raised by the Sales Tax Officer or the Tribunal in favour of the respondents. An assessee cannot, because of his failure to discharge the statutory burden, be put in the same position as if he has succeeded in discharging it. To raise the presumption which was raised by the Sales Tax Officer and Tribunal is to render nugatory the provisions of section 14(3) of the said Act. The formula which can apply in estimating the turnover of purchases in such a case must, therefore, be a different formula. In our view, in such a case the pro rata formula adopted by the Assistant Commissioner and approved by the Deputy Commissioner is a proper and rational formula to apply in estimating such turnover of purchases. The adoption of this formula is also not unfair to the assessee, for if one were to place an extremely strict construction upon sub-section (3) of section 14, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory in character and the decision of the Madras High Court which was given under the Madras General Sales Tax Act, 1939 (Madras Act 9 of 1939), requires to be reconsidered, and there was no scope for taking into account any question of hardship. In our opinion, the argument on behalf of the appellant is well-founded and must be accepted as correct. The earlier decision of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 STC 419 requires to be reconsidered in view of the statutory provisions of the new Act, i.e., the Madras General Sales Tax Act, 1959 (Madras Act 1 of 1959). We consider therefore that the judgment of the Madras High Court should be set aside and the case should be remanded..." 6.. The learned counsel for the assessee had, in support of his argument, the resume whereof has already been given hereinabove, relied on the decision of the Supreme Court in Commissioner of Income-tax, West Bengal v. Anwar Ali [1970] 76 ITR 696 (SC) and the decision of this Court in Raysinet Kemical Company v. State of M.P. (printed at page 314 infra) [1983] 16 VKN 165. He had submitted that the decision in Raysinet's case (printed at page 314 infra) [1983] 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish that the raw materials purchased within the State were used in manufacturing goods sold outside the State. Similar reasoning has consistently been adopted by the Board of Revenue, and in our opinion, rightly, in deciding cases of penalty under section 8(2) [see J.C. Mills Ltd. v. Commissioner of Sales Tax [1977] 10 VKN 225 and Vinay Dal Mills v. Commissioner of Sales Tax (Appeal No. 292-PBR/78 decided on 28th November, 1978) and other cases referred to therein]. The learned Government Advocate relied upon a decision of the Supreme Court in the case of Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax [1978] 41 STC 409 (SC), to show that the burden of proof which is on the department can be discharged by calling upon the dealer to produce his books of account of evidence to show as to how the raw materials were utilised. In the instant case however on the facts found by the Sales Tax Officer from the account books, it cannot be said that the dealer committed any contravention of the purpose mentioned in section 8(1) in respect of goods purchased in form XII-A and utilised the goods for manufacturing other goods which were sold outside the State. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the amount of penalty that was imposed on the assessee under section 8(2) of the Act as a business expenditure under section 37(1) of the Income-tax Act, 1961. The penalty imposed in that case under section 8(2) of the Act was the difference between the tax payable at the full rate and the tax payable at the concessional rate. In the face of this fact that the court, for the purposes of section 37 of the Income-tax Act, treated it to be a business expenditure and in that course made the just fore-quoted observations. In the Simplex Structural Works' case [1983] 140 ITR 782 itself, this Court has observed to the effect that the position would have been otherwise had the penalty imposed under section 8(2) of the Act not been the minimum, that is, merely the difference in the tax at the full rate and the tax at the concessional rate and had been in excess thereof. On the point of exactness and clarity with regard to this, we would like to quote the following observations from the Simplex Structural Works' case [1983] 140 ITR 782 (MP): "If the amount of penalty is such an expenditure which the assessee would have been required to incur, even if he had not broken the law, such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the material on record, then accepting the golden rule that runs through the web of the administration of criminal justice that the view that favours the accused has to be accepted, the view in favour of the assessee has to be taken. 9.. We now turn to the Raysinet's case (printed at page 314 infra) [1983] 16 VKN 165 decided by this Court. The relevant excerpt has already been set out hereinabove in paragraph 6.01 of this judgment. If we examine the instant case in the context of those observations, we find that those observations squarely apply to the instant case. In the instant case the Tribunal has found it as a fact, to quote: "Appellant has taken care to ensure that oil sold outside the State does not exceed the quantity of oil-seed purchased by him without giving the declaration". Further, question No. (1), as framed, also indicates that in the instant case, the quantity of finished products sold outside the State did not exceed the quantity of raw materials purchased without concessional rate. In such a situation, on account of the assessee's failure to maintain the distinct separate account, showing distinctly as to whether raw materials consumed in the goods sold outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other purpose" (emphasis supplied by us). The emphasised portion clearly indicates that the raising of the inference against the assessee is not a rule of thumb, but a matter of conclusion in the facts and circumstances of the given case. Therefore, in the instant case, when on the facts and circumstances of the case, the Tribunal whose finding on fact is final, has inferred in favour of the assessee and that being an inference of fact, cannot be said to be erroneous in law. At this stage, it would be pertinent to point out that their Lordships of the Supreme Court have held in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax AIR 1957 SC 49 that an inference of fact from the facts established is a question of fact and not a question of law. In this view of the matter, we are of the opinion that the Polestar Electronic's case [1978] 41 STC 409 (SC) does not advance the contention of the department in the instant case also. 11.. It was also argued by the learned Advocate-General that in Raysinet's case (printed at page 314 infra) [19831 16 VKN 165 (MP) no notice of Narayana Nadar's case [1968] 21 STC 25 (Supreme Court decision) was taken and in the light of this Narayana Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion No. (2). The answer to this question is dependable on the answer to question No. (1). It was strenuously argued on behalf of the department by the learned Advocate-General that the maintenance of separate account in the manner discussed hereinabove, while discussing question No. (1), was obligatory on the assessee and the assessee having not maintained the separate account and having maintained the mixed account, the question deserves to be answered against the assessee and in favour of the department. We would like to discuss the question about the maintenance of account. Reference was made to sections 9 and 26 of the Act and rule 52 of the Rules. Section 9 of the Act as its very rubric states, relates to burden of proof and further it talks of the liability to pay tax; it does not talk of penalty. Therefore, that section has no relevance with regard to the point in controversy in the instant case. Section 26 of the Act reads as under: "26. Accounts.-(1) Every registered dealer shall keep true account of the value of goods bought and sold by him and if the Commissioner considers that the account does not sufficiently enable him to verify the returns referred to in sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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