TMI Blog2010 (10) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... e destination of the goods. Merely because the goods did not reach the destination in such a case it cannot be said that the sale itself was not genuine. Thus we are of the opinion that the order dated December 28, 2006 levying penalty on the company cannot be sustained and the same is required to be set aside. For the same reasons, we are of the opinion that the order of assessment cannot be sustained. - W.A. No. 1946 of 2009 - - - Dated:- 4-10-2010 - CHELAMESWAR J. C.J. AND RAVINDRAN P.N. , JJ. The judgment of the court was delivered by J. CHELAMESWAR C.J. W.P. (C). No. 5893 of 2009 and W.A. No. 1946 of 2009 are filed by the same petitioner, Essar Oil Limited, a public limited company, hereinafter in the judgment referred to as the company , which is a registered dealer on the files of the Assistant Commissioner (Assessment), Special Circle II, Kochi, under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as, the Act ), dealing in petroleum products. W.P. (C). No. 5893 of 2010 is filed challenging the legality of an assessment order dated January 21, 2010 relating to the assessment year 2004-05 under the Act passed against the petitioner. W.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Lakshadweep are eligible for the concessional rate of tax subject to the fulfilment of other conditions of the said notification and as it was found by the Revenue that the goods covered by the transactions in question did not (1)See page 169 supra. eventually reach Lakshadweep. The relevant portion of the show-cause notice reads as follows: You are borne on the files of Assistant Commissioner (Assmt.), Commercial Taxes, Special Circle II, Ernakulam where you had filed certificates stipulated under S.R.O. No. 1091/99 in annexure I in support of the claim of concessional rate of four per cent. As further evidence to prove movement of goods from Kerala to Lakshadweep, you had furnished copies of 'export bills' filed at Beypore Port, Kozhikode and Mangalore Port. In order to verify bona fides of the export of goods to Lakshadweep and the authenticity of the export documents filed the Investigation Branch attached to the office of the Deputy Commissioner (Intelligence), Ernakulam visited the ports of Beypore and Mangalore, perused the copies of export bills filed with the port authorities and obtained copies of export bills. On cross verification of the export documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the KGST Act came to be passed against the company on January 21, 2010. By the said assessment order, the assessing authority, inter alia, rejected the claim of the company that the company was liable to pay sales tax only at four per cent on the sales made in favour of the two purchasing agents referred to earlier and held that the company is liable to pay tax on the above-mentioned transactions at the rate of 24 per cent ad valorem. Therefore, the company directly approached this court by way of W.P. (C). No. 5893 of 2010, as by then the company's W.P. (C). No. 5702 of 2008(1) was dismissed and some of the observations and findings recorded in the said writ petition are relied upon by the assessing authority in the impugned assessment order and, therefore, the company rightly believed that no useful purpose would be served by availing the statutory appeal/revisional remedies against the assessment order. While the show-cause notice simply alleges a violation of one of the conditions of the exemption notification for proposing to impose penalty, the final order dated December 28, 2006, imposing the penalty, records a finding that the appellant colluded wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has found fault with the petitioner for not informing the seventh respondent about the supply of HSD to respondents 5 and 6 and requesting them to monitor its actual utilisation. Further, the petitioner is also faulted for not alerting the port authorities at Beypore and Mangalore for monitoring the actual movement of the goods sold. It is stated that if these steps were taken, the company could have ensured the bona fides of the concessional sales and safeguarded the Government revenue. It has been held that, he had reason to believe that the petitioner colluded with respondents 5 and 6 to defraud the Government revenue. 13.. In exhibit P13, it is also found that the company was accepting payment by demand drafts from one Sri P.V. Babu, S/o. P.K. Velayudhan, operating a bank account at IndusInd Bank, with fictitious business address at BNV Trade Links, Tharakkandom Estate, Ravipuram, Ernakulam. This order contains details of five demand drafts and it is stated that Sri P.V. Babu had no authority to pay for the HSD purchased and that local enquiry at his business premises revealed that the business was bogus. Yet another factor pointed out in exhibit P13 order is that the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company colluded with the purchasing dealers to defraud the Government. The first respondent also found fault with the company for accepting the payment due towards the sales which are the subject-matter of dispute in this litigation from a third party to the transaction, i.e., somebody other than the purchasing dealers. The company accepted demand drafts from a third party and not cheques towards the consideration of the sales in issue in contrast to the practice of the company in accepting cheque payment in all those cases of sales made in favour of regular customers. Further the first respondent also opined that some of the materials produced by the company in its bid to establish the fact that the HSD sold by the company was in fact sought to be transported to the Union Territory of Lakshadweep through Mangalore and Beypore ports pertained to commodities other than HSD. In view of the abovementioned factors the first respondent opined that the company colluded with the 5th and 6th respondents to defraud the State of Kerala of its revenue. By the judgment under appeal the learned judge of this court proceeded to examine the genuineness of the sales in issue. He took into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment order itself provided that the BDA shall canvass business from customers for their consumption only. 6.. Further while exhibit P4 requires customers to place their intents, even going by the pleadings in this writ petition, intents were placed by the BDA only. This read with the averments in the counteraffidavit filed by the sixth respondent, speaks volumes about the bona fides of the petitioner and the genuineness of the sales. 7.. The corresponding 137 export bills verified with the ports, showed that the goods shipped were actually rice, provisions, etc., which means the goods sold by the petitioner were not shipped at all. 8.. Further no payments were received from the purchasers and the entire payments were made by Sri P.V. Babu, operating a fictitious account in the IndusInd Bank. . . Hence the appeal. To examine the correctness of the judgment, a brief survey of the Act is necessary. The Kerala General Sales Tax Act, 1963 authorizes the levy and collection of taxes on sales and purchases of goods made in the State of Kerala. Section 5 of the Act, in so far as it is relevant for our purpose, reads as follows: 5. Levy of tax on sale or purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Administrator, Union Territory of Lakshadweep, Laccadive Co-operative Marketing Federation, Kozhikode and the Lakshadweep Harbour Works and any dealer recognized by the Administrator, Union Territory of Lakshadweep subject to the condition that such dealer shall utilise the concessions only for such goods intended for the use in the Union Territory of Lakshadweep (emphasis Here italicised. . . . ours). Any goods, the rate of tax in respect of which exceeds 4 per cent. 4 It is the emphasised portion of column (2) of the above extracted table which determines the fate of these two cases before us. The true import of the said clause is required to be examined, as the company and the revenue are not able to agree upon its interpretation. The company claims that the sales in question are organized through a proprietary concern, known as Nizy Enterprises which, according to the company, is a business development associate (BDA). According to the company, the said BDA and the company had a business promotion agreement by which the BDA identifies the prospective purchasers and facilitates the sales of vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual utilisation of the goods sold in the Union Territory of Lakshadweep, but if the sale is in favour of a person who, at the time of the sale transaction, was of the intention to use the goods in Union Territory of Lakshadweep, the sale transaction is entitled to the benefit of the exemption notification, irrespective of the fact that the goods were actually utilised/consumed in the Union Territory of Lakshadweep or not. In the alternative, it is argued by the company that the selling dealer, such as the company herein, is under no legal obligation to monitor the movement of the goods subsequent to the completion of the sale transaction to ensure that the goods sold actually reached the Union Territory of Lakshadweep. Further that it would be impracticable in the commercial world to keep a track of the movement of the goods once sold and no prudent businessman would undertake such an exercise unless he is legally obliged to do so. It is also the case of the company that the exemption notification creates a conclusive presumption in favour of the selling agent, such as the company, that every sale of goods specified by the notification to a purchaser who is recognised by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only the movement of goods to Lakshadweep must be proved but must also be proved by the selling dealer/company. The show-cause notice is purported to have been given under section 45A of the Act. Section 45A, in so far as it is relevant, reads as follows: 45A. Imposition of penalty by officers and authorities. (1) Notwithstanding anything contained in section 46 if the assessing authority or the Appellate Assistant Commissioner is satisfied that any person, (a) being a person required to register himself as dealer under this Act, did not get himself registered; or (b) has failed to keep true and complete accounts; or (c) has failed to submit any return as required by the provisions of this Act or the Rules made thereunder; or (d) has submitted an untrue or incorrect return; or (e) has failed to comply with all or any of the terms of any notice or summons issued to him by or under the provisions of this Act or the Rules made thereunder; or (f) after purchasing any goods in respect of which he has made a declaration under proviso to sub-section (3) of section 5, has failed to make use of the goods for the declared purpose; or (g) has acted in contrav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice issued under section 45A is that the goods sold by the company, invoking the benefit of the exemption notification by paying a concessional rate of tax under the Act, did not reach the Union Territory of Lakshadweep. Therefore, the benefit of the exemption was wrongly availed of, as according to the Department such a concessional rate of tax is available only to those sales which are not only made in favour of a purchaser who is a dealer recognized by the Administrator of Union Territory of Lakshadweep, but such dealer (purchaser) eventually utilises the concession for such goods intended for the use in the Union Territory. To invoke sub-clause (h) of section 45A(1) against the company on the ground that there is a contravention of the Act and/or Rules, we proceed for the time being that S.R.O. No. 1091/99 being a notification issued under section 10 of the Act substantially having the effect of amending the Schedules to the Act and, therefore, it forms part of the Act. If that be the case, contravention of the provisions of the notification becomes contravention of the Act. Therefore, it becomes necessary to consider what exactly is the contravention and who committed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words used in the relevant provisions are goods for use by it in the generation or distribution of such energy (emphasis Here italicised. supplied by us). On a plain reading of the relevant clause it is clear that the expression 'for use' must mean 'intended for use'. If the intention of the Legislature was to limit the exemption only to such goods sold as were actually used by the undertaking in the generation and distribution of electrical energy, the phraseology used in the exemption clause would have been different as, for example, 'goods actually' used or 'goods used'. The case before the Supreme Court was that the Punjab General Sales Tax Act excluded from the computation of the total turnover of the dealer the sales of goods to any undertaking supplying electrical energy to the public for use by it in the generation or distribution of electrical energy. The question before the Supreme Court was whether the cement purchased by the Punjab Electricity Board from the respondent before the Supreme Court was liable to be excluded while computing the taxable turnover of the said respondent. It was argued before the Supreme Court that any goods s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following further questions remain (i) whether, on the established facts of the present case, the vendor (appellant) of the goods would be liable for the penalties contemplated under section 45A of the Act on the ground that a concessional rate of tax was wrongly availed of in connection with such a transaction; Irrespective of the answer to the first question (ii) whether the vendor is liable to make the payment of sales tax without the benefit of the exemption notification; or (iii) is it the purchaser who is required to be made liable, both for the differential tax as well as the penalty; (iv) whether the fact that the purchaser is not amenable to the authority of the State of Kerala or is not identifiable or has no means of paying either the tax or penalty or both would shift the responsibility to the vendor to be examined. On an examination of the above questions if we reach a conclusion that the appellant (vendor) is liable for both tax and penalty, a further question that requires to be examined is whether the due process of law was followed in the instant case for fixing such responsibility. We shall now examine each of the above questions vis-a-vis t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods are likely to be put to, except the information, if any, furnished by the purchaser, if at all. There is nothing in the law which obligates the purchaser of goods to give any information to the vendor as to the purpose for which the goods are being purchased. Assuming for the sake of argument that under the exemption notification in issue the purchaser is obliged to give such information, there is nothing either in the Act or in the body of general law which obligates the purchaser not to deviate from the intention declared at the time of the purchase of goods. At any rate, there does not appear to be any principle of law which confers a right on the vendor to insist that the purchaser utilises the goods only for the purpose declared at the time of the sale transaction. Since the sale of goods is a transfer of property from the vendor to the purchaser, the vendor loses all legal control over the goods sold, the moment the title in the goods passes and the factual control over the goods when they are delivered. It is in recognition of such legal position, the Supreme Court held in State of Madras v. Radio and Electricals Ltd. [1966] 18 STC 222; AIR 1967 SC 234 as follows (pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods for resale, and that declaration is produced by the selling dealer, is it open to the sales tax authority under the Central Sales Tax Act to deny to the selling dealer the benefit of concessional rates under section 8(1) of the Central Sales Tax Act, 1956, on the view that the certificate in form C mentions more purposes than one for which the goods are intended to be used, or that the goods are incapable of being used for the purpose for which they are declared to be purchased, or that the goods are applied for some other purpose not mentioned in the certificate in form C? . On the same principle, it was held in Polestar Co. v. Addl. Commissioner, Sales Tax, New Delhi [1978] 41 STC 409 (SC); AIR 1978 SC 897 as follows (page 419 in 41 STC): But what would be the position if the purchasing dealer does not act according to the intention expressed by him in the declaration given to the selling dealer and, in the one case, does not resell the goods and, in the other, does not use them as raw materials in the manufacture of goods for sale? The selling dealer is granted deduction in respect of the sales made by him because the goods are purchased for resale or for use as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of the purchasing dealer. The second proviso is thus intended to provide the consequence of the purchasing dealer not complying with the statement of intention expressed in the declaration given by him to the selling dealer under the first proviso. This is broadly the scheme and intendment of section 5(2)(a)(ii) and its two provisos read in the context of the other provisions of the Act. As rightly contended by the learned counsel for the appellant, these two decisions do lay down the principle that in a transaction of sale of goods the vendor loses control over the goods on completion of the sale and delivery of the goods. However, the learned counsel Sri Vinod Chandran submitted that in order to successfully claim the benefit of the exemption notification, the appellant is required to establish that the goods moved from the State of Kerala to the Union Territory of Lakshadweep pursuant to the sale. He submitted that the sales contemplated under the exemption notification are akin to the inter-State sales envisaged by the Central Sales Tax Act and as held by a long line of decisions that there are three essential elements in such inter-State sales. The Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsure that the said goods reach the professed destination in order to justify the collection of tax at a reduced rate. Of the two factors, i.e., (i) the purchasing dealer is recognised by the Administrator of Union Territory of Lakshadweep, and (ii) that the goods purchased under the exemption notification are actually used in the Union Territory of Lakshadweep, the selling dealers, such as the appellant, can be made accountable, in our view, only for the first factor. In so far as the second factor is concerned, nothing in law is brought to our notice which either obligates or facilitates the selling dealer to ensure that the goods in fact utilised in the Union Territory of Lakshadweep. Even by the judgment under appeal the learned Judge held in this regard as follows: . . . True, going by exhibit P1 notification, it may not be the responsibility of the seller to monitor movement of the goods. . . . In such circumstances, holding the selling dealer, like the appellant, responsible for infringement of the law committed by the purchaser, in our opinion, is a wholly arbitrary exercise of State's power. An appropriate provision, such as the second proviso introduced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bound to prove all the necessary facts in order to discharge that burden including the fact that the goods in question were in fact used in the Union Territory of Lakshadweep. On the other hand the learned counsel for the petitioners argued that such a shifting of burden would be wholly an arbitrary exercise of the legislative power conferring to articles 14 and 265 of the Constitution and in the absence of explicit language they could not read such an obligation as the one suggested by the Revenue in the explanation. The expression burden of proof is used to describe the duty which lies on a party to the legal proceeding either to establish a case or to establish the facts upon a particular issue. Chapter VII of the Indian Evidence Act deals with the burden of proof. Section 101 embodies the concept of burden of proof and it reads as follows: 101. Burden of proof. Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist. When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person. It can be seen from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for penalty is to artificially make the appellant liable for an infraction of law committed by some other person. We do not think that we should read such a meaning or ascribe such a purpose to the Explanation in the absence of explicit language demanding such conclusion on our part. It is a different question whether employment of explicit language would satisfy the requirement of articles 14 and 265 of the Constitution. We are not required to examine the said question for the present. A mere declaration under Explanation I(1) to section 45A that the burden of proof that a person is not liable for penalty under the said section is on (1)Explanation I The burden of proving that any person is not liable to the penalty under this section shall be on such person. the person against whom such a penalty is sought to be imposed, in our opinion, cannot be either a substitute or an omnibus legal frame to cover up all the shortcomings in the Act. Apart from the substantive liability of the appellant, either for penalty or for the tax, even the procedure adopted to find the appellant liable for the penalty, in our opinion, is wholly faulty. It is the case of the company that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bligations between the parties. Nothing in the Law of Contract prevents the parties from altering such rights and obligations from time to time if both parties are agreeable to such alteration. No third party including the State has any right to make any grievance of such alteration of the terms of the contract unless it can be established that such alteration is impermissible under law or on the ground of public policy. Neither of such limitations are either pleaded or established in the instant case. The other factor which weighed with the learned judge that the payment of consideration due for the sales in question flew from a third party to the sale transaction and therefore the transaction is not genuine is also in our opinion unsustainable in law as it is too well settled that under the Law of Contracts in India consideration for contract can always flow from a third party. The other factor which prompted the learned judge to come to the conclusion that some of the documents produced by the company do not appear to be genuine and also do not factually support the stand that the HSD sold by the appellant was in fact transported to the Union Territory of Lakshadweep. The doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. As contended by the counsel for the petitioner, proceedings to impose penalty is quasi-criminal and contumacious conduct of the person concerned is necessary to impose penalty. In other words, the mere commission of an offence need not automatically be visited with penalty. However, in this case, I am not prepared to think that it is the mere commission of an offence that has been committed by the petitioner, having regard to the facts noticed in this case, about which detailed reference has already been made. Another submission made on behalf of the respondent is that HSD is a delivered product under the provisions of the Petroleum Act. The movement of petroleum products is closely monitored under the provisions of the Petroleum Act and the Rules made thereunder having regard to the dangerous nature of the commodity. Therefore, the various provisions of the abovementioned Act and the Rules stipulate the maintenance of various documents by every person dealing with such a product. Therefore, the company could easily establish its innocence by producing the various documents contemplated under the Petroleum Act and the Rules. We must point out that there is no reference in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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