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2016 (1) TMI 1046 - SUPREME COURT

2016 (1) TMI 1046 - SUPREME COURT - [2016] 88 VST 257 (SC) - Levy of penalty for non-maintenance of complete and true accounts - sale of motor vehicles from another state - According to the Intelligence Officer, the sales were concluded at Kozhikode and hence the vehicles should have been registered within the State of Kerala. Therefore, by showing the sales at Mahe the respondent had failed to maintain true and complete accounts as an assessee under the KGST Act and had evaded payment of tax to .....

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e motor vehicle to the office of registering authority and only when it reaches there safe and sound, in accordance with the statutory provisions governing motor vehicles it can be said to be in a deliverable state and only then the property in such a motor vehicle can pass to the buyer once he has been given notice that the motor vehicle is fit and ready for his lawful possession and registration. - The allegations and facts made or noted by the Intelligence Officer no doubt create some dou .....

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red this appeal against judgment and order dated 20.3.2006 passed by the High Court of Kerala in MFA No. 1000 of 2002. The High Court exercising an appellate power allowed the appeal filed by M/s K.T.C. Automobiles, the respondent herein and set aside the original order passed by the Intelligence Officer under Section 45A of the Kerala General Sales Tax Act (for brevity KGST Act ) imposing a penalty of ₹ 86 lakhs upon the respondent dealer for the alleged non-maintenance of complete and tr .....

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nai. As a dealer of said cars, both at Kozhikode (Calicut), Kerala where their head office is located and also at Mahe within the Union Territory of Pondicherry where they have a branch office, they are registered dealer and an assessee under the KGST Act, the Pondicherry Sales Tax Act as well as the Central Sales Tax Act. The dispute relates to assessment year 1999-2000. Its genesis is ingrained in the inspection of head office of the respondent on 1.6.2000 by the Intelligence Officer, IB, Kozh .....

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r registration under the Motor Vehicles Act at Mahe and wrongly collected and remitted tax for those transactions under the provisions of Pondicherry Sales Tax Act. According to the Intelligence Officer, the sales were concluded at Kozhikode and hence the vehicles should have been registered within the State of Kerala. Therefore, by showing the sales at Mahe the respondent had failed to maintain true and complete accounts as an assessee under the KGST Act and had evaded payment of tax to the tun .....

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which has been noted and examined with meticulous care by the High Court in paragraphs 9 to 11 of the impugned judgment and later approved. Against the appellate order in favour of assessee, the Commissioner of Commercial Taxes initiated a suo-motu proceeding in exercise of power under Section 37 of the KGST Act and passed a final order on 12.8.2002 setting aside the appellate order and restoring the original order of penalty passed by the Intelligence officer. Against this suo-motu order the r .....

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d circumstances noted by the Intelligence Officer in the show cause notice as well as in his final order. According to submissions, there was no other conclusion possible except to hold that the respondent dealer had created colorable device to evade sales tax in Kerala by adopting questionable means such as providing incorrect addresses of buyers for the purpose of facilitating registration of the motor vehicles at Mahe. According to Mr. Radhkrishnan, the sales transactions stood concluded in K .....

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the KGST Act as well as the High Court. He highlighted that in the customer booking registration and necessary fitting instructions issued from main office at Kozhikode the respondent gave an unwarranted option to the customers of registering the vehicle at Mahe. It was contended on behalf of appellant that such option was not for lawful purposes of promoting sales at Mahe but an offer to facilitate registration of cars at Mahe against the provisions of Motor Vehicles Act and the Rules which re .....

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sed for issuance of cash receipts for transactions where the sale and registration was shown at Mahe. Letters of few buyers allegedly supported the allegation that sometimes even the delivery of the vehicle was given at Kozhikode although it was registered at Mahe. 6. A legal issue was raised on behalf of the appellant that as per Explanation under Section 45 of the KGST Act, the burden is on the assessee to show that penalty is not liable to be imposed on him. It is submitted that the responden .....

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al Commissioner of Sales Tax v. Sehgal Autoriders Pvt. Ltd., 2011 SCC OnLine Bom 872 = 43 VST 398 (Bom) and also upon a judgment of this Court in Association of Registration Plates v. Union of India, (2004) 5 SCC 364. Paragraph 28 of this judgment is as follows: 28. Section 2(21-A) defines manufacturer and it means a person who is engaged in the manufacture of motor vehicles. Section 2(28) defines motor vehicles or vehicle and it means any mechanically propelled vehicle adapted for sue upon road .....

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on behalf of the owner of a motor vehicle for its registration. The question of issuing a certificate of registration and assigning it a registration mark arises only after sale of a motor vehicle. Therefore, until the motor vehicle has been sold to a person by a dealer, the registering authority would not come into the picture and there is no occasion for assigning it a registration mark….. 7. The aforesaid issue need not detain us any further in view of cited judgments and combined read .....

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ccepting the proposition that registration of a motor vehicle is a post-sale event, the question as to when the property in a motor vehicle actually passes to the buyer remains to be examined in the light of provisions of Motor Vehicles Act and the Rules framed there under as well as the other relevant provisions of law. According to submissions advanced on behalf of appellant, for deciding the issue as to when and where sale takes place in respect of motor vehicle bought by a buyer from a deale .....

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se of goods shall be deemed to take place inside a State, if the goods are within the State - (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Sale of Goods Act, 1930- Section 4 - Sale and agreement to sell (1) A contract of sale of .....

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fter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Section 19 - Property passes when intended to pass (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of as .....

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rable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed. 8. Before evaluating the impact of aforesaid legal provisions relied upon on behalf of the appellant, it would be appropriate to notice the arguments advanced and the stand adopted by Mr. K. Prasaran, learned senior advocate for the respondent. According to him, the situs of first sale of a .....

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rtained by the registering authority on physical verification of the vehicle and entered into the prescribed form for showing registration, the vehicle cannot be identified as one belonging to the purchaser. Only upon valid registration, as per submissions, the vehicle is appropriated to the purchaser. In support of this proposition, Mr. Prasaran also referred to Section 4 of the Central Sales Tax Act already noted earlier. He also referred to Section 2(xxi) of the KGST Act which defines sale to .....

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deemed, if the goods are within the State at the time of their appropriation to the contract of sale or purchase. Reliance was also placed on Paragraph 8 of the judgment of this Court in Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes (1970) 1 SCC 622, which reads as under:- …There had been many instances where the vehicles had been actually delivered from the stockyards prior to the issue of the allocation letter. The vehicles delivered to the deal .....

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such appropriation of vehicles through specification of the engine and chassis numbers, it was always open to the company to allot any vehicle to any purchaser or to transfer the vehicles from the stockyard in one State to a stock-yard in another State. (emphasis supplied) 9. According to the respondent the fact that the vehicles in question were registered at Mahe, irrefutably leads to the conclusion of their being produced before the Registering Authority at Mahe prior to registration, as per .....

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m 17 contains the form of Trade Certificate. These forms show that only general information as to class of motor vehicle is noted for the purpose of Trade Certificate and not specific particulars of any vehicle such as engine number or chassis number. Rule 40 places restrictions on use of Trade Certificate by specifying that it shall be used only by the person to whom it is issued. The exceptions indicated in this Rule also do not permit use by a purchaser of a vehicle. Rule 41 enumerates the pu .....

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was placed upon a judgment of Bombay High Court dated 17.1.2014 in First Appeal No. 166 of 2009 (entitled The New India Assurance Co. Ltd. vs. Clancy Arcanjia Dias). That judgment shows that a temporary registration number was obtained by the manufacturer of Mahindera Jeep at Nasik where the vehicle was manufactured and the manufacturer had also insured the vehicle during its transit by road from Nasik to Goa. After the vehicle was handed over to dealer at Goa, as per records, it was covered by .....

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the assessee has not maintained proper accounts for justifying imposition of penalty, is based upon a wrong assumption that sales of 263 cars leading to their registration at Mahe were actually sales in Kerala. 12. According to respondent, when the entire facts, relevant documents and alleged evidence were before the authorities as well as the High Court, the burden of proof under Section 45A of the KGST Act loses its significance. The appeal to the High Court under Section 40 of the KGST Act i .....

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aterials, at best, raise only some suspicion which can never take the place of proof which is necessary for imposition of penalty upon the assessee. 13. From the above submissions and counter submissions of the parties as well as relevant statutory provisions in the Motor Vehicles Act, 1988, Central Motor Vehicles Rules, 1989, Section 4(ii) of Central Sales Tax Act, 1956, Sections 4, 19 and 20 of the Sales of Goods Act and relevant provisions of the KGST Act and Rules noticed earlier, we find no .....

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rticularly possession of a motor vehicle passes or can pass legally to the purchaser, authorizing him to apply for registration. Only after obtaining valid registration under the Motor Vehicles Act, the purchaser gets entitled to use the vehicle in public places. Under the scheme of Motor Vehicles Act, 1988 and the Central Motor Vehicles Rules, 1989 the dealer cannot permit the purchaser to use the motor vehicle and thus enjoy its possession unless and until a temporary or permanent registration .....

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nly when the vehicle reaches the place where the registering authority will be obliged to inspect for the purpose of finding out whether it is a roadworthy and register-able motor vehicle and whether its identification marks tally with those given in the sale invoice and the application for registration. The possession can lawfully be handed over to the purchaser at this juncture because law requires the purchaser as an owner to make an application for registration but at the same time the law a .....

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d sale. The purchaser as an owner under the Motor Vehicles Act is thereafter obliged to obtain certificate of registration which alone entitles him to enjoy the possession of the vehicle in practical terms by enjoying the right to use the vehicle at public places, after meeting the other statutory obligations of Insurance etc. Hence, technically though the registration of a motor vehicle is a post-sale event, the event of sale is closely linked in time with the event of registration. Neither the .....

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es and as the law stands, it is co-terminus with registration of a new motor vehicle. 15. Article 286(2) of the Constitution of India empowers the Parliament to formulate by making law, the principles for determining when a sale or purchase of goods takes place in the context of clause (1). As per Section 4(2) of the Central Sales Tax Act, in the case of specific or ascertained goods the sale or purchase is deemed to have taken place inside the State where the goods happened to be at the time of .....

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eptance because the sale invoice itself must disclose such particulars as engine number and chassis number so that as an owner, the purchaser may apply for registration of a specific vehicle in his name. But as discussed earlier, on account of statutory provisions governing motor vehicles, the intending owner or buyer of a motor vehicle cannot ascertain the particulars of the vehicle for appropriating it to the contract of sale till its possession is handed over to him after observing the requir .....

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ting possession of a motor vehicle, the intending purchaser/owner does not have claim over any ascertained motor vehicle. Apropos the above, there can be no difficulty in holding that a motor vehicle remains in the category of unascertained or future goods till its appropriation to the contact of sale by the seller is occasioned by handing over its possession at or near the office of registration authority in a deliverable and registrable state. Only after getting certificate of registration the .....

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cordance with Motor Vehicles Act and Rules. The aforesaid view, in the context of motor vehicles gets support from sub-section (4) of Section 4 of the Sale of Goods Act. It contemplates that an agreement to sell fructifies and becomes a sale when the conditions are fulfilled subject to which the properties of the goods is to be transferred. In case of motor vehicles the possession can be handed over, as noticed earlier, only at or near the office of registering authority, normally at the time of .....

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. Even when the contract for sale is in respect of specific or ascertained goods, the property in such goods is transferred to the buyer only at such time as the parties intend. The intention of the parties in this regard is to be gathered from the terms of the contract, the conduct of the parties and the circumstances of the case. Even if the motor vehicles were to be treated as specific and ascertained goods at the time when the sale invoice with all the specific particulars may be issued, acc .....

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