IN THE fflGH COURT OF DELHI STC No. 2/2003 Judgment reserved on : Apnl 19, 2005 Date ol'Fronoimcement; May 12,2005 /o M/s. Orwo Limited, Stadium House, T' Floor, Block No. 1, VJN. Road, Mumbai, (Brand! oMce I/IS-B, Asai' Ati Road, New Delhi, Qosed) „„PeMo]iers ttiroug^: Mr. Balram ^gal. Advocate. Versus The Commisi^oner of Sales Tax, BikriKarBhawan, New Delhi. ....Re^ondent ttirough: Mr. Jagdisti R. Goel, Advocate. CORAM: HON^LE MR. JUSTICE SWATANTER KUMAR HONmE MR. .TUSTICE MADAN B. LOKUR 1. Whether reporters of local paper may be allowed to see die judgment? 1. To be referred to die reporter or not? 3. Whedierdie judgmentshouldbe referredin the CHgcst? V STC No. 2/2003 Page 1 of 9 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified V // SW ATANTER KUMAR. J> Thepetitionerhas filed the presentapplicationunderSection45 (2) of die Delhi Sales Tax Act, 1975 (hereinafter referred to as 'the Act') praying that the AppellateTribunalSalesTax be requiredto stay thec^e and referthe followng questions of law for dctermination:- "L Whether under the facts and circumstances of die case die Id. Tribunal Sales Tax was justified in upholding flic levy of penaltyin respectof taxpayableon sales ma^dcto M/s. Oriental Trading Corpn. 2. Whether under the facts and circumstances of die case die degree of proof required for levying penalty in resfKict of sale made to M/s. Oriental Trading Corpn. should have been largerascon5)aredto die salesmadeto oflicrfour dealers. 3. Whedicr under die facts and circumstances of die case dicre was any mensrca on the part of the applicant company to fiirnishinacairate particulars of sales so far as sales made to M/s. Oriental Trading Coipn. were concemcd. 4. Whether under the facts and circumstances of die case when the revenue did not lead any evidence to cstabli^ as to what was the fakcncss in die forms ST-1 of M/s. Oriental Trading Corpn.,could it allegedagainstdie applicantcompanydiat it Imcw about die falsity/fakeness of ST-1 forms. 5. Whether under the facts and circumstances of die case die levy of penalty of Rs.l2 lacs, i.e. Two and a hdf time of the tax assessed, sales made to M/s. Oriental Trading Corpn. STC No. 2/2003 Page 2 of 9 —) A was justified or not. 6. Whetherunder the facts andciicumstanccsof thecase when a consolidatedpenalty of Rs.l5 lacs was imposed by the A.A. theTribunalcould determinethepenaltypayablemore dian two and a half time on the tax leviable on sales of M/s. Oriental Trading Corpn. 7, Whether under the facts and drcumstanccs of the case the penaltyimposedisexhorbitant/exc<»sive. The petidoncr-companywas engaged in business of dealing in photographicgoodswithitsheadofficeat StadiumHouse,HrstFloorBlock,V.N. Road, Mumbai and its branchofficeat Asaf Ali Road, New Delhi. The Branch officewas registeredunder the provisionsof die Act. It filedits regularreturnof sales tax and was assessedfor the year 1982-83 on 22"* October, 1984 under Section 23 (3) of the Act which later on was reopenedunder Section 24 of the local Act. The petitioner raised various objections to the reopening of die assessment. However, despite objectionsof die petitionerdie asscssiiKntwas made vide order dated IS"* May, 1985 diereby rdsiiig a tax demand of Rs.1046145.50which includedtaxof Rs.763465.58and interestof Rs.282680.22 by wayifdisallowingdeductionsunderScction4(2) (a) (v) ofthe LocalAct. The petitionerchallenged the order of rc-asscssmcntby filing an STCNq.2/20Q3 - ^ ^ V appeal which was also dismissed by the Commisaoncr of Sales Tax, vide his order dated 14''' January, 1993 and the Secondappeal preferredby the assesseebefore die Sales Tax Appellate Tribunal also met the same fate. The order of die Tribunal dated 9''' April, 2001 is die foundationfor filing an applicationunder Section45 (2) of die Act, a copyof i^ich has been annexedto diepetitionas AnnexureP-5 and P-6 re^ectively. The case of the petitioner is that the above substantial questionsof law arise for considerationof the Court as die die penalty action initiated by die audiorities under Section 56 of die Act culminated into die judgment of die Criminal Court holding that no criminal case was made out againstdie petitioner-con^anyand as such no penaltyc(mldhave been in^josed However,die Departmentissued a notice on 3"^ September, 1985 to which die petitionerfileda replyand finallyvide orderdated6'''September,1985 diepenalty was imposed upon diepetitioner. All die questionsraisedby die petitionerwere duly consideredby die AppellateTribunalin its orderdated W* October,2002. Tliequestionshavebeen consideredinconsonancewidi die provisionsof die Act and die judgmentsofthe SupremeCourt The main contentionraisedon behalfof the petitioneris diat the petitioner had furnished the ST-1 Forms from all the five dealers with whom he STC No. 2/2003 • had entered into transaction and sale of photographic goods. Thus, the assessec had dischargeddieonus and the reasonsgivenfor rejectionof the ST-1 Formsare without any basis. This argumentis widiout any merit. All the five dealerswidi whom the petitionerhad entered into sale transactionshad not admitted that diey had purchased such goods from the petitioner. In fact, as per die record of the Department,all these dealerswere not even 'RegisteredDealers'and as such die transactions were fake and only intended to avoid sales tax liability of the petitioner. It has been specificallynoticedin the order of the AssessingOfficer dated 25'** April, 1986 tliat the dealersspecifiedin the order was also found to be fake and a fiirdicr opportunitywas granted to die dealer to file proper declarations. Despitegrant of opportunityon May, 1985 as well as 8* June, 1986, no sudi declarations were filed. However, it was stated that the files be summoned from all die concerned purchasers widi whom the petitioner had sale transactions. Certainly, it was expected of die dcder to ftilly and completely disdiarge die primary onus placed upon him and to show diat die forms/declarationssubmitted by the assessec were genuine and were by 'Registered Dealers'. The Assessing Officcr has specifically noticcd "it is evident diat die dealer failed to produce any STC No. 2/2003 Page 5 of 9 V documentary evidence to prove the genuineness of the declarations." The case of each of the purchaser from the petitioner-dealer was found to be fake as no such dealer existed, and none was registered in different wards as ^ecified in the ST-1 Forms. The findings of fact concurrently rccordcd by all the audiorities is that tiic ST-1 Forms were never issued to the aforesaid dealers to whom the petitioner allegedly sold the goods. The goods bdng photogr^hic goods, were taxed at 10%. As per die record of the Department, M/s, S.V. Enterprises, 21/51, Shakti Nagar, Delhi, was not audiorised in dealing photographic goods. Rirdiermorc, die declarations filed were fake. Findin;^ recorded by die Appellate Tribunal in its orderdated17''' April,2001canbeusefullyreferredatdiisstage;- "A few of the arguments of Sh. Sangal may be examined first. The argument that registration creates an agency has no force. A registration under die Act docs ndther create nor so purports to create an agency between the State and die dealer. No representation can be imputed to the Government by singly registering a person for a particular purpose. Similarly, die argumentdiat the selling dealer is bound to sell all and sundry registered dealers merits no crcdcnce. The Act and the rales and nc^fications framed diereunder constitute public notice. Rvcry selling dealer is presumed to know as to when and under what circumstances die purchasing dealer can obtain a form from the department and under what drcumstances a selling dealer can claim deduction under Section 4 (2) (a) (v) of the Act. Wecould not be led to any proviaon or precedentcreating a liability on die selling dealer to sell to a registered dealer without charging tax on an e3q)iessor implied representation by die State STC No. 2/2003 Page 6 of 9 V The appellant has avoided furnishing any material indicatingthat the saleshad in fact been madeto the pnrdiasing dealers M/s Mehar Enterprises and M/s. Jay Enterprises incite of ample opportunities including the one in this Tribunal. The question of deduction of the sdcs to registered dealers would arise only after sale has been proved to have been made to die registered dealers. To diat extent, it is the selling dealer ^o has to carry the ball. The qjpcllant emphasized on the acceptance of his account books. The role of die account books is to rccord the monetary transaction. The nature of transaction is to be proved by other mean aich as purdiase orders, invoices/bills, delivery challans, corrcs^ondcnce, transport receipts, proof of payment etc. Only after the sale has been proved to have been made to a registered dealer that the question of it being supportedby die declarationin die proper stamtory form would arise and only then die question would be whether the dealer has been a victim of the inaction, negligence or fraud of the purchasing dealer or there is some connivance or collusion between die selling dealer and die purdiaang dealer. Unfortunately, the appellant has ncglcctcd to file any evidence in diis regard In this view the claim of deduction of RD sales against unverified forms is also rejected. These sales arc liable to be taxed under die Local Act." The above findings were again taken note of by the Appellate Tribunal whilerejectingdie appealof die appellant-dealervideits orderdated 14* October, 2002 against the order of penalty. MaMng a reference to its earlier order, die Tribunal held as undcr:- "...Hie quantum appeal was dismissed by the Tribunal vide STCNo.2m)3 Page 7 of 9 V The Reliant has avoided furnishing any material indicating that tiie sales had in fact been made to the purchasing dealers M/s Mehar Enteiprises and M/s. Jay Enterprises inspite of ample opportunities including die one in diis Tribunal. The question of deduction of die sales to registered dealers would arise only after sale has been proved to have been made to die registered dealers. To that extent, it is die selling dealer T^iio has to carry die ball. The q)pellant emphasized on the acceptance of his account books. The role of flic account books is to rccord the monetary transaction. The nature of transaction is to be proved by other mean such as purchase orders, invoiecFt/bills, delivery challans, correspondenoe, transport receipts, proof of payment etc. Only after die sale has been proved to have been made to a registered dealer that the question of it being supported by die declaration in die proper stamtory form would arise and only then die question would be whedicr die dealer has been a victim of die inaction, negligence or fraud of die purchasing dealer or diere is some connivance or collusion between die selling dealer and die purdiaang dealer. Unfortunately, the appellant has neglected to file any evidence in diis regard- In diis view die claim of deduction of RD sales against unverified forms is also rejected. These sales arc liable to be taxed under die Local Act." The above findings were again taken note of by the Appellate Tribunal whilerejectingdie appealof die appellant-dealervideits orderdated 14* October, 2002 against die order of penalty. Making a reference to its earlier order, die Tribunal held as undcr:- "...The quantum appeal was disuBsscd by die Tribunal vide STCNQ.2m)3 Page 7 of 9 •iv order dated 9-4-01. In the penalty appeal the Tribunal noticed, tnter-alia, that whereafsother 4 alleged purchasing dealers were registereddealerstheone. M/s. OrientalTradingCorporationto whom bulk of such sales amounting to Rs.48,14,869/- were allegedlymade and said to be supportedby 32 declarationin statutoryforms was noteven a re^istcicddealer. The Tribunal held that so far as die dealers other that the Oriental Trading Corporationarc conccrnedthe materialis that the forms were not issued to diose purdiasing dealers, aldiough dicy were registeredor that theirST-2 accountdiffered. From thatit was inferred that die appellant had not made any transactions to these purchasing dealers. However, the departirKsntwas to establish diat die appellanthad acccpted thoseformsknowingly or having reasonto believe themto be false." The above recorded findings by the Appellate Tribunal and our discussion on the merits of die case clearly show diat no question of law, mudi less any sutetantialquestionof law arisesfor considerationfrom die orderof the Appellate Tribunal. It is prinmrily a finding of fact whcdier die declaration submittedby the dealer were genuine or not. Hie dealer is under obligationto submit such declarations and die declarations ought to be genuine and from registereddealers. No benefitcan aocruc to a dealerin terms of Section4 of die Act, unless die sale transactions are in favour of a Registered dealer. No documentaryevidencelike bills,receiptsof goodsaipportedby booksof accounts were producedby die Dealer before the Asscsang Officer. Th<^ even failed to STCNO. 2/20Q3 Pa^c 8 of 9 furnish confinnation from any of die alleged dealers to whom die photographic goods were sold. When the Department confronted the dealers with a specific averircnt that die alleged registered dealers are non-existent or do not exist in the records of the circle from where such forms are alleged to have been issued, the onus on the assessee-dealeris heavier. Havingfailed to dischargediis obligation, the petitionercannot be permittedto avoid die liabilityarisingfrom the impugned orders. For the reasons aforcstated, we are of die conadered view that no questions of law arise for considerationfrom the order impugnedin die present petition. The sanx is dismissed, while leaving die parties to bear their own costs. May 12,2005 sk Certified diat the corrected copy of die judgment has been transmitted in die main Server. STCN0.2/2QQ3 SWATA>pmitDMAR --^^^(JUDGE) MADAN B. LOKUR (JUDGE) Page 9 of 9