SCA/8200/2006 1/48 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 8200 of 2006 with SPECIAL CIVIL APPLICATION No. 8202 of 2006 to SPECIAL CIVIL APPLICATION No. 8204 of 2006 For Approval and Signature: HON'BLE MR.JUSTICE J.M.PANCHAL HON'BLE SMT. JUSTICE ABHILASHA KUMARI ===================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ===================================================== ASIAN PAINTS INDIA LTD. - Petitioner(s) Versus DY.COMMISSIONER OF SALES TAX, CIRCLE 2(6) - Respondent(s) ===================================================== Appearance : MR KH KAJI for Petitioner(s) MR SS SHAH, GOVERNMENT PLEADER for Respondent(s) ===================================================== SCA/8200/2006 2/48 JUDGMENT CORAM : HON'BLE MR.JUSTICE J.M.PANCHAL and HON'BLE SMT. JUSTICE ABHILASHA KUMARI Date : 24/07/2006 ORAL JUDGMENT (Per: HON'BLE MR.JUSTICE J.M.PANCHAL) 1. By filing these petitions under Article 226 of the Constitution, the petitioner, i.e. M/s.Asian Paints India Limited, has prayed to set aside four re-assessment orders dated February 16, 2006, passed by the respondent, i.e. the Deputy Commissioner of Sales Tax, Circle-2(6), Ahmedabad, under Section 44 of the Gujarat Sales Tax Act, 1969 (“the State Act” for short) by which self-explanatory provisional assessment orders dated July 26, 1999, passed under Section 41B of the State Act are confirmed and it is directed that the amounts representing branch transfers indicated in the orders be added in the total turnover of the petitioner and the tax be levied thereon in accordance with law. The SCA/8200/2006 3/48 JUDGMENT petitioner has further prayed to quash and set aside the order dated April 5, 2006, passed by the Assistant Commissioner of Sales Tax, Division-21, Ahmedabad, by which Current Account No.28 being operated by the petitioner with the State Bank of India, Shah-e-alam Branch, Ahmedabad, is attached for non payment of Rs.7,48,94,727/= recoverable under the abovereferredto four re-assessment orders. 2. In order to appreciate the points raised by the petitioner in these petitions, it is necessary to notice the facts emerging from the record of the case, which are as under: 2.1 The petitioner is a company registered under the provisions of the Companies Act, 1956. It manufactures industrial paints as well as household paints and allied products. In the State of Gujarat, the petitioner has its manufacturing plant at Ankleshwar and branches at Narol, Sarkhej, Surat, Rajkot and Halol. The head office of the petitioner-Company is SCA/8200/2006 4/48 JUDGMENT situated at Mumbai. The petitioner is registered as a dealer, both under the State Act and the Central Sales Tax Act, 1956 (“the Central Act” for short). The old number of its certificate of registration was 20105551-GUJ- 1-J410, whereas the new number is 0750001437. The Commissioner of Sales Tax has permitted the petitioner to furnish a consolidated return relating to all the places of business of the petitioner in the State of Gujarat at Ahmedabad, with reference to the above- numbered certificate of Registration. 2.2 The Sales Tax Department has created a special squad called Flying Squad for the purpose of detecting evasion of tax. The Sales Tax Officer of Flying Squad, Unit-I, discharging duties in the office of the Commissioner of Sales Tax, Ahmedabad, conducted a checking of manufacturing plant of the petitioner located at Ankleshwar on February 4, 1999. During the course of checking, he found that three transactions of branch transfers effected by SCA/8200/2006 5/48 JUDGMENT the petitioner were shady in nature. He, therefore, seized certain documents available at that time relating to those branch transfers. Thereafter, by a notice dated March 16, 1999, he called upon the petitioner to produce original documents, accounts, etc. relating to branch transfers. The petitioner gave reply dated April 4, 1999, emphasizing that the transfers of goods to its branch offices were genuine. The Sales Tax Officer again wrote a letter dated June 4, 1999, calling upon the petitioner to produce relevant documents for his perusal so as to enable him to ascertain the true nature of branch transactions effected by the petitioner. However, the petitioner did not produce the relevant documents such as original accounts, excise registers maintained at different depots of the petitioner, stock registers, the original permission sanctioning branch transfers and other collateral material for the perusal of the Sales Tax Officer, but offered further explanation by letter dated SCA/8200/2006 6/48 JUDGMENT July 2, 1999. As material documents and accounts were not furnished by the petitioner, it was not possible for the Sales Tax Officer to ascertain the correctness of the branch transfers effected by the petitioner. Therefore, he disallowed the transactions of the petitioner of industrial paints effected by the petitioner to different branches from manufacturing unit of the petitioner located at Ankleshwar, which were mentioned by the petitioner in its letter dated March 5, 1999, for the assessment years 1997-98 and 1998-99. The competent officer had reason to believe that the petitioner had evaded the payment of tax. Therefore, after taking into account all the relevant materials gathered and after giving the petitioner a reasonable opportunity of being heard, the Sales Tax Officer assessed the petitioner provisionally to the best of his judgment under Section 41B of the State Act vide orders dated July 26, 1999, and held that the amounts of following sales as indicated below were liable to tax. SCA/8200/2006 7/48 JUDGMENT Year Amt. Under the State Act Amt. Under the Central Act Total 1997-98 Rs.2,28,86,300/- Rs.5,23,00,657/- Rs.7,51,86,957/- 1998-99 Rs.2,56,06,703/- Rs.2,10,04,519/- Rs.4,66,11,222/- The competent officer thereafter determined the liability of the petitioner to pay the tax with penalty and interest as under: Year Amt. Under the State Act Amt. Under the Central Act 1997-98 Rs.79,30,105/- Rs.1,49,05,686/- 1998-99 Rs.99,09,794/- Rs.74,04,093/- It may be mentioned that the provisional assessment orders dated July 26, 1999, under Section 41B of the State Act were passed in respect of Ankleshwar unit of the petitioner with reference to the old certificate of registration No.20105551-GUJ-1-J410. 2.3 Though the petitioner was permitted to furnish consolidated return relating to all the places of its business in the State of Gujarat at Ahmedabad and was fully aware of the fact that it was subject to the appellate jurisdiction of Deputy Commissioner of Sales Tax, Circle- SCA/8200/2006 8/48 JUDGMENT 2(6), Ahmedabad, the petitioner invoked the appellate jurisdiction of the Assistant Commissioner of Sales Tax (Appeal), Surat, on August 18, 1999, and filed appeals against the provisional assessment orders dated July 26, 1999. Before filing the appeals, the petitioner had not paid the amount of tax with penalty and interest and therefore, the appeals were admitted on condition of the petitioner depositing a total sum of rupees one crore. The petitioner had deposited the said amount by way of Challans on different dates as indicated in the application dated May 29, 2002, submitted by the petitioner. The appellate authority took into consideration the points raised by the petitioner for its consideration. The contention that the provisional assessment orders were liable to be set aside as they were contrary to the principles of natural justice was rejected by the appellate authority holding that before passing the assessment orders, show cause notice was served upon the petitioner and the SCA/8200/2006 9/48 JUDGMENT petitioner was given opportunity of hearing. Similarly, the contention that the assessing officer was not justified in not accepting the branch transfers effected from Ankleshwar unit of the petitioner was rejected by the appellate authority holding that on the basis of seized documents, the assessing officer was justified in coming to the conclusion that movement of goods from Ankleshwar plant had ended in Gujarat State itself. The contention that the assessing officer was not justified in holding that the branch transfers were effected pursuant to existing contract of sales and were therefore sales, was rejected by holding that the assessing officer was justified in coming to the said conclusion, more particularly, when the petitioner had failed to produce stock, transfer memos, 23-D registers, transport receipts of Ankleshwar Depot, test certificates, etc. In view of abovereferredto and other findings, the appellate authority rejected the appeals by reasoned order dated February 2, 2000. SCA/8200/2006 10/48 JUDGMENT 2.4 Against the order dated February 2, 2000, passed by the Assistant Commissioner of Sales Tax (Appeal) 8, Surat, rejecting the appeals, the petitioner preferred second appeals before the Gujarat State Sales Tax Tribunal. Before filing the appeals, the petitioner had submitted regular consolidated return relating to all the places of business of the petitioner in the State of Gujarat for assessment years 1997-98 and 1998-99 and also claimed benefits relating to the branch transfers effected from Ankleshwar unit, which were not accepted and treated as sales while passing the provisional assessment orders under Section 41B of the State Act. To the returns, separate sheets were annexed but it was not mentioned therein by the petitioner that branch transfers effected from Ankleshwar unit were not accepted but were treated as sales or that Sales Tax Officer had passed provisional assessment orders dated July 26, 1999, under Section 41B of the State Act against the petitioner or that the petitioner SCA/8200/2006 11/48 JUDGMENT had invoked the appellate jurisdiction of the Assistant Commissioner of Sales Tax (Appeal) 8, Surat, against the orders passed under Section 41B of the State Act or that pursuant to the conditional stay order, the petitioner had deposited in all a sum of rupees one crore or that the appeals were dismissed by an order dated February 29, 2000 and got the regular assessment completed under Section 41(3) of the State Act for assessment year 1997-98, vide order dated June 30, 2001, and for assessment year 1998-99 vide order dated January 31, 2002. 2.5 When the appeals filed before the Gujarat State Sales Tax Tribunal were taken up for hearing by the Tribunal, the petitioner produced regular assessment orders passed under Section 41(3) of the State Act for the relevant assessment years for consideration of the Tribunal. The Tribunal was of the view that the provisional assessment orders had merged into the regular assessment orders made SCA/8200/2006 12/48 JUDGMENT under Section 41(3) of the State Act and therefore disposed of the second appeals filed by the petitioner by order dated March 11, 2002, as having become infructuous. 2.6 Thereafter, the petitioner submitted an application dated May 29, 2002, stating that against the orders made under Section 41B of the Act, the petitioner had deposited a sum of rupees one crore and therefore, the regular assessment orders should be rectified and excess amount should be refunded to it with interest under Section 54 of the State Act. While processing the said application, the Sales Tax Officer for the first time learnt that the provisional assessment orders under Section 41B of the State Act were passed against the petitioner and that the petitioner had deposited a sum of rupees one crore as condition precedent for entertaining appeals by the first appellate authority and that the second appeals preferred before the Tribunal were disposed of as having become infructuous. SCA/8200/2006 13/48 JUDGMENT On learning these material facts, the Sales Tax Officer was of the view that the petitioner had intentionally concealed the important facts that the provisional assessment orders were made against it and it had not claimed refund of rupees one crore with a bad intention and if the relevant facts had been brought to the notice of the assessing officer during the course of regular assessment proceedings, the regular assessment would not have been completed under Section 41(3) of the State Act, as a result of which, a good case was made out for exercise of powers under Section 44 of the State Act. However, it was noticed by the Sales Tax Officer that regular assessment orders passed under Section 41(3) of the State Act were also revisable under Section 67 of the State Act by the Commissioner of Sales Tax and if the Commissioner of Sales Tax was inclined to exercise his powers under Section 67 of the State Act, then there was no point in his exercising powers under Section 44 of the SCA/8200/2006 14/48 JUDGMENT State Act. Under the circumstances, the Sales Tax Officer addressed a detailed letter dated January 31, 2003, to the Commissioner of Sales Tax and sought his guidance whether action should be taken against the petitioner under Section 44 or Section 67 or Section 72 of the State Act. The Commissioner of Sales Tax informed the Sales Tax Officer on February 14, 2003, through administrative officer discharging duties in the office of the Deputy Commissioner of Sales Tax, Division-2, Ahmedabad, that action against the petitioner should be taken under Section 44 of the State Act. 2.7 After abovementioned clarification was made by the Commissioner of Sales Tax, the respondent issued notice dated February 18, 2003, calling upon the petitioner to show cause as to why the amounts covered by transactions of branch transfers accepted during the course of regular assessments be not subjected to tax. The petitioner gave reply and was afforded SCA/8200/2006 15/48 JUDGMENT sufficient opportunity of being heard. The respondent, by four different orders dated February 16, 2006, has upheld the self- explanatory provisional assessment orders dated July 26, 1999, passed under Section 41B of the State Act and after disallowing the amounts representing the branch transfers, as indicated in the orders, has directed to add the said amounts in total turnover of the petitioner and to recover tax thereon in accordance with law. Following the orders of the respondent under Section 44 of the State Act, the liability of the petitioner to pay the amount of tax with penalty and interest is determined at Rs.7,48,94,727/-. The petitioner did not make payment of the said amount though called upon to do so and therefore, by an order dated April 5, 2006, Current Account No.28 being operated by the petitioner with the State Bank of India, Shah-e-Alam branch, Ahmedabad, is attached. SCA/8200/2006 16/48 JUDGMENT 3. It is the case of the petitioner that during the course of regular assessments for the assessment years 1997-98 and 1998-99, the petitioner had produced in original `F' Forms indicating branch transfers which were scrutinized and accepted after which regular assessments were completed under Section 41(3) of the State Act and therefore, re-assessment orders under Section 44 of the State Act which are passed without jurisdiction are liable to be set aside in view of the decision of the Supreme Court in Ashok Leyland Limited v. State of Tamil Nadu reported in (2004) 134 Sales Tax Cases 473. According to the petitioner, the assessment notices were issued because of change of opinion on the part of the respondent which has totally invalidated the re-assessment orders and therefore, those orders should be set aside. The petitioner has averred that though the re-assessment orders are purportedly passed on February 16, 2006, they could not have been passed before February 19, 2006, as both, the petitioner's SCA/8200/2006 17/48 JUDGMENT officer and the Tax Consultant, had attended the office of the respondent on February 17, 2006, and February 18, 2006, whereas, the verification of the records had taken place on February 15, February 16 and February 17, 2006, and written submissions were handed over to the respondent on February 18, 2006, and as the orders in fact passed on February 19, 2006, are ante-dated, the same should be set aside. The petitioner has stated in the petitions that the respondent had issued re- assessment notices at the behest and under the directions of the higher authority, namely, the Joint Commissioner of Sales Tax, and therefore, initiation of re-assessment proceedings should be regarded as illegal and without jurisdiction. The petitioner has averred that the respondent did not decide the petitioner's objections to the assessment notices by a speaking order as required by the Supreme Court in the decision rendered in the case of G.K.N.Driveshafts (India) Ltd. v. Income-Tax Officer and others, reported in SCA/8200/2006 18/48 JUDGMENT (2003) 259 Income Tax Reports 19 and therefore, the respondent could not have passed the re-assessment orders. The petitioner has asserted in paragraph-14 of the petition that though the appeals lie against the re-assessment orders, the petitioner is entitled to invoke extra-ordinary jurisdiction of this Court under Article 226 of the Constitution as re-assessment notices were issued without jurisdiction and the respondent had failed to decide the petitioner's objections to the assessment notices by a speaking order whereas the assessment orders have been passed in total disregard of the decision of the Supreme Court in Ashok Leyland Limited v. State of Tamil Nadu (supra). Under the circumstances, the petitioner has filed the instant petitions and claimed reliefs to which reference is made earlier. 4. On service of notice, Mr.Anilkumar Harilal Thakker, who is now designated as Deputy SCA/8200/2006 19/48 JUDGMENT Commissioner of Commercial Tax and who was Deputy Commissioner of Sales Tax, has filed an affidavit-in-reply controverting the averments made in the petition. It is stated in the reply that alternative, effective remedy of filing of appeals against the re-assessment orders in terms of the statute is available and therefore, the petitions should not be entertained and should be dismissed. After narrating the facts which led to passing of four provisional assessment orders under Section 41B of the Act, it is mentioned in the reply that admittedly, the goods were manufactured at Ankleshwar, within the State of Gujarat, but they were purportedly shown as branch transfers to Maharashtra and other States though the goods were manufactured pursuant to confirmed orders of different parties as per their specifications and therefore, in view of illegal and malicious tax evasion modus operandi adopted by the petitioner, the petitioner, who has committed fraud on the revenue, is not entitled to the SCA/8200/2006 20/48 JUDGMENT reliefs claimed in the petitions. Elaborating the tax evasion method adopted by the petitioner, it is explained in the reply that first Mumbai branch of the petitioner received an order from the Reliance Industries, Jamnagar and then Mumbai branch instructed the Ankleshwar factory about having received the said order and specifically instructed the Ankleshwar factory to apply all the available resources so that the goods required by Reliance Industries at Jamnagar could be delivered before the end of January 1999, after which what were actually local sales were effected purportedly by branch transfers and from Mumbai the goods were delivered to the Reliance Industries at Jamnagar by paying 4% Central Sales Tax in Maharashtra and evading deliberately and intentionally the payment of 11% tax in the State of Gujarat. It is stated in the reply that the branch transfers do not attract any tax liability and if the sales had been directly made from Ankleshwar to Jamnagar, the State of Gujarat SCA/8200/2006 21/48 JUDGMENT would have received 15% local sales tax, payment of which was evaded by the petitioner. What is averred in the reply is that the petitioner, who is permitted to file consolidated returns, came for regular assessments including for the concerned years and got regular assessments done under Section 41(3) of the State Act without disclosing to the assessing officer about the flying squad operations or provisional assessment orders passed under Section 41B of the State Act or it having filed appeals under Section 65 of the State Act before the appellate authority at Surat or it having made necessary part payment to the tune of rupees one crore, etc. and as regular assessments under Section 41(3) of the State Act were got completed by keeping the assessing officer in dark about the earlier proceedings for the same assessment years, and by suppressing material facts, the re-assessment orders should not be regarded as having been passed without jurisdiction. It is mentioned in the reply that the petitioner had SCA/8200/2006 22/48 JUDGMENT produced regular assessment orders before the Gujarat State Sales Tax Tribunal and persuaded the Tribunal to dispose of the second appeals pending before it as having become infructuous after which, the petitioner had claimed refund and as fraud committed by the petitioner came to the knowledge of the assessing officer only then, re-assessment orders should not be regarded as illegal or contrary to the provisions laid down by the Supreme Court in Ashok Leyland Limited v. State of Tamil Nadu (supra). In the reply, it is averred that no breach of principles laid down in the case of G.K.N.Driveshafts (India) Ltd. v. Income-Tax Officer and others, (supra) is committed by the respondent. In paragraph-24 of the reply, it is asserted that the assessment orders were not ante-dated and were in fact passed on February 16, 2006, and that the petitioner had malafide given written submissions on February 18, 2006, to show that the documents were furnished for perusal though, in fact, they were never furnished before the assessing SCA/8200/2006 23/48 JUDGMENT officer for his perusal. It is further explained in the reply that out of the total turnover of branch transfer transactions claimed by the petitioner, the branch transfers only to the extent of 2.39% and 1.42% have been disallowed for the assessment years 1997-98 and 1998-99 respectively and rest of the branch transfers have not been disturbed. It is maintained in the reply that certain branch transfers were disallowed because the petitioner could not supply original documents to substantiate the same. 5. The petitioner has filed affidavit-in- rejoinder on May 30, 2006, controverting the averments made in the affidavit-in-reply of Mr.Anilkumar H.Thakker and asserted that as regular assessment proceedings under Section 41(3) of the State Act were going on, there was no question of the petitioner bringing to the notice of the assessing officer the earlier provisional proceedings. By and large, the petitioner has reiterated what is stated SCA/8200/2006 24/48 JUDGMENT in the petitions and therefore, this Court is of the opinion that it is not necessary for the Court to refer to the same in detail. 6. During the course of hearing of the petitions, the petitioner was permitted to amend the petition to enable it (1) to plead additional ground of challenge, namely, that re- assessment orders were bad as the assessing officer had decided to take action at the behest of his superior and (2) to challenge attachment order dated April 5, 2006. The respondent has therefore filed affidavit-in- reply to the rejoinder and amended petitions. In the additional reply, it is mentioned by the respondent that the notices of re- assessment dated February 18, 2003, were issued in Form-37 which were received by the petitioner on February 19, 2003 and that the petitioner was afforded opportunity of being heard. Again, in the reply, it is emphasized that the orders were passed on February 16, 2006, and that the orders were dispatched to SCA/8200/2006 25/48 JUDGMENT the petitioner on February 17, 2006, after making necessary entry in the assessment register and dispatch register. What is highlighted in the additional reply is that the notices for re-assessment were not issued at the behest of higher authority but a detailed note prepared was submitted before the higher authority in exercise of better governance and good practice. After asserting that at no point of time has the higher authority influenced the appropriate authority, it is maintained in the reply that letter dated March 14, 2003, cannot be construed as higher authority having influenced the decision of the appropriate authority. By filing additional reply, the respondent has prayed that the petitions, which have no merit, should be dismissed. 7. Mr.K.H.Kaji, learned counsel for the petitioner, contended that `F' Forms produced in the original were scrutinized and accepted during the course of regular assessment SCA/8200/2006 26/48 JUDGMENT proceedings as branch transfers and therefore, in view of the decision of Supreme Court in Ashok Leyland Limited v. State of Tamil Nadu (supra), the re-assessment orders which are passed without jurisdiction should be set aside. According to the learned counsel for the petitioner, it was not necessary for the