IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER TUESDAY, THE 1ST JULY 2008 / 10TH ASHADHA 1930 S.T.Rev..No. 176 of 2008 ---------------------------------- ORDER DATED 13.3.2008 IN TA..316/2007 OF THE KERALA AGRICULTURAL INCOME TAX & SALES TAX APPELLATE TRIBUNAL,ADDL.BENCH,PALAKKAD .................... REVISION PETITIONER/ASSESSEE -------------------------------------------------- M/S.S.V.A. STEEL RE-ROLLING MILLS NATTUKAL (P) LIMITED, NATTUKAL. BY ADV. SRI.S.EASWARAN RESPONDENT/ REVENUE ------------------------------------- THE STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. BY SR.GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 01/07/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.DATTU, C.J. & A.K.BASHEER, J. ------------------------------------------------------ S.T.Rev.No.176 of 2008 --------------------------------------------- Dated, this the Ist day of July, 2008 O R D E R H.L.Dattu, C.J. Sri.Muhammed Rafiq, learned senior Government Pleader is directed to take notice for the respondent. 2. Though the matter is listed for admission today, by consent of the learned counsel for the parties to the lis, the matter is taken for final hearing. 3. The assessee is a dealer registered both under the provisions of the Kerala General Sales Tax Act (“KGST Act” for short) and Central Sales Tax Act (“CST Act” for short) and is engaged in production and sales of M.S.Ingots. For the assessment year 2003-2004, the assessee had filed its annual returns, conceding a particular total and taxable turnover. The returns so filed by the assessee is not accepted by the assessing authority on the ground that the returns are defective. Accordingly, after rejecting the annual returns filed, had issued pre-assessment notice to the petitioner proposing to reject the returns and proceed to complete the best judgment assessment. In the S.T.Rev.No.176/2008 -2- pre-assessment notice, the assessing authority had pointed out the following defects in the return filed by the assessee. They are as under: “The Intelligence Squad No.II have imposed a sum of Rs.5,905/- as penalty u/s 29A (4) of the Act for the offence of transporting excess quantity of M.S.Ingots. The quantity under transport was 16900 Kgs as against 11950 Kgs declared. Difference 4920 Kgs and percentage of suppression 41%. 2). The Intelligence Squad No.IV have imposed a sum of Rs.15110/- as Penalty u/s 29A (4) for the offence of transporting goods with defective records. 3). Analysis of the Electricity consumption during the years 2001-02, 2002-03 and 2003-04 record the following: 2001-2002 1088MT 2002-03 upto 31-12-02 1296MT 1-1-03 to 31-3-03 1541MT 2003-2004 1772MT There is no reason whatsoever for the increase in the consumption. On an analysis of the defects point out supra, it can be seen that large quantity of M.S.Scrap have been melted and M.S.Ingots produced and sold unaccounted. The possibility of transporting excess quantity as transported on 17-9-03 cannot be ruled out in vehicle No.TN 38P 2004: which is used for transporting M.S.Ingots on almost all days. A combined reading of excessive power consumption and transport of excess quantity of products leads to the conclusion that S.T.Rev.No.176/2008 -3- the consumption reported is not genuine.” 4. After receipt of the pre-assessment notice, the assessee had filed its reply. After considering the reply so filed, the assessing authority has proceeded to complete the best judgment assessment. 5. The assessee had questioned the correctness or otherwise of the best judgment assessment so passed by the assessing authority before the first appellate authority in S.T.A.No.3405 of 2006. The first appellate authority by his order dated 2-11-2007, has modified the orders of assessment passed by the assessing authority to a limited extent. 6. Not being satisfied with the order so passed by the first appellate authority, the assessee was before the Tribunal in T.A.No.316 of 2007. Before the Tribunal, the primary contention of the assessee was that the assessing authority was not justified in relying up on merely the consumption of electricity for the previous three years to arrive the conclusion that there is suppression of production and suppression of sales by the assessee. The Tribunal has not accepted the arguments advanced by the assessee's representative. Accordingly has rejected the S.T.Rev.No.176/2008 -4- appeal and thereby has confirmed the orders passed by the first appellate authority. 7. The assessee has framed the following questions of law for our consideration and decision. They are as under: 1). Whether the quantity of production of the petitioner can be determined on the basis of consumption of electricity? 2). Whether the sales tax can be imposed on the petitioner based on the production of materials? 3). Whether the turnover can be estimated based on the consumption of electrical energy? 4). Whether the sales tax authorities are justified in rejecting the books of account of the Revision Petitioner based on the consumption of electrical energy? 5). Without any scientific method whether the sales tax authority can assess the production of materials based on consumption of electrical energy?” 8. Sri.S.Easwaran, the learned counsel appearing for the revision petitioner would submit that the reasoning of the Tribunal is contrary to the dicta laid down by this Court in the case of St.Teresa's Oil Mills v. State of Kerala (25 STC 497) and therefore, submits that the orders passed by the Tribunal requires re-consideration by this Court. S.T.Rev.No.176/2008 -5- 9. Per contra, Sri.Muhammed Rafiq, the learned counsel appearing for the Revenue has brought to our notice the observations made by the Apex Court in the case of Melton India Vs. Commissioner, Trade Tax {2007} 5 VST 613 (SC). In the said decision at paragraphs 9 and 10 the Court has observed as under: “9. In this connection we may refer to the electricity consumption and production in the appellant's factory for the three assessment years in question, which are as follows: ------------------------------------------------------------------------------ Assessment year Production Electricity Consumed ------------------------------------------------------------------------------ 2000-01 402 MT 5,13,596 2001-02 268 MT 6,38,164 2002-03 314 MT 6,68,736 ------------------------------------------------------------------------------ 10. A perusal of the above figures shows that while the electricity consumption has clearly been going up, the production has gone down from 402 M.T. to 314 M.T. Ordinarily, when electricity consumption goes up, a reasonable inference can be drawn that the production will also have gone up. If the electricity consumption is going up but the production is seen to be going down, a reasonable inference can, prima facie, be drawn that there was suppression of production and consequently suppression of sales in order to avoid sales tax.” 10. In the instant case, the assessing authority had rejected the returns and books of accounts of the assessee for three reasons. Firstly, that the Intelligence Squad No.II had imposed a penalty of Rs.5,905/- under S.T.Rev.No.176/2008 -6- Section 29 A(4) of the Act for the offence of transporting excess quantity of M.S.Ingots. Secondly, the Intelligence Squad No.IV had imposed a penalty of Rs.15,110/- under Section 29A(4) of the Act for the offence of transporting goods with defective records and lastly, the analysis of the electricity consumption during the years 2001-02, 2002-03 and 2003-04 would clearly show that there is excess consumption of electricity but lesser production of finished products. 11. The Tribunal while disposing of the appeal is of the view that if there is excess consumption of electricity but less production of finished products, that could be one of the reasons for going for best judgment assessment. This view, at the first blush appears to be contrary to the decision of this Court. But, in view of what has been observed by the Apex Court in the case of Melton India Vs. Commissioner, Trade Tax {2007} 5 VST 613 (SC), the view expressed by the Tribunal appears to be the correct view and therefore, no exception can be taken to the orders passed by the Tribunal. 12. All the authorities under the Act have consistently held that there is suppression of production and suppression of sale of finished products, namely, M.S.Ingots. Therefore, they have come to the conclusion that the assessing authority was justified in going for best judgment assessment. Therefore, in our opinion, the Tribunal has not S.T.Rev.No.176/2008 -7- committed any error of law which would call for our interference in exercise of the powers under Section 41 of the KGST Act. Consequently, while affirming the orders passed by the Tribunal, we reject the revision petition. 13. I.A.No.1267 of 2008 is closed. Ordered accordingly. (H.L.DATTU) CHIEF JUSTICE (A.K.BASHEER) JUDGE MS/dk