IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 28TH MAY 2008 / 7TH JYAISHTA 1930 S.T.Rev.No.428 of 2005 ----------------------------------------------- (AGAINST THE ORDER IN T.A.NO.680/2003 DATED 31.03.2005 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDL.BENCH-I, ERNAKULAM) (ASSESSMENT YEAR 1998-99) .................... REVISION PETITIONER: APPELLANT/ASSESSEE:- ---------------------------------------------------------------------- GENTEK COMPUTER SUPPER SHOPEE, M.G.ROAD, ERNAKULAM, REPRESENTED BY ITS MANAGING PARTNER, JOHN J. CHELLAKUDAM. BY ADV. SMT.S.K.DEVI SRI.M.RAJ MOHAN SRI.SANTHOSH P.ABRAHAM SRI.FRANKUR D.JAYAN SMT.DEEPSUR D.JAYAN SRI.K.P.PRADEEP (PAYYANNUR) SRI.SHANMUGHAM D. JAYAN SMT.P.K.MAYA DEVI RESPONDENTS: RESPONDENT/REVENUE:- --------------------------------------------------------------- STATE OF KERALA, REPRESENTED BY ITS FINANCE SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM. BY SPECIAL GOVERNMENT PLEADER SRI.VINOD CHANDRAN. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 28/05/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.Dattu,C.J. & T.R.Ramachandran Nair,J. ---------------------------------------------- S.T. Revn. No.428 of 2005 ------------------------------------------------ Dated, this the 28th day of May, 2008 ORDER H.L.Dattu, C.J. Petitioner is a partnership firm. It is engaged in the business of computer, computer peripherals, spare parts, etc. It is registered as a dealer, both under the provisions of the Kerala General Sales Tax Act (“K.G.S.T. Act” for short) and the Central Sales Tax Act (“C.S.T.Act” for short). The petitioner is on the rolls of the Additional Sales Tax Officer-I, II Circle, Ernakulam. 2. For the assessment year 1998-99, the petitioner had filed its annual returns declaring total and taxable turnover of Rs.2,10,57,568.33 and Rs.23,55,671.33 respectively. 3. The annual returns so filed by the assessee is not accepted by the assessing authority. Therefore, he had issued a pre-assessment notice, inter alia bringing to the notice of the assessee the discrepancies in the books of accounts maintained by the assessee and also the reason for not accepting the annual returns filed by the assessee. In the pre-assessment notice, the assessing authority had pointed out seven reasons for not accepting the annual returns filed by the assessee. In our view, it would be useful for the purpose of disposal of this revision petition to extract those seven grounds/reasons pointed out by the assessing authority in the pre-assessment notice issued to the assessee. They are as under:- “The return and accounts are found to be not acceptable as true and complete due to the following: 1. You have conceded sale of taxable computers. But no manufacturing account is maintained as per Rule 32(15) of KGST Rules. Hence analysis becomes impossible. S.T.Rev.428 of 2005 - 2 - 2. You have not conceded freight in trading account even though you have considerable taxable purchases. 3. Analysis of trade result shows that you have conceded 9.06% gross profit in non-taxable goods whereas there is loss of 28.38% in taxable goods which is quite unbelievable. While considering freight element and manufacturing expenses etc. loss would be more. From this it is clear that you have suppressed taxable sales and effected misclassification of sales. 4. Even though you have effected manufacturing of computers, manufacturing expense is not shown. 5. You have conceded component purchases for Rs.7680/- in P&L account. Purchase is not proved to have suffered tax. It will be taxed @ 10% u/s.5A. 6. The concessional rate of 6% in respect of spares is not proved. It will be assessed @ 10%. 7. As per trading account service charge shown is Rs.23400/- whereas it is Rs.7705/- in 50B. The claim is not proved. It will be treated as income from sale. From the above, it is clear that you were not maintaining true and complete accounts. So it is proposed to reject your returns and accounts and to complete the assessment to the best of my judgment as follows: Total turnover as per accounts Rs.2,10,57,568.33 Add (a) For defects noted with regard to manufacture of computer (5% of above) Rs. 10,52,878.41 (b) 75% of above under Section 5A Rs. 7,89,658.80 (c) For other defects Rs. 5,00,000.00 (d) Component purchase as per P&L account Rs. 7,680.00 (e) Service charges not proved Rs. 23,400.00 (f) Tax collection Rs. 1,04,353.09 ------------------------ Rs.2,35,35,530.63 S.T.Rev.428 of 2005 - 3 - Less exemption (a) Non taxable sales allowed (ie.Rs.1,87,01,897.00 - Rs.15,00,000.00 as shown in para 3 for misclassification) Rs.104353.00 ------------------ Rs.1,73,06,250.00 ------------------------ Taxable turnover proposed Rs.62,29,288.54 i.e. Rs.62,29,290.00 Break up: 3% Rs.1936050/- (Computers from 1.8.98 to 31.3.99) 6% Rs.350000/- (Computers upto 31.8.98) 10% Rs.3943240/- (Spares from 1.4.98 to 31.3.98) Surcharge @ 10% will be levied. You are liable to pay interest for differential tax due. You are hereby given an opportunity of being heard and to file objections if any within 5 days of receipt of this notice failing which the proposal will be confirmed”. 4. After receipt of the pre-assessment notice, the assessee has filed its objections and has offered its explanation to the defects pointed out by the assessing authority and had further requested to drop the proposal made in the pre-assessment notice and to accept the conceded total and taxable turnover of the assessee for the assessment year in question. 5. The assessing authority, after considering the reply so filed by the assessee, and after rejecting the books of accounts produced by the assessee for verification has proceeded to pass a best judgment assessment, making certain additions and also rejecting certain exemptions S.T.Rev.428 of 2005 - 4 - claimed by the assessee. 6. Aggrieved by the said order passed by the assessing authority, the assessee had filed appeal before the first appellate authority in S.T.A.No.917 of 2003. The first appellate authority by its order dated 30.4.2003, has partially allowed the appeal filed by the assessee and has made certain modification to the estimation/quantification made by the assessing authority in the best judgment assessment dated 25.3.2003. 7. The assessee, not being satisfied with the partial modification made by the first appellate authority in the best judgment assessment order passed by the assessing authority, had filed a second appeal before the Kerala Sales Tax Appellate Tribunal in T.A.No.680 of 2003. The Tribunal after detailed consideration of the grounds urged in the memorandum of appeal and also the points argued by the representative of the assessee, by its order dated 31.03.2005 has rejected the appeal and has confirmed the orders passed by the first appellate authority. 8. The assessee, being aggrieved by the aforesaid order passed by the Tribunal, is before us in this petition filed under Section 41 of the K.G.S.T. Act and in that has framed the following questions of law for our consideration and decision. They are as under: i) Is not the reasoning of the Tribunal on the defect No.3 pointed out by the assessing authority contrary to the facts, records and explanation on the point, as evident from Annexure IV reply to the notice u/s.17(3) of the Act and the grounds relied on by the petitioner? ii) Assembling of the different parts chosen by the customers for which petitioner receives service charges and the parts so chosen for assembling being shown as sales by the petitioner, has not the Tribunal erred in sustaining the addition as per the Annexure II order for the defect No.1 and 2? iii) Has not the Tribunal erred in not allowing the S.T.Rev.428 of 2005 - 5 - entire claim of exemption made under non taxable sales on the facts of the case? iv) The Tribunal being the final fact finding authority is not the order of the tribunal erroneous in law being are passed without considering the relevant facts of the case in arriving at the conclusions as to dismiss the appeal of the petitioner? 9. Before we advert to the contentions canvassed by the learned counsel for the petitioner Sri.Santhosh P.Abraham, we intend to remind ourselves once again the parameters of the revisional powers of this Court under Section 41 of the K.G.S.T. Act. This Court, in exercise of the revisional powers, can only entertain a revision petition and consider the issues raised therein, if for any reason the Tribunal has failed to decide a question of law raised before it or has erroneously decided the question of law. In the alternative, it can be said, this Court in its revisional jurisdiction, can only inquire about the correctness of a question of law which had fallen for consideration before the Appellate Tribunal and cannot go into a question of fact. This court will not interfere in a revision petition with the finding of fact recorded by the Tribunal. 10. The order of assessment passed by the assessing authority is a best judgment assessment. In the best judgment assessment order passed, the assessing authority has not only adverted to the defects in the annual returns filed by the assessee and also has assigned appropriate reasons for making additions after rejecting the books of accounts and the annual returns filed by the assessee. This Court in exercise of the powers under Section 41 of the K.G.S.T. Act can interfere with the best judgment assessment only in the circumstances mentioned in the Section. At this stage, it is worthwhile to recall the observations made by the Apex Court in the case of Commissioner of Sales Tax v. H.M.Esufali H.M.Abdulali [(1973) 32 STC 77). S.T.Rev.428 of 2005 - 6 - The Court in the aforesaid judgment has observed as under: “In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else's. The High Court cannot substitute its best judgment for that of the assessing authority”. [Emphasis supplied by us]. 11. The first appellate authority has, no doubt, interfered with the order passed by the assessing authority and, according to him, the addition of 5% made by the assessing authority is excessive and, therefore, the same requires to be reduced to a sum of Rs.2 lakhs and, further, has granted certain relief in so far as additions made by the assessing authority in a sum of Rs.5 lakhs. He had further observed that the rate of tax adopted by the assessing authority requires modification and, accordingly, has directed the assessing authority to make appropriate modification in the orders of assessment passed. 12. The last fact finding authority, viz., the Sales Tax Appellate Tribunal, has concurred with the facts noticed by the first appellate authority and has concurred with the view expressed by the first appellate authority. On the face of findings of fact entered by the authorities and the Tribunal, this Court while exercising its revisional jurisdiction, would not be justified in upsetting the findings of fact entered on the basis of relevant materials. There is absolutely no material to support the case of the petitioner. 13. The concurrent findings by the first appellate authority and the Tribunal on facts, in our opinion, need not be disturbed by us in a revision S.T.Rev.428 of 2005 - 7 - petition filed under Section 41 of the K.G.S.T. Act. Therefore, the revision requires to be rejected and it is rejected. Ordered accordingly. H.L.Dattu Chief Justice T.R.Ramachandran Nair Judge vku/dk.