IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 29TH OCTOBER 2009 / 7TH KARTHIKA 1931 ST.Rev..No. 122 of 2006() ----------------------------------- TA.222//2004 of SALES TAX APPELLATE TRIBUNAL, ADDL.BENCH-I,ERNAKULAM. .................... REVN. PETITIONER/RESPONDENT ------------------------------------------------ STATE OF KERALA, REPRESENTED BY JOINT COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY GOVERNMENT PLEADER MR.MOHAMMED RAFFIQ. RESPONDENT/APPELLANT --------------------------------------- M/S. M.J. PHARMACEUTICALS LTD., ELAMKULAM P.O., KADAVANTHARA, ERNAKULAM. BY ADV. MR.A.KUMAR. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 29/10/2009,THE COURT ON THE SAME DAY PASSED THE FOLLOWING: rs. C.N. RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. ---------------------------------------- STRV. No.122 of 2006 ---------------------------------------- Dated, the 29th day of October, 2009 JUDGMENT Ramachandran Nair, J. The revision is filed by the State challenging the order of the Sale Tax Appellate Tribunal holding that the assessment made by making estimated addition of gross profit is not tenable. 2. We have heard the learned Government Pleader for the petitioner and Sri A.Kumar, the counsel appearing for the respondent. 3. The respondent-assessee is a Pharmaceutical company engaged in manufacture of various types of medicines. In the normal course, products are sold to distributors who in turn sell the same to retail dealers from whom the products reach the customers. However, in this case the assessing officer noticed that the medicines sold by respondent-assessee reached another company by STR 122/06 -:2:- name M/s. Sun Pharmaceuticals Ltd who after purchase from the respondent sold the same to distributors at a gross profit of 73%, whereas, the gross profit reported by the respondent was only 2.71%. The assessing officer made the assessment by estimating gross profit at 50% which was reduced in first appeal to 25%. On second appeal, both by the respondent and by department, the Tribunal found that respondent as well as M/s. Sun Pharmaceuticals are independent legal entities, and so much so, there cannot be any addition of gross profit. This Revision is filed by the State against the rejection of it's appeal filed to restore the assessment. Even though the counsel for the respondent submitted that another revision filed by the State against the common order of the Tribunal was dismissed by this Court on account of delay, we do not think the maintainability of this Revision is affected on account of the dismissal of the other Revision case which in our opinion was not necessary. This is because the Tribunal has decided only one issue in the two appeals. State appeal was for restoring STR 122/06 -:3:- assessment and revision is filed in time against the dismissal order of the Tribunal. Therefore there was no necessity for the State to have filed a separate Revision against the order of the Tribunal allowing assessee's appeal because the order of the Tribunal is only one which is common for both appeals. Therefore, the objection on maintainability is not tenable and we proceed to consider the case on merit. 4. The Government Pleader rightly pointed out that the Tribunal's finding is erroneous because separate legal existence of the respondent-assessee and Sun Pharmaceuticals is not the relevant criteria to decide whether tax evasion was practiced by both the companies. Govt.Pleader has furnished the website information published by Sun Pharmaceuticals which shows that the respondent company's majority stakes was taken over by Sun Pharmaceuticals in the year 1996 and, in fact, in the year 2002-03, the respondent merged with Sun Pharmaceuticals to which the entire medicines were sold in 1999. In fact, when the purchaser company virtually owns the seller STR 122/06 -:4:- company, the right course was to treat the sales by Sun Pharmaceuticals as the genuine first sales in the State. However, in this case it is seen that none of the authorities bothered to collect information pertaining to relationship between the companies. If enquiry was conducted, it would have been revealed that the seller is nothing but a shadow of the purchaser company, and so much so, the sale at low value by respondent to the holding company is only to evade tax. The rejection of accounts of the seller is perfectly in order because the sales to Sun Pharmaceuticals was not genuine. However, since facts were not considered by any of the authorities including the Tribunal, we set aside the order of the Tribunal and that of the lower authorities and remand the matter to the assessing Officer for reconsideration and assessment after taking into account the relationship of the purchaser company namely Sun Pharmaceuticals with the respondent company during 1999-2000, the relevant year to which the assessment relates. However, since the respondent is merged with Sun Pharmaceuticals, it is enough STR 122/06 -:5:- for the officer to issue notice to the Sun Pharmaceuticals , the successor company, and proceed with the assessment. For the sake of finality, it is open to the Sun Pharmaceuticals to accept the original assessment with 50% addition of gross profit, and if they agree, the original assessment will be restored and the matter to be settled by officer or otherwise the officer will conduct enquiry as to whether there is physical transfer of possession of goods or whether it is only a namesake sale between two companies and sale by Sun Pharmaceutical to the distributors is the real first sale for the purpose of making assessment. The S.T.Revision is allowed as above. C.N.RAMACHANDRAN NAIR JUDGE V.K.MOHANAN, JUDGE kvm/- STR 122/06 -:6:- V.K.MOHANAN, J. O.P.No. JUDGMENT STR 122/06 -:7:- Dated:..