IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 1ST SEPTEMBER 2008 / 10TH BHADRA 1930 MFA.No. 411 of 2001() --------------------- R2.33860/2000 of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT(S): -------------- ABCO AGENCIES, PANAMARAM WAYANAD 673 592, REP. BY ITS PROPRIETOR M.K.ABDULLA. BY ADV. SMT.S.K.DEVI SRI.M.RAJ MOHAN SRI.SHANMUGHAM D. JAYAN SMT.P.K.MAYA DEVI SMT.SILVI JOSEPH SMT.RANI JACOB RESPONDENT(S): --------------- COMMISSIONER OF COMMERCIAL TAXES, TRIVANDRUM. BY G.P. SRI.TEKCHAND THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ALONG WITH MFA NO.409/2001 & CONN. CASES ON 01/09/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. .................................................................... M.F.A. Nos.411 & 409 of 2001 & S.T. Rev. Case Nos.292 &293 of 2007 .................................................................... Dated this the 1st day of September, 2008. JUDGMENT Ramachandran Nair, J. These connected tax revision cases and M.F.As. arise from sales tax assessments and penalty levied on the petitioner for the assessment years 1994-95 and 1995-96. The petitioner-appellant was engaged in purchase and sale of steel and cement. Even though he had massive turnover for both the years, he did not file any return or remit tax in time due under the KGST Act and Rules. However, department conducted inspection and noticed that assessee was supplying cement and steel to Government department and inspite of purchase by the Executive Engineer, Karapuzha River Project Division, Kalpetta, petitioner has not accounted even such sales. After suppression was noticed, petitioner filed belated returns claiming exemption on the ground that cement and steel sold by him are second sales in Kerala after purchase from a firm by name Jas Agencies. However, the Intelligence Officer found that petitioner did not produce full purchase bills and evidence to prove second sales of the turnover involved. Consequently 2 penalty was levied for evasion of tax under Section 45A of the KGST Act for the assessment years 19994-95 and 1995-96. Even though penalty orders were cancelled by the first appellate authority relying on the purchase bills produced by the assessee, the Commissioner in suo moto revision cancelled the first revisional authority's order for the reason that the documents produced were not honoured by the suppliers who had obviously not remitted the tax. It is against the suo moto revisional orders issued by the Commissioner, the M.F.As. are filed. In the assessments, the Assessing Officer after granting exemption on proved second sales, levied tax on the estimated turnover by reckoning the suppressed sales to Government departments and unaccounted purchase from outside State. We have heard counsel appearing for the assessee and the Government Pleader appearing for the respondents. 2. The Intelligence Officer who collected information from the office of the Executive Engineer noticed that assessee has made massive sale of steel and cement to the Government department during 1994-95 and 1995- 96. Assessee neither accounted these sales nor paid tax on such sales. In the normal course assessee being a registered dealer would have collected tax from the purchaser which is a Government department. However, this is a matter not gone into by the Intelligence Officer while verifying the details of payments made by the Executive Engineer. In any case assessee is not 3 denying the turnover representing the sales made by him to the Executive Engineer, details of which are collected by the department and the fact that he has not remitted the tax. 3. The next question to be considered is whether assessee is entitled to claim exemption on second sales. Section 12 of the KGST Act provides that any dealer claiming exemption has to prove such exemption. Rule 32 (13) of the KGST Rules prescribe that every dealer in goods taxable at the point of first sale in the State, shall, if he is not liable to tax on such goods by reason of his not being the first seller of the goods in the State, obtain a certificate written and signed underneath or on the other side of the bill or cash memorandum to the effect that goods covered by bill or cash memorandum had suffered tax at his (seller's) hands or at the hands of any other dealer mentioned in the certificate. This Rule further states that the seller in such goods shall give such a certificate on every sale made by him. It is clear from the above provision that if the assessee's claim that he purchased goods from another registered dealer in the State who has collected tax and remitted the same to Government is correct, then obviously assessee will be able to produce sale bills issued by the supplier to him which prove beyond doubt collection of tax. In fact it is mandatory under the Rule that the seller should issue sale bill or cash memorandum to enable the purchaser to claim exemption on second sales. The petitioner has 4 no case that the turnover referred to in the penalty orders are covered by sale bills issued by the seller in terms of Rule 32(13) of the KGST Rules and since the petitioner did not prove that his sales are second sales by producing purchase bills, he is liable to pay tax and for non-payment, penalty is perfectly justified. 4. So far as the assessment and demand of tax are concerned, we find that turnover is estimated based on suppressed turnover detected on sales to the Kerala Government Department. On the face of it, interstate purchase suppression is detected by the department. Even though counsel submitted that when unaccounted sales are estimated and assessed, corresponding purchases should not be treated as taxable turnover because the purchases and sales relate to same goods, we are unable to accept this contention because the unaccounted sales turnover is found to be almost double the value of purchase turnover. Therefore, there is nothing to prove that the unaccounted sales are relateable to unaccounted interstate purchases. We, therefore, find that the addition is permissible under both heads i.e. unaccounted sales and unaccounted purchases. Moreover, it is also seen that the first appellate authority reduced the addition substantially and the same is confirmed by the Tribunal. We do not find any justification to interfere with the Tribunal's order because all what Tribunal has done is to sustain the partial addition confirmed by the first appellate authority. We do 5 not have any material to substitute our discretion for the discretion exercised by the two lower authorities. Therefore, we reject the revision petitions filed against assessments. 5. So far as the penalty is concerned, we feel petitioner can be granted reduction provided petitioner remits arrears of tax with interest thereon under amnesty scheme, if he wants to avail the benefit under the scheme or otherwise, full tax and interest. If payment as above and along with it, 50% of the penalty and interest thereon is paid before 31.10.2008, then 50% of the penalty and interest thereon will stand waived. However, we make it clear that the reduction is granted only as an incentive for timely discharge of liability. Therefore, if payment is not made as above, the reduction granted herein will stand cancelled and full amount of penalty levied for the years 1994-95 and 1995-96 will be recovered after 31.10.2008. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms