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 THURSDAY, THE 13TH NOVEMBER 2008 / 22ND KARTHIKA 1930 S.T.Rev.No.472 of 2005 ----------------------------------------- T.A.NO.228/2005 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, PALAKKAD - ORDER DATED 27.6.2005. (ASSESSMENT YEAR 1998-99) .................... PETITIONER/APPELLANT/ASSESSEE:- --------------------------------------------------------- V. ABDUL JABBAR (NOW DECEASED) REPRESENTED BY HIS SON AND LEGAL HEIR A. SHUKKOOR, AGED 31 YEARS, SHAKIYA SAW MILL, PARUTHIKKAD, GOVINDAPURAM P.O., PALAKKAD. BY ADV. SRI.T.M.SREEDHARAN SRI.V.P.NARAYANAN SRI.DEEPAK JOY.K. SMT.C.K.SHERIN RESPONDENT/RESPONDENT/REVENUE:- -------------------------------------------------------------- STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT, SECRETARIAT, THIRUVANANTHAPURAM. BY SENIOR GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 13/11/2008, ALONG WITH S.T.REV.NO.378 OF 2005 AND CONNECTED CASES, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:- H.L.Dattu,C.J. & A.K.Basheer,J. -------------------------------------------------- S.T.Rev.Nos.472 of 2005, 378 of 2005, 379 of 2005 & 380 of 2005. ---------------------------------------------------- Dated, this the 13th November, 2008 ORDER H.L.Dattu,C.J. Since the assessee is common and legal issues involved are identical, these revision petitions are clubbed, heard and disposed of by this common order. (2) The assessee is the legal representative of one late V.Abdul Jabbar, who was the Proprietor of M/s.Shakiya Saw Mill, Paruthikkad, Govindapuram P.O., Palakkad. While Abdul Jabbar was alive, he was doing the business of running a saw mill at Paruthikkad in Palakkad. He expired on 1.11.2005, i.e., after the disposal of the appeals by the Tribunal. (3) The petitioner, who represents the legal representatives of late Abdul Jabbar, calls in question the orders passed by the Kerala Sales Tax Appellate Tribunal, Additional Bench, Palakkad in T.A.No.228 of 2005 dated 27.06.2005 and T.A.Nos.75 of 2005, 76 of 2005 and 77 of 2005 dated 10.5.2005. (4) The relevant assessment years are 1998-1999, 1999-2000, 2000-2001 and 2001-2002. (5) Late Abdul Jabbar had not registered himself as a “dealer” under the provisions of the Kerala General Sales Tax Act, 1963 (“Act” for STRev.472/2005, etc. 2 - short), since his total and taxable turnover was less than the limit prescribed under Section 5 of the Act. The business premises of the petitioner's father had been inspected by the Intelligence Squad on 21.2.2000. We do not have the report of the Intelligence Officer before us. But, from the English version of Annexure-A, produced along with the revision petition papers, what we can deduce is, the Inspecting Squad had visited the business premises of the petitioner's father on 21.2.2000 and had noticed, that, the sales turnover of the petitioner's father had exceeded Rupees One lakh. (6) For the reasons best known, the Intelligence Officer, though had inspected the business premises of the petitioner's father, had not initiated any proceedings under the Act, either to prosecute the petitioner's father before the jurisdictional Magistrate or had initiated any proceedings under Section 45A of the Act, for contravention of sub-clauses (a) to (h) of sub-section (1) of the said Section. To us, it looks very strange, that, on the basis of an application made nearly after nine months from the date of inspection, viz., on 25.11.2000, the assessing authority has compounded the offence departmentally, by collecting a sum of Rupees six thousand from the petitioner's father in lieu of the prosecution proceedings. In the petition, it is stated, that, it was promised by the assessing authority to the petitioner's father, that, if the assessee compounds the offence departmentally, no further proceedings would be initiated against him. Whether that statement is true or correct, need not be considered by us for the purpose of disposal of these STRev.472/2005, etc. 3 - revision petitions. (7) For the assessment year 1998-1999, the assessing authority makes use of the inspection that was conducted on 21.2.2000 and then issues a pre-assessment notice. We do not know how the assessing authority could have adopted this procedure. (8) For the subsequent assessment years and for the assessment year 1998-1999, the assessing authority had issued a pre-assessment notice, inter alia, pointing out certain omissions said to have been noticed by the Intelligence Squad when they had visited the business premises of the petitioner's father on 21.2.2000 and, therefore, states, that, he would be completing the best judgment assessment, if no explanation is offered by the petitioner to the proposal made in the pre-assessment notice. (9) In the pre-assessment notice so issued, the lacunae that were pointed out by the assessing authority are as under: “(1) The dealer himself admitted before the Int. Officer, that he is having registrable turnover. But he never applied for registration. (2) At the business place, there is no coolie sawing bills or there was no outside parties timber. The entire stock was dealers himself”. (10) After receipt of the pre-assessment notice, the assessee has filed his detailed reply, dated 12.3.2003. In that, the assessee had informed the assessing authority, that, he is a small time dealer and his main STRev.472/2005, etc. 4 - business activity is, to cut timber into planks, rafters, etc. of his customers by collecting only the labour charges. He had also stated, that, the statement made by him on 25.11.2000 was written by his Part-time Accountant at the behest of the assessing authority and without knowing the contents, he has signed the same, since he does not know the Malayalam language. He had further stated, that, he does not have an independent business of purchase timber and sale of the same to his customers. (11) After receipt of the explanation so offered to the pre-assessment notice issued, the assessing authority primarily relying upon the consumption of the electricity, of which the details had been collected by him from the Assistant Engineer, Kerala State Electricity Board (“KSEB” for short), has proceeded to reject the explanation offered by the assessee and confirmed the proposals made. The order passed by the assessing authority is supposed to be the “best judgment assessment”. The order reads as under:- “1) The dealer himself admitted before the Int. Officer that he is having registrable turnover. But he never applied for registration. 2) At the business place, there is no coolies, sawing bills or there was no outside parties timber. The entire stock was dealers himself. In the circumstances, I have no other alternative but to complete the assessment for the year 98-99 exparte, since the assessment is getting time bar. For this, I have contacted Asst.Engineer, KSEB, Muthalamada and get the details of electrical STRev.472/2005, etc. 5 - consumption. As per the records of that office, Electrical Meter No.4298, which is placed in the mill and in the name of Sri.Abdul Jabbar shown a consumption of 6900 units during 98-99. Based on an average consumption of 1.5 units per cubic feet of timber, the total quantity worked out as under: 6900/1.5 = 4600 CFT. The dealer is trading in different types of timber such as banyan tree, neem tree, vaka tree, teak tree etc. Hence the average cost of this timber worked as under: Banyan tree 1 CFT = Rs.150/- Neem tree “ = Rs.150/- Vaka tree “ = Rs.200/- Teak tree “ = Rs.400/- --------------------------------------------- Total 4 CFT = Rs.900/- Average price calculated 900/4 = Rs.225/- By taking this Rs.225/- as average, the total will be worked out. In the circumstances, it is proposed to complete the final assessment u/s.17(3) of the KGST Act as under. Total timber sold as per above “ 4600 CFT Value of 4600 CFT timber @ Rs.225 as explained above = Rs.10,35,000/- This will be assessed @ 12.5%. Surcharge @ 10% also will be levied. A notice on the above items were issued as read (1) above and the dealer filed his reply as read (11) above. The main contention raised in the reply is that (1) a good portion of electrical energy consumed is for light and for a small motor which is used for grinding purpose; (2) Average current consumption worked out STRev.472/2005, etc. 6 - for sawing is less etc. I have carefully verified the reply. I found some reason in the first point and readily reducing 75 units per month for lighting and working of small motor. As regards 2nd point, that the average current consumption, the 1.5 units for sawing 1 cft. of timber, is more or less correct if some type of timber take some more power, some other takes lesser. Hence there is no need for change in this aspect. In the light of the above discussion, I found no case to deviate from my proposal except the modification made above. In the circumstances, the reply is rejected subject to above and final assessment for 98-99 stands completed as explained above as under: Total current consumption for 98-99 6900 units Less allowed for lights and other purpose 900 units ------------- Balance consumption for sawing 6000 units Quantity of timber sawed @ 1.5 units per CFT 4000 CFT Value of timber calculated @ Rs.225 per CFT 4000 x 225 Rs.900000/- Tax due 12.5% thereon Rs.1,12,500/- Paid Nil Balance Rs.1,12,500/- Surcharge due Rs. 11,250/- Paid Nil Balance Rs.11,250/- Demand notice issued.” (12) After perusing the order so passed, in our opinion, to say the least, it is nothing but a mockery of the best judgment assessment. Time and again, we have observed in the course of our orders, that, the assessing STRev.472/2005, etc. 7 - authority, even while completing the best judgment assessment, since it is also an assessment, there must be a rational basis and it cannot be done on whims and fancies of the assessing authority. (13) In the instant case, the assessing authority has completed the best judgment assessment not for one year, but for all the four years, more or less on the same day. The entire reliance made by the assessing authority is on the information collected of the consumption of the electrical energy by the assessee through the Assistant Engineer, KSEB, Muthalamada. (14) The assessee had, in fact, brought to the notice of the assessing authority that he was not doing business of purchase and sales of timber and had specifically asserted in his explanation, that, he cuts the timber of his customers into planks, rafters, etc. as job work and collects labour charges only. During this process, there is every possibility of the assessee consuming electrical energy and merely because he had consumed electrical energy, it does not mean, that, the assessee was conducting the business of purchasing timber, cutting into sizes by using electrical energy and effecting sales of the same to his customers. (15) The Intelligence Officer, while considering the application filed by the petitioner's father for compounding the offence departmentally, specifically observes in his order, that, the assessee had produced the accounts, but had admitted that he had not maintained true and complete accounts for the assessment years in question. If the accounts are STRev.472/2005, etc. 8 - maintained, but they are not true and complete, the assessing authority can reject those books of accounts and can proceed to complete the best judgment assessment and, as we have already stated, that the best judgment assessment being an assessment also, it cannot be on mere whims and presumptions and it must have a rational basis. (16) The orders passed by the assessing authority, in our considered opinion, is mechanically accepted, both by the first appellate authority and by the Appellate Tribunal, which is the last fact finding authority. For the reasons stated by us while commenting on the orders passed by the assessing authority, we cannot accept the findings of the first appellate authority and the Tribunal also. (17) In view of the above, none of the orders passed by the authorities under the Act and the Tribunal can be sustained by us. Therefore, while allowing the revision petitions, we are of the opinion, that, the matter requires to be remitted to the assessing authority to redo the assessments in accordance with law, after carefully considering the explanation offered by the petitioner/assessee and not just merely relying upon the information collected from an officer of the KSEB. (18) In view of the above, we pass the following: Order (i) The revision petitions are allowed. (ii) The impugned orders passed by the assessing authority and STRev.472/2005, etc. 9 - affirmed by the Tribunal for the assessment years 1998-1999, 1999-2000, 2000-2001 and 2001-2002 are quashed. (iii) The matter is remanded back to the assessing authority to redo the matter in accordance with law and in the light of the observations made by us in the course of the order. (iv) Before such assessments are made, the assessing authority is directed to issue appropriate notice to the legal representatives of late Abdul Jabbar. (v) In view of the orders passed in the revision petitions, all pending interlocutory applications are closed. Ordered accordingly. H.L.Dattu Chief Justice A.K.Basheer vku/-dk Judge