TAX CASE No.28 OF 1993 WITH TAX CASE No.29 OF 1993 ------- In the matter of applications under Section 48(2) (b) of the Bihar Finance Act, 1981 (Part I). ------- M/s Jairamdas Ramautar of Andigola, Muzaffarpur PETITIONER Versus The Commissioner of Commercial Taxes, Bihar, Patna RESPONDENT -------- For the Petitioner : M/s K.N.Jain, Sr. Advocate with Dr R.Usha, Advocate For the Respondents : Mr V.N.K.Sinha, SC 3 -------- P R E S E N T THE HON'BLE MR. JUSTICE SHIVA KIRTI SINGH THE HON'BLE MR. JUSTICE SHYAM KISHORE SHARMA Shiva Kirti Singh, J. Both the cases relate to the same assessee for the periods 1984-85 and 1985-86 respectively. Both the assessment orders assessing sale tax under the Bihar Finance Act, 1981 (hereinafter referred to as „the Act‟) are dated 20.2.1991, passed by the Deputy Commissioner of Commercial Taxes, Muzaffarpur Circle, Muzaffarpur. By the order relating to the year 1984-85 the claim of the assessee that Rs.1,93,60,838.00 was sale price of goods exported to Nepal was not accepted mainly on the ground that an essential condition of export was not satisfied because payments had not 2 been received through bank. The further claim that Rs.36,40,030.72 paise was sale price of tax free articles- sugar and mustard oil, was accepted only partly for the period the account books were produced. Similarly, by the order relating to year 1985-86 a claim that Rs.91,40,660 was sale price of goods exported to Nepal was not accepted on the ground that payments were not received through bank. 2. The assessee preferred a revision against the orders of assessment vide revision case nos.CC(S) 654-655/90-91. The revision applications were disallowed by order dated 15.7.1991. Against that order the assessee preferred a revision before the Commercial Taxes Tribunal, Bihar, Patna which was dismissed by order dated 26th August, 1992, mainly on the ground that there was no document as a proof of export issued by any Customs authority posted at Indian Customs border. The Bhansar receipts which were loose receipts without bearing any serial number claimed to have been issued by Customs department of Nepal were not found reliable. The Tribunal, however, agreed that the stand of the assessee that payment on account of export need not always be through Nepal bank but observed that if such payment had been through a Nepal bank, it could have been a good evidence of export. 3. The assessee preferred a review application before the Tribunal that was disposed of by order dated 7.7.1993 whereby the first prayer to reconsider the issue of sales in course of export was rejected and relief was 3 granted in respect of only other issue that rice being a declared commodity need not be taxed at a rate more than 4 per cent. 4. The assessee thereafter filed a petition for reference of law points under section 48 of the Act. That was rejected by order dated 6.9.1993 holding that all points raised were issues of facts and the question of additional tax could not be considered as it was premature because for the assessment year 1985-86 the tax was still to be ascertained. Thereafter, the assessee preferred an application for reference before this Court under section 38(2) of the Act. By order dated 28.1.1994 this Court directed the Tribunal to refer the following questions of law along with relevant statement of case and relevant annexures. (1) Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in failing to decide all the issues raised before it in its revisional order and later deciding some in the review order by a cryptic and non-speaking one sentence order that the “reliefs not granted should be taken as rejected”. (2) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the Bhansar Certificates were unreliable is wholly arbitrary and perverse, based on mere suspicion, surmises and conjectures and not on any material on the record, rather on material contrary to law and for violation of the principles of natural justice ? (3) Whether, the Tribunal having found that the goods had actually been transported from Muzaffarpur to Nepal in pursuance of the agreement to sell with the Nepal parties, such sales have been rightly termed as intra State sales ? (4) Whether, on the facts and in the circumstances of the case, the rejection of the Gross Turn Over shown and also the enhancement thereof by Rs.15,91,019/- by estimate at Rs.2 crores, are wholly arbitrary and illegal, based on mere suspicion, 4 surmises and conjectures unsupported by any materials on record. (5) Whether, on the facts and in the circumstances of the case, the disallowance of Rs.21,33,618/- out of the claim for sales of tax- free goods is wholly arbitrary and illegal, based on mere suspicion and surmises, when indisputably these were supported by the sale register, stock register as also all the purchase Bijaks and sale-memos, which had been duly produced not only before the Assessing Officer, but even before the Tribunal and in which no defect whatsoever was found ? (6) Whether the levy of additional tax in respect of the amount of sales tax assessed is wholly arbitrary and without jurisdiction ? (7) Whether surcharge could be levied only on the net tax payable as reduced by the admissible rebate ? (8) Whether the levy of surcharge at the rate of ten per cent is legal and valid ? 5. Learned counsel for the petitioner (assessee) advanced his arguments first in respect of questions no.2 and 3 taken together. It was rightly submitted and it cannot be denied that if the assessee succeeds in establishing that certain sales had taken place in course of export to another country, such sales would not be liable to sales tax under the Act. However, the main issue is whether the rejection of claim of the assessee that he had made export sales to Nepal is in violation of some principles of law or is it on account of mere appreciation of evidence in respect of an issue of fact. The taxing officer as well as the appellate and the Tribunal appear to have arrived at a finding of fact that the assessee could not produce reliable materials to substantiate his claim. Extra emphasis given by the taxing 5 officer as well as by the Commissioner on payment to the assessee not being through banks of Nepal has been rightly corrected by the Tribunal which has held that payment of price through Nepal bank was not a must but it could have been a very good evidence of export. The documents relied upon by the assessee such as Bhansar receipts have been discussed by all the authorities including the Tribunal and that alone has not been found sufficient and reliable for accepting the claim of the petitioner that the goods in question had actually crossed the Indian border in course of export sales. In absence of any document showing crossing of Customs frontier of India, the Tribunal has given a finding of fact that petitioner could not establish his claim of export sales to Nepal. 6. Learned counsel for the petitioner submitted firstly that since no particular mode of evidence has been prescribed by law or under the Act, for proving export sales, all other modes to prove the same is permissible. For this reliance was placed upon judgment of Apex Court in the case of Commissioner of Sales Tax v. Prabhu Dayal Prem Narain, 71 STC 1. In that case the provisions of Section 3-D of the UP Sales Tax Act, 1948 and Rule 12-B of the UP Sales Tax Rules were considered and in view of requirement of declaration forms for sale to a registered dealer it was held that if the assessee had not furnished the required declaration forms in order to be entitled for exemption, the assessee could not file any other evidence requiring consideration by the taxing authorities. Secondly, it was submitted 6 that even if some requirement of proper export had not been observed, in spite of such illegality the export sales may still be valid as such for the purpose of taxation. For this reliance was placed upon a judgment of the High Court of Kerala in the case of Deputy Commissioner of Sales Tax v. Kerala Distilleries and Allied Drug, 89 STC 58. The relevant issue which was cited before us related to the question whether title to movable goods can pass under an illegal contract of sale on its delivery. In that case the factum of delivery was found established and hence, it was held that the title to the goods to the transferee would not be affected even if the contract of sale was illegal. For such conclusion, reliance was placed upon the principle that illegality merely renders a contract unenforceable and not void. Lastly, reliance was placed upon a judgment of the Supreme Court in the case of Commissioner of Income Tax, Patiala v. Pyara Singh, 124 ITR 40 to submit that confiscation of currency notes in course of smuggling activities was held to be a loss directly from the carrying on of the business and was incidental to it and its deduction had to be allowed under section 10 of the Indian Income Tax Act, 1922. 7. So far as the judgment in the case of CST v. Prabhu Dayal Prem Narain is concerned, the provisions of the Act and the Rules dealt with a different situation. In the present case, on a careful reading of the orders of the taxing authority together with the revisional order of the Tribunal, it is found that there is no insistence on a particular mode of proof for proving 7 the claim of export sales, rather the insistence is on reliable evidence. The findings of the concerned authorities are based upon appreciation of evidence available on record and in coming to such findings the principle flowing from the judgment cited has not been violated. As a fact, erroneous approach in over emphasizing that payments were not through bank, by the lower authorities was corrected by the Tribunal itself. 8. So far as the judgment in the case of Deputy Commissioner v. Kerala Distilleries and Allied Products is concerned, it dealt with question of law, as noticed above that even if sale was illegal, title could pass thereunder on delivery. That question is not arising in the present case. Here, the authorities have come to a finding that the assessee could not successfully prove that his goods passed the Indian Customs border leading to delivery by way of export. The remaining case cited on behalf of the petitioner noticed above was in the context of Section 10 of the Income Tax Act and is not of any assistance in answering the questions under consideration in the present case. 9. On a consideration of the materials on record and the submissions, the questions no.2 and 3 have to be answered by holding that finding of the Tribunal in respect of Bhansar receipts, in the fats of the case, cannot be held to be wholly arbitrary or perverse or based on mere suspicion, surmise and conjectures. The findings leading to not accepting the export sales to Nepal are on consideration of all relevant facts and 8 circumstances and such a finding cannot be said to be contrary to law or in violation of principles of natural justice. In fact, the Tribunal noticed the transportation receipts and the agreement to sale but these were not found reliable or sufficient to prove the claim that the goods had actually been exported to Nepal through the Indian Customs border which was required in ordinary course of business of export. These two questions are thus, answered against the petitioner and in favour of the revenue. 10. Learned counsel for the petitioner next raised the question no.5 and submitted that disallowance of Rs.21,33,618 out of claim for sales of tax free goods is illegal, arbitrary and based on mere suspicion. It was submitted that the claim was supported by sale register, stock register as also the purchase memos and sale memos which were produced before the assessing officer as also before the Tribunal. 11. The assessment order shows that such a claim for Rs.15,06,412.49 paise was allowed for the last quarter of the relevant year because ledger and cash book for that period were produced. It was submitted that when purchase memos and sale or cash memos were produced, disallowing the claim noticed above was illegal and arbitrary. Records show that this issue was not even noticed by the Commissioner. The Tribunal also did not address this issue for which the obvious explanation is that it was not raised before the Tribunal. This appears even 9 from the order of the Tribunal dated 7.7.1993 which shows that even at the stage of review this issue was not pressed on behalf of the assessee. 12. The submission on behalf of the petitioner that such claim for sales of tax free goods had to be accepted by the taxing officer in spite of non- production of ledger and cash book for the relevant period, only on the basis of memos of purchase and sale cannot be accepted for the simple reason that ledger and cash book are required to be maintained regularly in course of the business and on that account they have a different sanctity and evidentiary value. Stray purchase memos and cash memos cannot have such evidentiary value. Hence, this question is also answered against the assessee by holding that disallowance of the claim for sales of tax free goods is not arbitrary or illegal. 13. The next submission on behalf of the petitioner is in respect of question no.6- Whether the levy of additional tax in respect of the amount of sales tax assessed is wholly arbitrary and without jurisdiction ? Learned counsel for the petitioner submitted that a perusal of assessment orders shows that the taxing officer has determined the taxable sales price for both the relevant years as Rs.1,84,93,507.51 paise and Rs.1,03,74,510.40 paise respectively. Over those amounts he has determined the sales tax @ 9 per cent. But for determining 1 per cent additional tax he has added the taxable sales price and the tax assessed and then imposed additional tax over the 10 aggregate. According to learned counsel, the definition of gross turnover and sale price do not permit inclusion of tax amount in the sale price. 14. “Gross Turnover” is defined under section 3(j) of the Act so as to be the aggregate of sale price received and receivable by a dealer, including the gross amount received or receivable for execution of work contracts under section 3(u) Sale price has been defined to mean the amount payable to a dealer as valuable consideration in respect of the sale or supply of goods. Explanation 1 and Explanation 2 are material and they are as follows. Explanation I – Sale price shall include any amount charged by the dealer for anything done in respect of the goods at the time of, or before delivery thereof to the buyer; Explanation II- Sale price shall not include the cash discount allowed by the dealer according to the ordinary trade practice, if shown separately. It shall also not include the cost for transport of the goods from the seller to the buyer, provided such cost is separately charged to the buyer. 15. Explanation 1 indicates that sale price is or can be inclusive of any amount charged in respect of the goods. Explanation 2 contains a negative mandate that it shall not include cash discount, if shown separately and it shall also not include the cost for transport of the goods from the seller to the buyer, if it is separately charged to the buyer. 16. Charge of additional tax is covered by Section 6 of the Act which is as follows : 6.Charge of additional tax- Notwithstanding anything contained in sub-section (3) of section 11, 12, 13 and 21 or in any notification issued thereunder every dealer having a gross turnover 11 exceeding the specified quantum as laid down in section 3, shall, with effect from a date to be specified by the State Government by a notification published in official Gazette, pay an additional tax at such rate, not exceeding two percentum of his gross turnover (excluding the sales or purchase of goods which have taken place either in the course of inter-State trade or commerce, or outside the State, or in the course of import of goods into, or export of goods out of the territory of India) as the State Government may, from time to time by notification in the Official Gazette, fix . It has been held by the Supreme Court in the case of Kumar Distributor Limited v. State of Bihar, (1995) 5 SCC 593 that so far as charge of additional tax is concerned, Section 6 is self contained, both for charging additional tax as well as its exemption. According to Section 6, the additional tax is chargeable at specified rate not exceeding 2 per centum of gross turnover. Hence, for levy of additional tax the gross turnover is the only relevant factor once it is found levyable in case of a particular dealer. The term gross turnover is defined under the Act and it is clearly same for the purpose of charging of sales tax as well as additional tax. But the taxing officer has enhanced the gross turnover for the purpose of additional tax in the present case by adding the amount of tax assessed on the gross turnover. This is patently against the provisions of Section 6 of the Act which does not permit additional tax on the aggregate of gross turnover and tax assessed. Hence, question no.6 is answered in favour of the assessee and against the revenue. 17. The next submission on behalf of the petitioner is in respect of question no.7- whether surcharge could be levied only on the net tax payable 12 after reducing the amount of admissible rebate. The orders of assessment by the taxing officer show that no rebate was admissible to the assessee for either of the assessment periods. The Tribunal upheld the disallowance of rebate on the ground that under section 16(5) of the Act, in order to obtain rebate both the tax challan and the statement were required to be filed before the prescribed date but the monthly returns were not filed in time. This part of order of Tribunal is not under challenge and hence, the question of law under consideration is found not necessary to be decided in these cases. Since the petitioner is not entitled for rebate, therefore, no question arises of deducting the rebate amount from the total amount of tax payable by him for the purpose of levy of surcharge. 18. The only other issue canvassed on behalf of the petitioner was in respect of question no.4. It was submitted that rejection of the gross turnover and its enhancement by Rs.15,91,019 so as to make it Rs.2 crores (for the year 1984-85) was arbitrary and illegal. The submission in effect amounts to assailing the assessment made on best judgment which was unavoidable because the assessee had not maintained cash book and register etc. for the period upto December 1984. In such circumstances, it was necessary for the taxing officer to assess the gross turnover on the basis of best judgment assessment. Such procedure has the sanction of law and no question of law is required to be answered in this regard. 13 19. As a result of aforesaid discussions and findings, only question no.6 is answered in favour of assessee and against the revenue. The Reference is answered accordingly. The taxing authority will now be required to reassess the additional tax for both the years afresh in accordance with the law explained in this judgment. The tax cases are allowed to that extent only. In the facts of the case, there shall be no order as to costs. 20. Let a copy of this judgment be sent to the Tribunal for necessary action, in accordance with Section 48(5) of the Act. (Shiva Kirti Singh,J.) Shyam Kishore Sharma, J. I agree. (Shyam Kishore Sharma,J.) Patna High Court The 09th February, 2009. AFR/ S.Kumar