[2008] 15 S.C.R. 352

HALEEMA ZUBAIR, TROPICAL TRADERS ~- v.

ST ATE OF KERALA (Civil Appeal No. 6707 of 2008)

NOVEMBER 19, 2008

[S.B. SINHA AND. CYRIAC JOSEPH, JJ.) y

. it Kerela General Sales Tax Act, 1963 - ss. 2(viii) and 12 c - Levy of sales tax - Burden of proof - Assessee proprietor

. of two concf!]rn - One concern dealer of certain goods and other rendering professional services - Assessment order - Professional income by second concern added to the sales turnover from the bus.iness of first concern, for levy of sales

D tax - Upheld by tribunal and High Court - Sustainability of

- Held: Not sustainable - Sa/es tax is leviable on sale of goods - Profesional service rendered does not constitute sale of goods - Assessee produced income tax returns 1 showing payment of income tax on professional income as also other documents and Assessing officer and High Court E noticed the same - Case of assessee that it discharged the '~ burden of proof by producing documents - High Court erred in considering the same - Hence, matter remitted to the Assessing Authority.

F Appellant-assessee was proprietress of two concerns. The concern TP Traders is a dealer in ceramic i tiles and concern Mis. PF Company renders professional services to various exporters of inspection and certification of quality of items sought to be exported. TP

G Traders disclosed the total turnover of business for payment of sales tax. The Assessing Authority included the receipt of commission by Mis. PF Company in the taxable turnover for purpose of payment of sales tax and

passed assessment order. The receipt of commission

H 352

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 353

KERALA

--I was not supported and proved by documentary A evidence. Appellant challenged the order on the ground tHat the services so rendered was not a 'sale'. It produced certain documents. First Appellate Authority held that the receipt of commission was not liable 'to tax and excluded the sa'me. In appeal, the tribunal held that. the assessee B was 'unable to discharge.the burden of proof in terms of s. 12 C>fthe Kerela General Sales Tax Act, 1963, thus the First Appellate Authority was r1ot justified in deleting the receipt of commission from the turnover.· Appellant filed revision petition which was dismissed. Review c application was also dismissed. Hence the present appeal.

Allowing the appeal, the Court

HELD: 1.1. The Kerela General Sales Tax Act, 1963 o is a taxing statute. The jurisdicUon of an assessing authority, therefore, is confined to assess tax on taxable turnover. Its primary duty is to ascertain as to whether the figures furnished by the assessee are correct or not. [Para 12) [359-D] E

1.2. Assessment of sales tax must be on sale of goods. There is no bar in law for the same assessee to carry out different businesses. The business carried out by her of ceramic tiles involving transactions of sales 'and purchase has no connection with the professionai F services rendered by her to the exporters. [Para 13] [359- E] .

1.3. The sine qua non or the condition precedent for passing of an order of assessment is transaction of sale. G Professional service rendered does not constitute sale.

Such a professional service rendered by a person attracts service tax, which is a different nature of tax. [Para 14) [359-F]

Bharat Sanchar Nigam Ltd. and Anr. v. Union of India H

A and Ors. 2006 (3) SCC 1, referred to. +---

1.4. Section 12 of the Act places te burden on the assessee. The said provision would-be attracted subject to the condition that first; a transaction of sale has_ taken

B place; secondly that one ot the parties thereto is a dealer.

A provision relating to. "reverse burden",· must be construed havingregard to the nature. of the statute; as ., the general law is that the burden of proof would be on the State. [Paras 16 and 17] [360-F; 361-B] c Cooperative Company Ltd. v. Commissioner of Trade Tax, U.P. 2007 (4) SCC 480, referred to.

1.5. The business activities relating to transaction of Mis. PF Company unless otherwise proved cannot bring

D the appellant within the purview of definition of 'dealer'.

If she was not a dealer, the professional fees earned by her would not be exigible to payment of sales tax; only because the appellant happens to be the proprietress of -\ Mis. TP Traders also. [Paras 19 and 20] [363-E, F]

E 1.6. Both the assessing officer as also the High Court had noticed not only the payment of income-tax during the relevant assessment years but also the certificates issued by Marine Products Export Development Authority and other documents. The High Court did not F take into consideration the contention of the appellant. '

,.,- that .by production of such documents the burden of proof, if any, has been discharged by her. Furthermore for attracting Section 12 of the Act the foundational facts must be established .. High Court committed a serious.

G. error in so far as it failed to draw a distinction between

the assessment under income tax and assessment under sales 'tax. Whereas i'ncome tax is levied OIJ income under I- .,. #> r" 1': .• • • ""' ' ' • • • ' the Income Ta>c' Act irrespective of the sources from which such an income had been derived, sales tax is

H levied on.ly on the quantum of sales and,. terefore,

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 355

KERALA

element of transaction of sale is pre-requisite for levy of A sales tax. Thus, the impugned judgment cannot be sustained and is set aside. The matter is remitted to the assessing authority to consider the matter afresh on the basis of the materials placed by the appellant. [Paras 21, 22, 24 and 25] [363-G-H; 364-A-C; 365-C-D] B

Girdhari Lal Nannelal v. The Sales Tax Commissioner; M.P. 1996 (3) SCC 701, referred to.

Case Law Reference:

2006 (3) sec 1

2001 (4) sec 480

1996 (3) sec 101

Referred to.

Referred to.

Referred to.

c Para 14

Para 16

Para 23

CIVIL APPELLATE JURISDICTION : Civil Appeal No.

D 6707 of 2008.

From the final Judgment and Order dated 4.8.2006 of the . High Court of Kerala at Ernakulam in ST Revision No. 74 of

2004 & RP No. 274 of 2007.

Puneet Bali, Hittan Nehra, Vibhav Jain and S.S. Jauhar for the Appellant.

P. V. Dinesh for the Respondent.

F i The Judgment of the Court was delivered by

S.8. SINHA, J. 1. Leave granted.

2. Appellant, Haleema Zubair, is an assessee under the Kerala General Sales Tax Act, 1963 (for short 'the Act'). She G is said to be the proprietress of two concerns, - one known as Mis. Tropical Traders and another .Mis. Poseidon Food Company.

3. The said Topical Traders is a dealer in ceramic tiles.

j j A The business of Mis. Poseidon Food Company was to render

~-- services to various exporters as regards inspection and certification of quality of the items sought to be exported. The total turnover for the purpose of payment of sa1es tax was disclosed on the basis of the business carried out in the name B of Mis. Tropical Traders. Whereas the taxable turnover was shown s 28,20,474.97, an addition of Rs.45,80, 168.09 thereto was niade oy the Assessing Authority assessing a_ sum of

Rs.3,58,87,960.97 by way of total turnover. The order of assessment proceeded on the basis that receipt shown as c commission amounting to Rs.45,80, 168.09 from M/s. Poseidon Food Company is not supported and proved by any documentary evidence. Appellant contended that the services -

so rendered is not a 'sale' and thus, the said order of ( • assessment is wholly illegal arid without jurisdiction. -o

4. An appeal was preferred thereagainst. Before the I appellate authority the appellant produced income-tax returns, orders of assessments passed by the income-tax officer, orders 1 placed by the exporters and the certificates granted by Marine Products Export Development Authority (MPEDA), Cochin.

5. By reason of an order dated 24th October, 2000 the first appellate authority upon noticing that the assessee had ~

~ produced copies of the certificates issued by the MPEDA, t Cochin and copies of letters issued by various parties

F requesting the appellant to inspect the goods to be exported,

hld that the professional services rendered to the exporters "\a

,..,

involving skill and knowledge did not constitute any 'transfer of property'. It was held that the levy of tax on the receipt of commission for the sum of Rs.45,80, 168.09 was not in order.

r- I The appellate authority for the purpose of assessment of tax , G r reduced the additional income which was added by the taxing I

authority in the taxable turnover from 5 % to 2% %. ..

6. Aggrieved by and dissatisfied therewith both the parties preferred appeals before the Sales Tax Appellate H Tribunal in terms of Section 12 of the Act.

_.-.;,

7. By ah order dated 20th February, 2003, the Tribunal A held as under :-

"We are afraid that the first appellate authority has not correctly understood the legal position involved. The observation of the first appellate authority that the sale for B valuable consideration alone is exigible to tax does not

'1 appear to be correct. As per Section 5(1 )(iii) of the KGST Act the consideration received in the case of transfer right to use any goods for any purpose is exigible to tax. We also notice that by a strange reasoning the first appellate c authority shifted the burden of proof regarding the taxability of the disputed receipt to the assessing authority, contrary to the provisions of Section 12 of the KGST Act, as per which the burden of proving that any transaction of a dealer is not liable to tax shall lie on the dealer. We do not think that the assessee was able to discharge this burden of D

proof as enjoined under Section 12 of the KGST Act. From -t the available materials on record the first appellate authority was therefore, not justified in deleting the receipt of Rs.45,80, 168/- from the turnover of the assessee. It follows that the order of the assessing authority in this regard as E

has also to be restored thereby allowing the State appeal to that extent."

8. Revision petition filed thereagainst by the appellant has

' -..,> been dismissed by the High Court by its order dated 4th F

' August, 2006, stating :-

"Even though Section does not provide a presumption that such unexplained amount represents sales turn over, we

_j have no doubt in our mind that the Assessing Officer is free to consider what exactly is the nature of receipt. If it is a G

~ net credit in the form of an income, it may even be possible ... for the officer to take it as income gross up the turn over

(sic) as representing unaccounted sales and assess the same. In this case, the officer has taken the amount as

-I unaccounted sales, which is probably the minimum H

damage that could be caused to the petitioner by virtue of Section _1.2 of the Act. lri. other words,-cwe uphold this addition as a necessary consequence of the petitioner's failure t6 explain the re'ceipt.in this acco.unt.''1 ' ·~: . '

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B . 9 .. A. review application filed. thereagainst has also been dis.mi.ssed_, byian order .. d.ated 221)d March, 2007'.: : ·

' - '• • ', '..... • ' ~· ' ., ' \ " .iot. •

10. 'Mr. Bll, learned counsel appearing on behalf of the appellant urged: ·, ·~ · ~· " f', • ' ' • : t. • ' ·

. (i) The learned Tribunal as also the High Court committed a serious error in so far as they failed to take into consideration that the appellant having

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'I' !, 1 ·~ '-; t • ."\ ~~ . produced documents to show that.two sister

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con'cerns of the appellant had'been carrying o'Ut two different bu.siesses, the income derived by one

c9ul<; ll1q~ .. ha:-:~ b~~I1cdd, d1-t9JheAle~. tur.noy:er,

l!ggh~, h~·?.us, i~~~~ of, ti1i9tn, yr;~foes. not ?ccasion any sale. ·

1 .a:\••rlt"sti-:-t'~- it~P' tifpri~ ·~ !1.-'7: -tri , nt.~~· tw 2:'v ·.(ii) .. Although.burden .. of, proof1in terms.ofSection"'.12, of fh.e)\'7; t is.on .the asessee bLlth.aving:reg_a, rd io .the ,. a.uthentic documents poduced by.the ppellant, the

.same must be .held to have' been discharged.

(iii)

I 1; r'. !i - \,,_. .c-1 ; r .,, r. t.r1.,....t 'J. Qj'\lt :.~·, ,, r~~ fhe orders oftheJearned Tribunal, as wellas the t , ·-' ·

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F. ..

- .. r• • Hig~ Col; l~.ar~.mC!n, ifestly erroneous in s.o far as tey failed to; take. into consideration the :distinction . . . . _, . . - ·. - ' . between an order of assessment under the Income Tax Act and the one.under the Sales Tax Act.

•i' ''

G . . 1-1nfy,1.r:. pinesh, !erned cour:isel appea, ring on; behalf of.the . respondent,. however, would draw.our.attention to the averments

 made .. jn.ttie review.application.which is to .te following effect:

"' ' - ... •f • ..- • . . . : . ,., , ' : . •

119: lh this connection, the petitioner is also producing a list bf' pers6h~/exportrs/imp, orters .'troni whom commission . as rciveq du!lng the perigd from ~1.4 .. 1988 to 31 .. 3.1988

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aggregating to Rs.45,80, 168.09. The above document A

~-'• .. , conclusively supported the petitioner's case that the sum of Rs.45,80, 168.09 is not liable to be assessed to Sales Tax. The petitioner was unable to bring the above documents and evidence before this Hon'ble Court at the

time of hearing of the Sales Tax Revision due to reasons 8 beyond control. The dismissal of Sales Tax Revision would result in great hardship and prejudice and unbearable ...., financial burden for the petitioner."

to submit that the said documents do not appear to have been c filed before the assesing authority and, thus, admittedly the appellant could not discharge the burden of proof cast upon her in terms of Section 12 of the Act.

12. The Act indisputably is a taxing statute. The jurisdiction of an assessing authority, therefore, is confined to assess tax D on taxable turnover. Its primary duty is to ascertain as to whether the figures furnished by'the assessee are correct or not.

13. Assessment of sales tax must be on sale of goods.

There is no bar in law for the same assessee to carry out E different businesses. If the contention of the appellant is correct, the business carried out by her of ceramic tiles involving transactions of sales and purchase has no connection with the professional services rendered by her to the exporters.

14. The sine qua non or the condition precedent for F

>-. --...> passing of an order of assessment is transaction of sale.

Professional service rendered does not constitute sale. Such a professional service rendered by a person attracts service tax, which is a different nature of tax, as has been held in Bharat Sancher Nigam Ltd. and another v. Union of India and others, G [ (2006) 3 sec 1 J, stati.ng :-

~ "84. As we have said Article 366(29-A) has no doubt ..)

served to extend the meaning of the word "sale" to the extent stated but no further. We cannot presume that the .

--.,

constitutional amendment was loosely drawn and must proceed on the basis that the paramters of "sale" were <;:arefully defined. But having said that, it is sufficient for the pLJrposes of this {udg-ment to find, as we 'do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the handset, if any. That and any other acce.ssory supplied by the service provider in our opinion remain to be taxed under the State sales tax laws. We have given the reasons earlier why we have reached this conclusion.".

15. It is true that in terms of Section 12 of the. Act th~ burden is on the assessee. The said provision reads thus :-

"12. Burden of proof. - (1) The burden of proving that any transaction of dealer is not liable to tax under this Act shall D lie on such dealer.

(2) Th~ burden of proving that the dealer has not received

~:,\>t; fairJmarket-:price on any transaction shall lie on such

r,"~, tdeciler, .:::i:->a.:~~'kcl. s1 i.: .. ! ..

, :"i ;(1;; ?i tni)·.; iqof.: 0n: !o rc1J;1:.. .• 1:'00 irt .. '- E .- ,; :,(3).Tbe.burden. of provingJhe genuinenes.s o.f the transport

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11oocis Js'in°'ffi.e 'aobu'roent~·-.· 0 re~~Hb.ie.a Jrfection 2.e. 'ifL 1l1•1V~••Jl,'~•c; fi11.:.ogli'. r.1:>._: ~··-it-ll~'l''.! B'!tO ;::o<:-11•·;:'.' .' C"\..':J_l.,<I•~.'. shall .he on such dealer.. . . . . • , Gl::iJJU._j.A~ Jll. 1:: ':::;>I•'(• 'r.s:)nt-. i?':::\.J1•:':82 lb 1.J1~~::ffJ1'~

G "16. In absence of any stipulatibHmade:in--tR€c'bntra~Foi

.saJ~ fp[ thrp, yrp_pe. qf.l~~Y- f115c~Je~}~.~ v?trrv~!~~· the .RevenueAuthor.rt1e$ must arrive at a fmd11:1g_asJowhether -·. ~~!• ~::.

V'i\.'\J ;:J •, ,' .;..r ; i1 ; 1 ·.1~_,.1 i :.jf :.~ }.\!" 1i;1.~ 1 JJ. ! •'")\/ ~•-i,~ : , fHf~:-.~.~~.~~n, .aJly rtiP 11, E?~,;9R~S!''?i?~Pt!r':3,~§ffo.~Wen of proof wherefor would be on the Revenue: Cons1derat1on H

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of (sic - for) a part of goods may be held to be a condition A precedent for constituting a sale, but therefore each case must be judged on its own facts."

17. Section 12 of the Act, however, places the burden on the assessee. The said provision would be attracted subject 8 to the condition that first, a transaction of sale has taken place; secondly that one of the parties thereto is a dealer.

18. A dealer has been defined in Section 2.(viii) to mean-

"(viii) "dealer" means any person who tarries on the c business of buying, selling, supplying or distributing goods, executing works contract, transferring the'right to use any goods or supplying by way of or as part of my service, any goods directly or otherwise, whether' for cash or for deferred payment, or for commission remuneration or other o valuable consideration and includes:

(a) xxx xxx xxx

' ~,' ).

(b) a casual trader; E

(c) a commission agent, a broker or a delcredere agent or an auctioneer or any other mercantile agent, by whatever name called, who carried on the business of buying, selling, supplying or distributing goods [executing works contract, transferring right to use any goods :r supf>Jyjng by way of F or as part of any service, any gq<jds]. ?r:i~ behalf of any principal; .., :.. '" ' ' 4

- -. ·. ' ri , 'r \'.• r .

(d) a non-resident dealer or an agent of 'a non-resident dealer, or a local branch ofa 1 firm or.company of association of body of persons ; ive~~.r i~~9, rpoated or not G situated outside the State; , • ' ;- ' ...

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(e) a person who, whether-in the course of business or not, sells; , •:, ·. j ',.

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:,~:~ .. -~~ (i), -~~9~.~_Pt~9ucec(:bY_ hif11 by rp_anufa~u_re,

. ;• , agriculture, horticulture or otherwise; or ... ·

• _...J . ._ _.. ' • .; ... l

I_...,.-...~;_,......;-;_; ..,\.... 1.._. "''°"! ...,·,'.~.... • <N 'f<tl •

""'i.., <.;; :(ii}'ttees1which'grov/sporitaneouslyand which are

• r"' , . agreed to be sevred before sale or un_der the

~·- . - contracf of sale;. '',- ', ... . .. " ..

... .__ ._.

I -}~ ~ :'.," -;' ' _ j t • -

, (f) a. perspn who whether in the course of business or not:

~ 1 .... i • 4 "" v ~, ..,, ,:, - o." ...

1 ' • ', JI '(f) 'transfers any goods, including c.ontrolled goods whether in pur~?nce of a contrac:; t or not, for cashor -· deferred pay'ment or other' valuable consideration; '.!. \.Ii. ' '\, -

(2) transfers property in goods (whether as goods

l or in some other form) involved in. the execution of

1a works contract :·, ' '' ' ' ' I.

(3) delivers .any goods. on hire-purchase or any system of payment by instalments; ~

(4) transfers the right to use any goods for any purpose (whether or not for a specified period) for .cash;. deferred .payment. or other valuat:>le

consideration; . . ..

(5) supplies, by way.of or as part of any service or in any other manner whatsoever, goods, being.food . or ny:other articles.for human consumption or any . drink "(whether or, not intoxicating), where .such

supply or service is.for cash, deferred payment or other valuable consideration);

Explanation.-(1) A society (including a cooperative society, club or firm or an association or body of persons, whether incorporated or not) which whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members for cash orfOr, deferred

payment, or for commission, retriuneration or other

~ '- A valuable consideration, shall be deemed to be a dealer for the.purposes of this Act;

Explanation.-(2} The Central Government or a State Government,. which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or B

...... otherwise, for cash or for deferred payment, or for 1 commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act.

(g) a bank or a financing institution which, whether c

in the course of its business or not, sells any gold or other valuable article pledged with it to secure any loan, for the realization of such loan amount;

Explanation 1.-Bank for the purposes of this clause D includes a Nationalised Bank or a Scheduled Bank or a • Co-operative Bank;

Explanation II. - Financing Institution means a financing institution other than a bank." E

19. The business activities relating to transaction of M/s.

Poseidon Food Company unless otherwise proved cannot bring the appellat within the purview of definition of 'dealer'. -

-,.J

20. If she was not a dealer, the professional fees earned F by her would not be exigible to payment of sales tax; only because the appellant happens to be the proprietress of M/s.

Tropical Traders also.

21. Both the assessing officer as also the High Court had G noticed not only the payment of income-tax during the relevant

;1assessment years but also the certificates issued by MPEDA, Cochin and other documents.

The High Court did not take into consideration the contention of the appellant that by production of such H

A documents the burden of proof, if any, has been discharged by her.

Furthermore for attracting Section 12 of the Act the foundational facts must be established.

22. The High Court furthermore committed a serious error in so far as it failed to draw a distinction between the assessment un9er income tax and assessment under sales tax . . Whereas income tax is levied on income under the Income Tax Act irrespective of the sources from yvhich such an income had C been derived, sales tax is levied only on the quantum of sales

and, therefore, element of trnsaction of sale is pre-requisite for levy of sales tax.

23. This aspect of the matter has been considered by this

0 Court in Girdhari Lal Nannelal V.

The Sales Tax

Commissioner, M.P. [ (1996) 3 SCC 701 ] wherein it was held:-

"7. The approach which may be permissible for imposing liability for payment of income-tax in respect of the unexplained acquisition of money may not hold good in sales tax cases. For the purpose of income-tax it may in appropriate cases be permissible to treat unexplained acquisition of money by the assessee to be the assessee's income from undisclosed sources and assess him as such. As against that, for the purpose of levy of sales tax it would be necessary not only to show that the source of money has not been explained but also to show the existence of some material to indicate that the acquisition of money by the assessee has resulted from transactions liable to sales tax and not from other sources.

Further, whereas in a case like the present a credit entry in respect of Rs. 10,000 stands in the name of the wife of the partner, no preumption arises that the said amount represents the income of the firm and not of the partner or l1is wife. The fact that neither the assessee-firm nor its partner or his wife adduced satisfactory material to show

the source of that money would not, in the absence of A anything more, lead to the inference that the said sum represents the income of the firm accruing from undisclosed sale transactions. It was, in our opinion, necessary to produce more material in order to connect the amount of Rs. 10,000 with the income of the assessee- B firm as a result of sales. In the absence of such material, the mere absence of explanation regarding the source of Rs. 10,000 would not justify the conclusion that the sum in dispute represents profits of the firm derived from undisclosed sales. " c

24. For the reasons aforementioned the impugned judgment cannot be sustained which is set aside accordingly.

25. The appeal is allowed. The matter is remitted to the assessing authority to consider the matter afresh on the basis D, of the materials placed by the appellant, namely - income tax returns, orders of assessment, certificates issued by MPEDA,

.;.

Cochin etc. The other documents filed by the appellant before the revisional authority may also be taken into consideration.

~-.' -+

The State, if so advised, may also file additional documents.

E, No costs.

N.J.

Appeal allowed.