1986 (1) TMI 374 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Exemption Claim on Inter-State Purchases
2. Genuineness of Purchase Bills
3. Onus of Proof for Exemption
4. Compliance with Prior Tribunal and Court Decisions
5. Evidence of Payment to Mahe Dealers
6. Alleged Tax Evasion

Detailed Analysis:

1. Exemption Claim on Inter-State Purchases:
The primary dispute revolves around the exemption claimed by the assessee on a turnover of Rs. 5,45,406.90 related to inter-State purchases of pepper, arecanut, and ginger from Mahe dealers. The assessee argued that these purchases were made from Mahe and transported to Kerala, thus qualifying for exemption from local sales tax.

2. Genuineness of Purchase Bills:
The assessing authority found the purchase bills from Mahe dealers to be not genuine, citing the improbability of Mahe being a producing or marketing center for these commodities. The authority noted that Mahe's small size and lack of production capacity made it unlikely that such large quantities could be sourced from there. Additionally, certain bills lacked the sales tax check post seal, raising further doubts about their authenticity.

3. Onus of Proof for Exemption:
The onus of proving the exemption was on the assessee. The Deputy Commissioner (Appeals) upheld the assessing authority's decision, emphasizing that the mere production of purchase bills was insufficient without corroborative evidence such as proof of payment to the Mahe dealers. The Tribunal initially allowed the appeal but was later directed by the High Court to reconsider the case, stressing the importance of proving that the purchases were genuinely made from Mahe.

4. Compliance with Prior Tribunal and Court Decisions:
The High Court remanded the case back to the Tribunal, instructing it to consider the decision in T.A. No. 205 of 1970, which had rejected similar claims on the grounds that Mahe was neither a producing nor a marketing center for these commodities. The Tribunal's failure to incorporate this crucial decision into its analysis led to the High Court setting aside its order and remanding the case for fresh consideration.

5. Evidence of Payment to Mahe Dealers:
The Tribunal, in its reconsideration, held that the bills and books of accounts produced by the assessee were sufficient evidence of payment to the Mahe dealers. However, the High Court found this approach inadequate, emphasizing that additional evidence such as bank transactions or testimony from the Mahe dealers was necessary to substantiate the claims. The High Court noted that payments exceeding Rs. 2,500 per transaction should be made via crossed cheque or bank draft under section 40A(3) of the Income-tax Act, 1961, which the assessee failed to produce.

6. Alleged Tax Evasion:
The High Court concluded that the assessee had effectively evaded tax by falsely accounting local purchases as inter-State purchases from Mahe. The method of accounting adopted by the assessee was deemed a device to evade tax, thus justifying the assessing authority's decision to reject the exemption claim.

Conclusion:
The High Court allowed the tax revision case, affirming the assessing authority's inclusion of the disputed turnover in the taxable amount. The Court emphasized that the assessee failed to provide sufficient evidence to substantiate the claimed inter-State purchases from Mahe, thereby concluding that the transactions were local purchases aimed at evading tax liability. The petition was allowed without any order as to costs.