2005 (7) TMI 614 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the assessment order imposing sales tax on cash transfers.
2. Burden of proof for establishing sales tax liability.
3. Credibility of the petitioner's claim regarding cash transfers from Jaipur to Delhi.
4. Impact of the compounded levy scheme in Rajasthan on sales tax revenue in Delhi.
5. Validity of the sales tax authorities' conclusions based on suspicion and conjecture.

Detailed Analysis:

1. Legality of the assessment order imposing sales tax on cash transfers:

The Sales Tax Officer imposed sales tax on the cash transfer of about Rs. 406 crores, assuming that the petitioner had brought gold from Jaipur and sold it in Delhi. This assessment was upheld in revision by an order dated August 6, 2004, and a penalty of Rs. 4 crores was also imposed. The petitioner challenged these orders on the grounds that the respondents misdirected themselves in law, resulting in an unwarranted assessment based on assumptions not supported by material evidence.

2. Burden of proof for establishing sales tax liability:

It is trite that sales tax in Delhi can be levied only on the sale of taxable goods in Delhi. The burden of proving that sales have taken place in Delhi is on the Revenue and not on the assessee. The Supreme Court in Girdhari Lal Nannelal v. Sales Tax Commissioner held that for imposing a liability of sales tax, the Revenue must establish that the amount represents the profits of the assessee and that it resulted from transactions liable to sales tax. The onus of proving both ingredients is on the Revenue.

3. Credibility of the petitioner's claim regarding cash transfers from Jaipur to Delhi:

The petitioner claimed that due to the inability of Jaipur banks to handle large volumes of cash, it transferred cash to Delhi. Adequate material, including toll tax receipts, newspaper articles, and certificates from the Rajasthan Gold Bullion Merchant Association, supported this claim. The petitioner's books, which were not doubted, showed cash deposits in Delhi banks. The court found sufficient evidence to support the petitioner's contention that cash transfers were necessary due to banking limitations in Jaipur.

4. Impact of the compounded levy scheme in Rajasthan on sales tax revenue in Delhi:

The compounded levy scheme in Rajasthan adversely affected sales tax revenue in Delhi, compelling the Delhi Government to reduce the sales tax rate on bullion. The Finance Minister of Delhi acknowledged this impact in his budget speech, and the rate of tax was reduced to half paisa in a rupee by a Notification dated November 20, 2002. This reduction aimed to prevent the diversion of trade from Delhi and ensure revenue realization.

5. Validity of the sales tax authorities' conclusions based on suspicion and conjecture:

The court found that the sales tax authorities' conclusions were based on suspicion and conjecture rather than material evidence. The authorities assumed that the petitioner sold bullion in Delhi because it could not prove sales in Rajasthan. However, the sales tax authorities in Rajasthan had accepted the petitioner's returns, and there was no material evidence to suggest that the petitioner transferred gold to Delhi for surreptitious sale. The court emphasized that suspicion cannot take the place of proof in tax matters.

In conclusion, the court held that the impugned order dated March 31, 2001, and the order passed in revision dated August 6, 2004, were not sustainable in law. The writ petition was allowed, and the orders were quashed. No costs were awarded.

Writ petition allowed.