2008 (8) TMI 808 - HC - VAT and Sales Tax

Whether the composition of offence by the Collector under section 80(1) of the Punjab Excise Act 1914 on request of party concerned does not bind him to pay the sales tax and penalty under HPGST Act also? Held that - In a case of illegal activity where the liquor has been smuggled the assessee is not going to keep any records of the same. Therefore the Tribunal erred in holding that without proving the sales the sales tax could not have been levied. No law can be construed or interpreted in a manner which would give a premium or fillip to illegal activities. Once it is proved and accepted that liquor was smuggled into Himachal Pradesh the burden shifted upon the assessee and the department was absolutely right in observing that the liquor must have been sold and was therefore entitled to levy sales tax on the same. The question is answered in favour of the Revenue and against the assessee. The order of the Sales Tax Tribunal is set aside and the orders of the assessing officer and Commissioner are restored.

Summary

Issues:
Whether the composition of offence under section 80(1) of the Punjab Excise Act, 1914 binds a party to pay sales tax and penalty under HPGST Act.

Analysis:
The case involved an assessee who was a wholesaler of Indian-made foreign spirits and was found to have imported liquor into Himachal Pradesh through fake permits, defrauding the state exchequer. The assessing officer determined tax liability and penalty on the assessee, who later appealed but did not appear before the appellate authority. The appellate authority upheld the tax and penalty based on the partner's admission of collusion with distilleries. However, the Sales Tax Tribunal found the department's tax liability calculation on unverified and incomplete sales insufficient to hold the assessee responsible.

The High Court observed that it was proven beyond doubt that the assessee smuggled liquor through four consignments based on seized documents and the partner's admission, compounding the offence under the Excise Act. The burden then shifted to the assessee to prove the unsold status of the liquor, which they failed to do. The Court criticized the Tribunal's reasoning, stating that in illegal activities like smuggling, maintaining records was unlikely. Therefore, the Tribunal erred in requiring proof of sales before levying sales tax, as it would incentivize illegal activities. The Court upheld the department's decision to levy sales tax based on the smuggled liquor, setting aside the Tribunal's order and restoring the assessing officer and Commissioner's orders.

In conclusion, the High Court ruled in favor of the Revenue and against the assessee, emphasizing that once smuggling was established, the burden shifted to the assessee to prove the unsold status of the liquor. The Tribunal's requirement of proving sales before levying sales tax was criticized for potentially encouraging illegal activities. The orders of the assessing officer and Commissioner were upheld, with no costs imposed on the assessee.