2008 (3) TMI 633 - HC - VAT and Sales Tax

Whether the authorities below have correctly assessed the petitioner and justifiably imposed the penalty? - Held that - The assessing officer as well as the higher authorities have proceeded on wrong premises with regard to imposition of penalty. It is wellsettled in law that the penalty necessarily follows from the determination of tax and nature of transaction. Be it placed on record that it is the sacrosanct duty of the Tribunal and authorities to examine the relevant facts and appreciate the legal provisions while deciding such question. In the case at hand, the assessee-petitioner had been contending that the transactions are branch transfer and thereafter the goods were utilised in the works contract. The provisions of sections 3 and 6A of the CST Act, 1956 cannot co-exist simultaneously since the provisions are contra-indicative. The onus is on the department to show that the transaction is an inter-State sale while the onus is on the dealer to show that the transaction is a branch transfer. Similarly for showing that the goods have been used in a works contract the necessary agreement either expressed or implied has to be looked into and scanned. While imposing penalty the show-cause notice was not given. A plea has been taken in the return there has been waiver. The concept of penalty has to be strictly construed and, therefore, the facet of imposition of penalty should not have been lightly dealt with by the authorities. Appeal allowed.

Issues Involved:
1. Assessment of tax liability and disallowance of inter-State sales.
2. Imposition of penalty without providing an opportunity to the petitioner.
3. Correct interpretation of inter-State sales under Section 3(a) of the CST Act, 1956.
4. Consideration of evidence and documents in support of inter-State sales.

Issue-wise Detailed Analysis:

1. Assessment of Tax Liability and Disallowance of Inter-State Sales:
The petitioner, a registered company under the Indian Companies Act, 1956, was assessed for the year 1992-93 under the Madhya Pradesh Commercial Tax Act, 1994, with an initial tax liability of Rs. 6,15,38,551, later reduced to Rs. 5,64,68,015 after rectification. The assessment was further revised, reducing the liability to Rs. 5,12,89,521. The primary contention was the disallowance of inter-State sales, which the petitioner claimed were wrongly assessed as stock transfers. The petitioner argued that the transactions were inter-State sales under sub-clause (29A) of Article 366 of the Constitution of India and thus not liable to state sales tax. The authorities, however, contended that the petitioner failed to produce sufficient documentary evidence to support the claim of inter-State sales, leading to the assessment being treated as stock transfers.

2. Imposition of Penalty Without Providing Opportunity to the Petitioner:
The petitioner argued that a penalty of Rs. 3,06,98,368 was imposed without any concealment or inaccurate particulars and without affording an opportunity to be heard. The respondents countered that the petitioner had waived the right to receive notice under Section 43 read with Rule 33 of the Rules, justifying the penalty imposition. The court noted that the imposition of penalty must follow the determination of tax and the nature of the transaction, emphasizing the need for a show-cause notice and proper examination of facts before imposing a penalty.

3. Correct Interpretation of Inter-State Sales Under Section 3(a) of the CST Act, 1956:
The court examined whether the authorities correctly assessed the transactions as inter-State sales. The petitioner cited various judicial pronouncements, including Sahney Steel and Press Works Ltd. v. Commercial Tax Officer and South India Viscose Ltd. v. State of Tamil Nadu, to argue that the transactions should be considered inter-State sales if there is a conceivable link between the contract of sale and the movement of goods from one state to another. The court agreed that the assessment required re-scrutiny to determine if the transactions were indeed inter-State sales under Section 3(a) of the CST Act, 1956.

4. Consideration of Evidence and Documents in Support of Inter-State Sales:
The petitioner claimed that the transactions were inter-State sales and that the necessary documents were either submitted or could not be produced due to the age of the transactions. The respondents argued that the petitioner failed to provide conclusive evidence, leading to the assessment as stock transfers. The court emphasized the need for a detailed examination of the evidence, including the assessment orders from other states and any additional documents the petitioner might provide. The court directed the Board of Revenue to re-examine the matter, considering all relevant documents and legal provisions.

Conclusion:
The court set aside the final authority's order and remitted the matter to the Board of Revenue for a comprehensive re-evaluation. The Board was instructed to scrutinize all documents and provide detailed reasons for their decision. The court also highlighted the improper handling of the penalty imposition, stressing the need for strict adherence to legal provisions and procedural fairness. The writ petition was allowed to the extent indicated, with no order as to costs.

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