2006 (7) TMI 638 - HC - VAT and Sales Tax

Summary

Issues:
Sales tax assessment under the Kerala General Sales Tax Act, 1963 for the year 1994-95; rejection of books of account; addition to turnover; compensation paid by petitioner to TISCO for goods found short in godown; petitioner's role as a consignment agent; sustainability of compensation amount as turnover.

Sales Tax Assessment and Rejection of Books of Account:
The case involved a tax revision arising from the Sales Tax Appellate Tribunal's order regarding the petitioner's sales tax assessment under the Kerala General Sales Tax Act, 1963 for the year 1994-95. The petitioner, a dealer in steel items, was managing the depot of TISCO at Willington Island and had to pay compensation to TISCO for goods found short in their godown. The assessing officer rejected the books of account and made an addition to the turnover, which was later reduced by the first appeal and further limited by the Tribunal to the actual compensation amount paid by the petitioner. The authorities suspected the shortage to be unaccounted sales by the petitioner, leading to the additions. The main issue was the rejection of books of account based on the compensation payment.

Role of Petitioner as Consignment Agent and Compensation Payment:
The authorities, including the assessing officer and the Tribunal, viewed the petitioner as a consignment agent of TISCO, but no turnover of sales made on behalf of TISCO was assessed. The petitioner's accounts were found true except for the compensation payment to TISCO for the shortage of goods in the godown managed by the petitioner. However, the High Court, upon examining the facts, accepted that the petitioner was only a godown keeper of TISCO based on a certificate from TISCO. The compensation paid by the petitioner was deemed unrelated to trading transactions, as it was due to lapses in maintaining the godown, not sales turnover.

Sustainability of Compensation Amount as Turnover:
The High Court determined that the compensation amount paid by the petitioner should not be considered as turnover, as it was not related to sales but to the petitioner's management of the godown. The Tribunal's decision to limit the addition to the compensation amount was upheld, emphasizing that the compensation did not represent sales turnover. The Court cited previous decisions to support the view that the compensation amount should be assessed at the hands of TISCO, not the petitioner. Ultimately, the Court allowed the tax revision case, canceling the addition sustained by the Tribunal, as the compensation payment was deemed unrelated to trading and not justifying the rejection of the petitioner's trading accounts.