2008 (1) TMI 852 - HC - VAT and Sales Tax

Whether the Tribunal was legally justified in reducing the sale rate of sand at ₹ 30 without any basis on record? Whether, on the facts and circumstances of the case, the Trade Tax Tribunal is justified in estimating the taxable turnover below the royalty paid by the dealer inasmuch as the royalty paid by the dealer forms part of the taxable turnover of the dealer? Held that - In the present case quality of the sand which the dealer was to excavate would normally be known. The area of mining is also determined. It could thus, safely be concluded that the business of mining lease is a planned business and is not a business of unknown potential. Therefore, it would be difficult to hold that the turnover of sale under a mining lease would be less than the amount of expenditure involved in obtaining the lease for removal and sale of sand. This would be normal expectation of a businessman carrying on sand mining but it cannot be conclusively said that there cannot be any loss in mining activity. There may be loss because of litigation, there may be loss because of change of the route of the river, there may be loss on account of certain unforeseen circumstances. In the present case the explanation given by the dealer was a routine kind of explanation that the quality of sand was of low grade, there was water logging and the mining area was not even. None of the reasons given appears to be sound and acceptable. All these aspects cannot be said to have arisen after grant of lease but in fact existed when the dealer had applied for grant of lease. Nobody takes a lease with open eyes for suffering losses.The order of the Tribunal dated August 1, 2005 is set aside and the matter is remitted to the Tribunal for reconsideration in accordance with law and the observations made above.

Summary

Issues:
1. Whether the Tribunal was justified in reducing the sale rate of sand without basis?
2. Whether the Trade Tax Tribunal was correct in estimating the taxable turnover below the royalty paid by the dealer?

Analysis:
The judgment by the Allahabad High Court addressed three revisions filed by the Commissioner of Trade Tax under the U.P. Trade Tax Act, 1948 for the assessment year 1999-2000 concerning three different dealers engaged in sand mining. The primary issues raised were related to the Tribunal's decision to reduce the sale rate of sand and estimating the taxable turnover below the royalty paid by the dealers. The dealers had declared low selling rates of sand compared to the royalty paid, citing reasons like low-quality sand and logistical challenges. The assessing officer, while accepting the quantity of sand removed, estimated the selling rate higher and imposed tax liability based on pre-sale expenditure, following legal precedents like Dyer Meakin Breweries Ltd. v. State of Kerala.

The Joint Commissioner dismissed the dealer's appeals, but the Tribunal later allowed the appeals, setting aside the tax liability. The Standing Counsel argued that royalty and pre-sale expenses should be part of the taxable turnover, supported by legal decisions like Chiranji Lal Bhang Dealer v. Commissioner of Sales Tax and State of H.P. v. Gujarat Ambuja Cement Ltd. The Court emphasized that businesses aim for profits, and in the case of fixed-term mining leases, expenses are known upfront. The Court found the Tribunal erred in accepting the dealer's account books without proper scrutiny, as the reasons for low sales rates were not convincing. Citing legal precedents, the Court directed the Tribunal to reconsider the turnover calculation, including expenses and reasonable profit.

In conclusion, the Court set aside the Tribunal's order and remitted the matter for reconsideration in line with the law and observations provided. The revisions were allowed without costs.