2009 (6) TMI 933 - AAAR - VAT and Sales Tax

Summary

Issues Involved:

1. Validity of reassessment proceedings under the CST Act.
2. Correctness of the rejection of F forms by the assessing authority.
3. Legitimacy of the penalty imposed under section 12(3)(b) of the TNGST Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The reassessment proceedings were initiated based on an inspection report by enforcement officials, which suggested that the stock transfers to the Palakkad branch were actually inter-State sales. The initial assessment did not consider this report, and the reassessment was carried out without discussing the appellant's elaborate explanation. The reassessment order was passed mechanically, adopting the observations of the inspecting officials, leading to a demand of Rs. 31,60,393 in tax and a penalty of 150% of the assessed tax. The Tribunal upheld the reassessment, stating that the dealer failed to prove the exemption claim with proper documents. However, the reassessment was found to be based on a wrong assumption that the F forms were not filed, which was incorrect as the forms were available in the TNGST file.

2. Correctness of the Rejection of F Forms:

The Tribunal and the assessing officer wrongly assumed that the appellant did not file F forms. The F forms for the relevant months were found in the TNGST file, and the appellant had pointed out their availability in response to the show-cause notice. The first appellate authority noted that the appellant had filed the F forms, thereby discharging the burden of proof. Under section 6A of the CST Act, the dealer, by filing the prescribed F forms, discharges the burden of proving that the inter-State movement of goods was due to stock transfers and not sales. However, the reassessment did not address the correctness of these forms. The Supreme Court in Ashok Leyland Ltd. v. State of Tamil Nadu held that once F forms are accepted as correct, they conclusively prove the transaction as stock transfers. The reassessment could be reopened only on grounds of fraud or misrepresentation, which was not the case here. The Tribunal failed to verify the facts and wrongly assumed the non-filing of F forms.

3. Legitimacy of the Penalty:

The assessing authority levied a penalty of 150% of the differential tax under section 12(3)(b) of the TNGST Act, which was treated as merely consequential to the assessment. The Tribunal upheld the penalty, stating it was a clear case of suppression. However, section 12(3)(b) applies to original assessments, not reassessments. For reassessments, section 16(2) is relevant, which requires wilful nondisclosure of turnover. In this case, the entire turnover was disclosed, and the dispute was only about the nature of transactions (stock transfer vs. inter-State sale). The Authority's decision in Atlantic Foods v. State of Tamil Nadu clarified that penalty under section 16(2) is not applicable when the entire turnover is disclosed. Therefore, the penalty was set aside.

Conclusion:

The appeal was partly allowed. The reassessment was deemed valid, but the rejection of F forms was incorrect. The reassessment should have considered the F forms and other documents filed by the appellant. The penalty imposed was also set aside as it was not justified under the applicable legal provisions. The turnover attributable to direct inter-State sales was fixed at 25% of the disputed turnover, and the appeal was allowed for the remaining turnover.