2008 (8) TMI 847 - HC - VAT and Sales Tax

Addition to the turnover made in the sales tax assessment of the petitioners, confirmed by the Tribunal - Held that - Unless the estimation is found to be arbitrary and not based on any material, there is no scope for interference by this court. In one case, we find the assessing officer has made the estimation based on the suppressed turnover and in two levels on appeal, the first appellate authority and the Tribunal changed the pattern of addition based on declared turnover. In the other case, the addition to turnover is only a very small amount and that is based on the suppression noticed. So long as the estimation is made on a rational basis, there is no justification for this court in modifying the same in a revision proceedings where the jurisdiction is confined only to questions of law. Since the Tribunal is the final fact finding authority and since it has modified the orders of the first appellate authority reducing the addition, we do not find any ground to interfere with the order of the Tribunal. We therefore dismiss the Tax Revision Cases.

Summary

Issues:
Dispute over addition to turnover in sales tax assessment, compounding fee payment, rejection of books of accounts, estimation of turnover, burden of proof on Department, relevance of previous judgments, compounding of offense, estimation based on suppressed turnover, jurisdiction of revision proceedings.

Analysis:
The judgment of the court addressed the dispute arising from the addition to the turnover in the sales tax assessment of the petitioners, confirmed by the Tribunal. The petitioners, one dealing in arrack and toddy and the other in retail sale of Indian Made Foreign Liquor, had inspections revealing variations in physical stock with accounts, leading to admission of incorrectness and incompleteness of accounts. Both petitioners paid compounding fees after admitting non-maintenance of proper accounts, resulting in rejection of books of accounts and estimation of turnover by the assessing officer. Subsequent appeals led to reductions in turnover and tax liability. The petitioners argued that the Department must establish unaccounted purchase and sale of liquor to make additions to turnover, citing a previous decision. However, the court noted that the burden of proof lies on the Department regarding liquor sourced from places other than government agencies. The judgment highlighted the clandestine nature of illicit liquor trade and the need for dealers to account for purchases from authorized channels to avoid prosecution and forfeiture of licenses.

The court emphasized that the Lovely Thomas case's principles did not directly apply to the petitioners' cases, as the latter involved admission of incorrect accounts and compounding of offenses. The compounding fee payment rendered the accounts unreliable, leaving the assessing officer to estimate turnover. Various judgments were cited to support the practice of estimation post-rejection of accounts, with the assessing officer's estimation involving some guesswork. The court stressed that unless the estimation was arbitrary and lacked material basis, interference was unwarranted. In one case, estimation was based on suppressed turnover, while in another, it was a small amount due to suppression noticed. As the Tribunal, being the final fact-finding authority, had modified orders of the first appellate authority to reduce additions, the court found no grounds for interference in the revision proceedings limited to questions of law, ultimately dismissing the Tax Revision Cases.