2010 (4) TMI 989 - HC - VAT and Sales Tax

Whether on the facts and in circumstances of the case can it be held that the Appellate Tribunal was right in law in holding that the respondent was a second dealer in superior kerosene and hence entitled for exemption from payment of tax? Held that - The order passed by the Commercial Tax Officer Sales Tax Checkpost Mukka Mangalore levying tax and imposing penalty and the order passed by the first appellate authority upholding the same are perfectly valid and justified on facts and on law and there was absolutely no reason for the Tribunal to have interfered with these well considered orders. The reasoning given by the Tribunal to set aside such orders and to allow the appeal is rather perverse on non-existent factual position and on untenable legal position and therefore the revision petition has to be inevitably allowed. In favour of revenue.

Issues Involved:
1. Correctness of the Karnataka Appellate Tribunal's order dated April 10, 2008.
2. Applicability of legal fiction under Explanation to section 28AA of the Karnataka Sales Tax Act.
3. Interpretation of Explanation to section 28AA of the Act.
4. Validity of the Tribunal's judgment in light of the Supreme Court's ruling in Gopalakrishna Shetty v. State of Karnataka.
5. Entitlement of the respondent to exemption from payment of tax as a second dealer in superior kerosene.

Issue-wise Detailed Analysis:

1. Correctness of the Karnataka Appellate Tribunal's Order:
The High Court reviewed the Tribunal's decision, which had set aside the tax and penalty levied by the Commercial Tax Officer and affirmed by the first appellate authority. The Tribunal reasoned that the goods were taxable as per the Karnataka Sales Tax Act, but the failure to surrender the transit pass within the stipulated time led to a presumption of local sale. However, the Tribunal concluded that the sale would be exempt as it was a second sale within the state, following the Supreme Court's judgment in State of Punjab v. Mulakh Raj Nand Lal.

The High Court found this reasoning flawed, stating that the Tribunal misunderstood the statutory provisions and the purpose of section 28AA. The High Court emphasized that the liability under section 28AA(4) and (5) is on the owner of the vehicle for failing to comply with the mandatory requirement of surrendering the transit pass.

2. Applicability of Legal Fiction under Explanation to Section 28AA:
The Tribunal held that since the respondent's vehicle was not hired by anyone, the legal fiction under Explanation to section 28AA did not apply. The High Court disagreed, clarifying that the statutory provision applies strictly to prevent revenue leakage by ensuring that goods in transit are not sold locally without tax.

3. Interpretation of Explanation to Section 28AA:
The Tribunal's interpretation that the owner of the vehicle could not be held liable due to the nature of the sale being a second sale was deemed incorrect by the High Court. The High Court reiterated that the statutory obligation to surrender the transit pass is on the transporter, and failure to do so attracts tax and penalty under section 28AA(4) and (5).

4. Validity of the Tribunal's Judgment in Light of the Supreme Court's Ruling:
The High Court noted that the Tribunal should have followed the Supreme Court's judgment in Gopalakrishna Shetty v. State of Karnataka, which upheld the tax and penalty under section 28AA(4) and (5). The Tribunal's reliance on other Supreme Court judgments was found inappropriate as they did not pertain to the specific facts of the case.

5. Entitlement to Exemption from Payment of Tax:
The Tribunal's conclusion that the respondent was a second dealer in superior kerosene and hence exempt from tax was rejected by the High Court. The High Court emphasized that the statutory provisions under section 28AA are clear and mandate tax and penalty for non-compliance with the transit pass requirement.

Conclusion:
The High Court allowed the revision petition, setting aside the Tribunal's order and restoring the order of the Commercial Tax Officer, Sales Tax Check-post, Mukka, Mangalore, as affirmed by the first appellate authority. The High Court found the Tribunal's reasoning perverse and unsupported by law or facts, reiterating the strict application of section 28AA to prevent tax evasion on goods in transit.

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