2008 (4) TMI 698 - HC - VAT and Sales Tax

Addition on account of unaccounted inter-State purchases Held that - The decisions of the Division Benches in Surya Agencies v. State of Kerala 2003 (8) TMI 524 - KERALA HIGH COURT and C.O. Varghese v. State of Kerala 2003 (2) TMI 474 - KERALA HIGH COURT restricting addition on account of suppression of inter-State purchases only for the value of actual suppression noticed is not correct law. We therefore overrule this view expressed by the Division Bench in the above two decisions. We further declare that once the accounts are found to be incomplete or incorrect on account of material defect found by the Department such as purchase or sales suppression whether it is local or inter-State the assessing officer is free to reject the books of account and proceed for estimation of turnover in accordance with the principles laid down in section 17(3) of the Act and the law declared by High Courts and Supreme Court. Since the petitioners have raised other issues particularly the reasonableness of the additions we feel the cases should go back to the Division Bench for considering these issues. We accordingly remit the cases to the Division Bench for decision on other issues consistent with the law declared above.

Summary

Issues:
Interpretation of the Kerala General Sales Tax Act, 1963 regarding suppression of inter-State purchases and estimation of turnover.

Analysis:
The revision petitioners, registered dealers under the Kerala General Sales Tax Act, were engaged in inter-State purchase of goods for sale in Kerala. The Department found suppression in accounting of inter-State purchases after verifying books of account with reference to goods entering the State through border check-posts. Despite modifications in the estimation of turnover, the Tribunal did not limit the addition on the ground of suppression to the actual amount found. The Division Bench referred the matter to a Full Bench to determine whether the limitation on addition for suppressed inter-State purchases is justified.

The Division Benches in previous decisions restricted additions to the actual suppression found by the Department, emphasizing the need for proof of further suppression to justify additional estimations. The Special Government Pleader argued that incomplete accounts due to suppression allow for estimation under section 17(3) of the Act. The Court disagreed with the Division Benches, highlighting the limitations of verifying all check-post records and the obligation of dealers to maintain complete accounts as per the Act.

The Court ruled that suppression of inter-State purchases affects the credibility of dealers, leading to incomplete accounts and unreliable returns. It held that once suppression is proven, the assessing officer can make best judgment assessments based on reliable materials gathered. The Court cited Supreme Court guidelines for best judgment assessments and rejected the notion that the Department could verify all check-post records to identify additional suppressions beyond detected ones.

The Court overruled the previous view, declaring that incomplete or incorrect accounts due to suppression empower the assessing officer to reject books of account and estimate turnover under section 17(3) of the Act. The cases were remitted to the Division Bench for further consideration on other issues. The decision emphasized the importance of maintaining complete accounts and rejected the notion of limiting additions to detected suppressions only.

This comprehensive analysis of the judgment addresses the interpretation of the Kerala General Sales Tax Act, 1963 concerning the treatment of suppressed inter-State purchases and the authority of assessing officers to estimate turnover based on incomplete accounts.