2011 (7) TMI 998 - HC - VAT and Sales Tax

Whether the sales turnover returned by the Petitioner was rightly rejected Held that - value fixed by the Commissioner for different varieties of timber for collection of advance tax are based on prevalent market value. It is common knowledge that the current price of timber that is, after 3-4 years of the relevant year, is more than double the price fixed by the Commissioner in the Circular based on which advance tax was paid by the Petitioner without contest. Petitioner has no case that there was decline in the price of timber after the issuance of Circular by the Commissioner. On the other hand, the steady demand of timber in the market is evident from the fact that Petitioner has nil closing stock. Assessing Officer, first Appellate Authority as well as the Tribunal rightly rejected the sales turnover declared by the Petitioner which was below the value declared at the entry Check Post where tax was paid on all consignments brought and sold in Kerala Estimation of gross profit - Tribunal adopted lower than the lowest percentage of gross profit declared by similar dealers Held that - gross profit addition is made to the purchase value declared by the Petitioner which is admittedly not the real purchase value but the value fixed by Petitioner. Tribunal s order that they have considered the market value of each and every variety of timber transported and sold by the Petitioner and the value fixed in the Circular issued by the Commissioner and has justified the assessment which is by making 12 per cent gross profit addition to the purchase value declared by the Petitioner himself. Revision cases are accordingly dismissed

Summary

Issues:
Challenge to assessment under Kerala Value Added Tax Act, 2003 for 2006-2007 based on rejection of books of accounts, estimation of turnover, and gross profit addition.

Detailed Analysis:

1. Rejection of Books of Accounts and Estimation of Turnover:
The Assessee, a timber dealer, imported timber from Malaysia to Kerala, paying advance tax at the Check Post based on values fixed by the Commissioner. The Assessing Officer rejected the Assessee's claim for refund, adding 12% to the purchase value for assessment. The Appellate Authority and Tribunal upheld this decision, considering market values and gross profit margins of similar dealers. The High Court found the rejection of books of accounts justified, as the declared purchase value was lower than the market value used for tax payment. The Tribunal's estimation of turnover at 12% gross profit was deemed rational and acceptable in law, leading to dismissal of the revision cases.

2. Gross Profit Addition and Market Value Assessment:
The Tribunal justified the 12% gross profit addition by comparing it to margins declared by similar traders, even though it was lower than the lowest declared percentage. The High Court concurred with this assessment, noting the market value of timber and the values fixed by the Commissioner for tax payment. The Assessee's declared purchase value, lower than the market value, led to the rejection of the turnover figures. The Court emphasized that the Assessee's accounting practices did not reflect the actual purchase costs, justifying the gross profit addition for accurate assessment.

3. Legal Principles and Precedents:
The Assessee relied on various decisions, arguing that the assessment should be based on declared turnover and books of accounts. However, the High Court clarified that the issue raised did not solely involve a question of law under the KVAT Act. The Court emphasized the importance of accurate valuation and tax payment based on market realities, rather than self-declared values. The Assessee's failure to contest the tax values at the Check Post hindered the department's ability to verify actual market values, justifying the gross profit addition for fair assessment.

4. Conclusion:
In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of accurate valuation for tax assessment. The rejection of books of accounts and the estimation of turnover based on market values and gross profit margins of similar traders were deemed reasonable and legally sound. The Court dismissed the revision cases, affirming the Tribunal's assessment and decision.