2015 (5) TMI 379 - HC - VAT and Sales Tax

Jurisdiction of tax Board - Restoration of assessment order - Whether in construing the impugned transaction as sale and not lease, the learned Tax Board has exercised its jurisdiction appropriately for reversing the findings and conclusions of the first appellate authority and restoring the assessment order - Held that - Tax Board, while noticing a very vital fact that dish antenna and digital decoders are supplied by Essel Agro to the petitioner-assessee on refundable security of five years, with a clear stipulation under an agreement that these goods are not for sale, has finally concluded that in want of lease agreement between the petitioner-assessee and the respective dealers, it is difficult to presume that the transaction is a lease, and as such it is a transaction of sale. In fact, none of the authorities have made any endeavor to find out truth about the transaction and more particularly the second appellate authority while passing the impugned order has not recorded cogent and convincing reasons. The very edifice of initiating proceedings by the Anti-Evasion Wing of the Commercial Taxes Department is investigation and the alleged incriminating materials collected during investigation against the petitioner-assessee. There remains no quarrel that petitioner-assessee has received dish antenna, digital decoder and other accessories from Essel Agro on payment of advance security deposit and there is an agreement between Essel Agro and the petitioner-assessee. Customers clearly know the price they will have to pay for the beer. They are required to pay an additional amount by way of deposit for taking away the bottle which is refunded if the bottle is returned. If the bottle is not returned the deposit is retained as liquidated damages for the loss of the bottle. There is a clear intention not to sell the bottle. Hence, we are of the view that the deposit cannot be considered as price of the bottles. - Tax Board has not exercised its jurisdiction appropriately in reversing the findings and conclusions of the first appellate authority and restoring the original assessment order. - entire matter requires re-examination by the original assessing authority, which has initiated the assessment proceedings pursuant to investigation. It will be noticed that if the Sales-tax authorities refused the prayer of the assessees to cross-examine the wholesale dealers, then such a refusal would not amount to an adequate opportunity of explaining the material collected by the assessing authority. Imposition of penalty pre-supposes an attempt of the assessee to avoid payment of tax or evasion of tax by resorting to certain dubious means. Legal position is no more res integra that avoidance, or evasion of tax is a sine qua non for imposition of penalty under Section 65 of the Act of 1994. The question of evasion of tax arises only when there is a concrete material against assessee that it is liable to pay the tax, which he has avoided to pay or made an attempt to evade the same. - question of tax liability of the petitioner is still fluid, inasmuch as, the dish antenna and digital decoders which it has supplied to the respective dealers is sale transaction or a lease is yet to be determined, obviously, it is not possible to infer mensrea of assessee in evading the tax. Therefore, this question at this stage cannot be conclusively decided, however, prima facie, it is answered in affirmative manner favouring the cause of the assessee of course subject to the final outcome of denovo assessment. As such, at this juncture, imposition of penalty is out of question. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the transaction is a sale or lease.
2. Violation of principles of natural justice in the assessment order.
3. Justification for imposing penalty under Section 65 of the Rajasthan Sales Tax Act, 1994.

Detailed Analysis:

1. Whether the transaction is a sale or lease:

The primary contention revolves around whether the supply of dish antenna and digital decoders by the petitioner-assessee to third parties constitutes a sale or a lease. The petitioner asserts that these goods were supplied under a lease agreement with refundable security deposits and not as a sale, while the respondent-revenue contends that these transactions were outright sales. The assessing authority initially treated these transactions as sales and imposed VAT and penalties accordingly. However, the first appellate authority reversed this finding, concluding that the transactions were leases and not subject to VAT. The Tax Board later reinstated the original assessment, treating the transactions as sales.

The High Court scrutinized the intention behind the transactions, the conduct of the parties, and the terms of the contract, emphasizing the need to ascertain the true nature of the transaction. The Court referred to the precedent set in United Breweries Ltd. v. State of Andhra Pradesh, which highlighted the importance of the parties' intention and the nature of the agreement in determining whether a transaction constitutes a sale or a lease. The Court found that neither the first appellate authority nor the Tax Board had adequately examined these factors. Consequently, the Court concluded that the Tax Board had not exercised its jurisdiction appropriately in reversing the findings of the first appellate authority and that the entire matter required re-examination by the original assessing authority.

2. Violation of principles of natural justice in the assessment order:

The petitioner argued that the assessment order violated principles of natural justice as the petitioner was not allowed to cross-examine the dealers whose statements were used against it. The first appellate authority agreed, noting that the petitioner had not been given a reasonable opportunity to challenge the evidence presented by the revenue. The Tax Board, however, reversed this finding without adequately addressing the issue.

The High Court emphasized that principles of natural justice require that any material used against an individual must be disclosed to them, and they must be given an opportunity to rebut it. The Court referred to the Supreme Court's ruling in State of Kerala v. K.T. Shaduli Grocery Dealers, which underscored the necessity of allowing cross-examination to ensure a fair hearing. The Court found that the assessing authority's refusal to allow cross-examination constituted a clear violation of natural justice. The Court concluded that the first appellate authority's decision to set aside the assessment order on these grounds was justified, but it should have remanded the matter back to the assessing authority for re-examination rather than simply nullifying the order.

3. Justification for imposing penalty under Section 65 of the Rajasthan Sales Tax Act, 1994:

The petitioner contended that the imposition of a penalty was unjustified as there was no evidence of tax evasion or avoidance. The first appellate authority had set aside the penalty, finding no intent to evade tax. The Tax Board, however, reinstated the penalty.

The High Court noted that the imposition of a penalty under Section 65 requires evidence of tax evasion or avoidance, which implies a guilty mind or mens rea. The Court referred to the Supreme Court's ruling in Commissioner of Sales Tax, Uttar Pradesh v. Sanjiv Fabrics, which established that penalties are penal in nature and require proof of intent to evade tax. Given that the true nature of the transactions (sale or lease) was still undetermined, the Court found it premature to conclude that the petitioner had evaded tax. Therefore, the imposition of a penalty was deemed inappropriate at this stage.

Conclusion:

The High Court set aside the orders of the Tax Board and the assessing authority, partially set aside the order of the first appellate authority, and remanded the matter back to the assessing authority for re-examination. The assessing authority was directed to reassess the transactions, allowing the petitioner to cross-examine the witnesses and ensuring compliance with principles of natural justice. The Court instructed the assessing authority to decide the matter within three months, uninfluenced by previous findings, and to determine whether the transactions constituted a lease or a sale.