2019 (4) TMI 1637 - HC - VAT and Sales Tax

Jurisdiction - inter-state sales - Whether in facts and circumstances of the case, there is any jurisdiction to infer estimation of an inter-State sale under the Central Sales Tax Act, 1956 in the absence of any evidence of movement against a particular order or direction? - levy of penalty under Section 16(2) of the Act. HELD THAT - The right to cross examination will occur only after the witnesses are examined in chief. Therefore, when notice is issued to the third parties by the Assessing Officer, the first requirement is to record a statement from the said person so summoned, after the statement is recorded and if there is any adverse remarks is made by the said third party, then the assessee is entitled to cross examine the third party on the imputations made by the third party against the petitioner/dealer. Unfortunately, the Tribunal did not make a follow up exercise to consider as to whether the findings are correct or not but was carried away by the findings of the Assessing Officer which infact was set aside by the First Appellate Authority. The Tribunal was expected to independently assign reasons as to why it is confirming or setting aside the order of the First Appellate Authority. The Tribunal also committed a serious error by drawing adverse inference against the petitioner/dealer on account of the absence of transporters before the Assessing Officer. It is the duty of the Department to record statement from the transporters and if there is any imputation against the petitioner/dealer, then he has to be afforded an opportunity to cross examine the third party before the statement can be relied on. The third party having not appeared before the Assessing Officer, the question of drawing adverse inference against the petitioner/dealer does not arise. Tax case revision allowed.

Summary

Issues:
1. Jurisdiction to infer estimation of an inter-State sale under the Central Sales Tax Act, 1956 without evidence of movement.
2. Justification of penalty levy under Section 16(2) of the Act.

Analysis:

Issue 1:
The case involved a Tax Case Revision filed by the petitioner/dealer challenging the Order of the Sales Tax Appellate Tribunal. The dispute arose from an assessment under the Central Sales Tax Act for the year 1995-96. The Assessing Officer suspected unaccounted transactions based on a D VII report and reopened the assessment. The petitioner denied the allegations, leading to a series of appeals and remands. The First Appellate Authority directed cross-examination of lorry booking office owners, emphasizing the need for evidence before drawing adverse inferences. The Tribunal later set aside the First Appellate Authority's order, prompting the High Court to intervene.

Issue 2:
Regarding the justification of penalty levy under Section 16(2) of the Act, the Court noted that the Department failed to produce sufficient evidence to establish the doubtful nature of transactions. Only 9 out of 338 transactions raised suspicions, with the petitioner proving the genuineness of 329 transactions. The Court emphasized that the burden of proof shifts to the Department once suspicions are raised, and adverse inferences cannot be drawn without proper evidence. The Court criticized the Assessing Officer for failing to understand the legal concept of drawing adverse inferences and reiterated the importance of cross-examination before making best judgment assessments.

In conclusion, the High Court allowed the Tax Case Revision, setting aside the Tribunal's order and restoring the First Appellate Authority's decision in favor of the petitioner/dealer. The Court highlighted the errors made by the Tribunal in not independently assessing the findings and drawing adverse inferences without proper evidence. The judgment emphasized the significance of evidence, cross-examination, and following legal procedures in tax assessments under the Central Sales Tax Act.