2009 (7) TMI 1194 - HC - VAT and Sales Tax

Enhancement of turnover - Whether the Tribunal is legally correct in having affirmed the order of the first appellate authority while the assessee had claimed exemption from tax on the purchase of silver leg chains for ₹ 13,41,528 and sales of silver leg chains for ₹ 12,25,023 and, therefore, the burden of proof that those transactions were not liable to tax shall be upon the dealers as enjoined under section 10 of the Tamil Nadu General Sales Tax Act, 1959? Whether the order of the Tribunal is not having restored the penalty levied under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959, is legally sustainable? Held that - In the present case, as rightly pointed out by the Tribunal, the assessing officer cannot simply taking into consideration the report of the Enforcement Wing has not applied its mind, but simply has been carried away by the report of the Enforcement Wing and has come to the conclusion. As stated earlier, the assessing officer should have decided the matter on the merits, independently unbiased and uninfluenced by any other subsequent factors and also should not have stated that it is not a court of law. Therefore, the authority, i.e., assessing officer has basically committed a mistake in stating that it cannot conduct a court of law. Rightly this has been set aside both by the first appellate authority and the second appellate authority, who are also actual fact-finding authorities, rightly concluded that such an attitude of the assessing authority in totally rejecting the contentions of the assessee without applying the basic principles of law, is not legal and valid in law. Hence, the reasoning of the appellate authority is valid in law and we do not find any reason to interfere with the said findings. The question of law is answered against the Revenue.

Issues Involved:
1. Exemption from tax on the purchase and sale of silver leg chains.
2. Legality of penalty levied under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Exemption from Tax on the Purchase and Sale of Silver Leg Chains:
The assessee, a dealer in silver articles, reported a total turnover of Rs. 77,53,957 and a taxable turnover of Rs. 42,02,730 for the year 1993-94. The assessing officer disallowed the exemption claim for the sale of silver anklets amounting to Rs. 12,25,023 and taxed the turnover at 3% single point tax. Additionally, bought note purchases of new silver anklets worth Rs. 13,41,528 were disallowed, increasing the assessee's turnover to Rs. 25,68,258, with corresponding tax, surcharge, additional sales tax, and penalty.

The Appellate Assistant Commissioner, upon verification, allowed the appeal in full. The Revenue appealed to the Tribunal, citing discrepancies noted during an inspection by the Enforcement Wing Officer, such as the absence of stock of silver anklets and waist cords, and the non-maintenance of manufacturing-cum-stock account in form XXX. The Tribunal dismissed the Revenue's appeal, confirming the Appellate Assistant Commissioner's order, finding no bogus activities.

The Revenue further appealed, raising questions of law regarding the burden of proof for tax exemption claims and the Tribunal's decision not to restore the penalty. The court noted that the Revenue's appeal was against factual findings correctly decided by both lower authorities. The Tribunal had found that the Department did not follow principles of natural justice by denying the assessee the opportunity for cross-examination and failing to inform the assessee about unserved summons, thus vitiating the assessment order.

The court emphasized that the assessing authority acts in a quasi-judicial capacity and must evaluate evidence and apply the law impartially. The court referenced the Supreme Court's decision in P. Sarathy v. State Bank of India, which underscored the authority's power to summon witnesses, compel document production, and conduct cross-examinations. The court concluded that the assessing officer erred in not exercising these powers, leading to a flawed assessment process.

2. Legality of Penalty Levied Under Section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959:
The Tribunal and the Appellate Assistant Commissioner both found that the Department's failure to follow due process and provide the assessee with a fair opportunity to rebut allegations rendered the penalty unsustainable. The court agreed, noting that the assessment was based on inferences and assumptions rather than concrete evidence.

The court highlighted that the assessing authority must act independently and not be influenced by the Enforcement Wing's report. The failure to allow cross-examination and the improper handling of evidence and procedural requirements invalidated the assessment and penalty.

In conclusion, the court upheld the findings of the Appellate Assistant Commissioner and the Tribunal, dismissing the Revenue's appeal. The court reiterated the importance of following principles of natural justice and the quasi-judicial nature of the assessing authority's role, which includes the power to summon witnesses, compel document production, and conduct cross-examinations. The questions of law raised by the Revenue were deemed to be factual issues already decided correctly by the lower authorities, leading to the dismissal of the tax case.

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