2013 (9) TMI 147 - HC - VAT and Sales Tax

Inter-State OR Intra-State Purchases - Despite a billed purchase by the petitioner the AO after formal enquiry branded the transactions of the petitioner with these dealers as fake one - Whether the Tax Board was justified in upholding that the intra-state purchases of Gwar split made by the petitioner assessee were intra-state purchases - Held that - The Tax Board had committed a manifest error of law in concluding that the sale transactions were intra-State and not inter-State, and that being so the question of law framed by this Court in all these petitions is decided in favour of the assessee and against the Revenue. On examining the assessment orders with bird s eye view it was amply clear that the assessing authority had not at all cared to verify the genuineness of the bills from the dealers of Gujarat and had categorized those bills as fictitious bills castigating the assessee for camouflaging the transaction - For arriving at the conclusion the enquiry procedure adopted by the assessing authority was per-se an empty formality - It was really strange that when the assesses had produced umpteen material before the assessing authority to show genuineness of the sale transactions why the assessing authority had shown utmost haste in drawing the drastic conclusion that the alleged inter-State transactions were sham and in fact are intra-State sale transactions. State of Kerala Vs. M.M. Mathew & Anr. 1978 (8) TMI 178 - SUPREME COURT OF INDIA - The methodology, which was pressed into service by the assessing authority for drawing this sort of conclusion solely on the basis of sample transaction and statements of truck owners and drivers prima facie falls short of the requisite enquiry for unearthing the truth - The Court was quite conscious about the fact that evasion of tax was a menace to the society and the revenue authorities acting as watchdogs were empowered to unearth truth for penalizing potential tax evaders - The Court cannot lose sight of a very vital aspect of the matter that no revenue authority should term a genuine sale transaction as a sham on mere conjectures and surmises. Before castigating an assessee for a fake, or spurious transaction, or for his conduct of evasion of tax, a proper and meaningful enquiry was utmost essential which confirmed adherence of principles of natural justice - The assessing authority while categorizing the inter-State sale transactions of the assessee as fake and spurious, had not made any endeavor to verify the facts from the traders of Ahmedabad, nor any effort was made by the assessing authority to examine account books of the dealers - It was a bare requirement for the assessing authority before drawing an inference that the alleged transactions were intra-State transaction and not inter-State transactions. The assessing authority were also required to be set at naught for deciding the matter afresh in the light of observations made by the Court - the matter was remanded back to the assessing authority for making assessment of the tax for the assessment years 1995-96, 1996-97 and 1997-98 afresh after affording reasonable opportunity of being heard to the assessee strictly in accordance with law - Decided in favour of Assessee.

Issues Involved:
1. Legitimacy of intra-state vs. inter-state purchases.
2. Procedural adherence and principles of natural justice.
3. Burden of proof regarding the nature of transactions.
4. Reliance on registration certificates for tax-free resales.

Detailed Analysis:

1. Legitimacy of Intra-State vs. Inter-State Purchases:
The primary issue was whether the purchases of Gwar split by the petitioner were intra-state or inter-state transactions. The petitioner argued that the transactions were inter-state, supported by the fact that the raw material was bought from registered dealers in Gujarat. The assessing authority, however, branded the transactions as intra-state, based on a superficial enquiry and statements from truck owners/drivers. The Tax Board upheld this finding, but the High Court found the methodology used by the assessing authority to be inadequate and not in line with established principles.

2. Procedural Adherence and Principles of Natural Justice:
The petitioner contended that the taxing authority did not conduct a thorough enquiry, nor did it inspect the account books of the registered dealers in Gujarat. The High Court emphasized that the assessment process must adhere to the principles of natural justice, including the right to cross-examine witnesses. The lack of such opportunities and the reliance on unverified statements were seen as significant procedural infirmities. The High Court cited various precedents, including Tata Engineering and Locomotive Co. Ltd. vs. Assistant Commissioner of Commercial Taxes Department and Kerala Glue Factory vs. Sales Tax Tribunal, to underline the necessity of a fair enquiry process.

3. Burden of Proof Regarding the Nature of Transactions:
The petitioner argued that the burden of proof to disprove the inter-state nature of the transactions lay with the department, especially since the petitioner had provided substantial evidence, including payment details and vendor information. The High Court agreed, referencing the case of Commissioner of Sales Tax U.P., Lucknow vs. Suresh Chand Jain, which held that the onus to disprove an asserted fact lies on the Revenue. The Court found that the assessing authority failed to verify the facts from the Gujarat dealers and wrongly categorized the transactions as intra-state based on insufficient evidence.

4. Reliance on Registration Certificates for Tax-Free Resales:
The petitioner relied on the registration certificates of the Gujarat dealers for tax-free resales. The High Court supported this reliance, citing the Supreme Court's decision in State of Maharashtra vs. Suresh Trading Company, which held that a purchasing dealer is entitled to rely on the registration certificate of the selling dealer. The Court found that the petitioner's transactions were conducted in good faith based on valid registration certificates, and any retrospective cancellation of these certificates should not affect the petitioner's right to tax-free resales.

Conclusion:
The High Court concluded that the Tax Board erred in upholding the assessment orders branding the transactions as intra-state. The Court quashed the impugned order and remanded the matter back to the assessing authority for a fresh assessment, emphasizing the need for a thorough enquiry and adherence to principles of natural justice. The revised assessment was directed to be completed within four months.

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