2014 (4) TMI 877 - HC - VAT and Sales Tax

Nature of the transaction - paper transactions - sales of raw skins - Transfer of consideration to sister concern - whether taxable sale or not - Held that - Decision in State of Karnataka Versus Azad Coach Builders Pvt. Ltd. and another 2010 (9) TMI 879 - SUPREME COURT OF INDIA followed Tribunal s order cannot be accepted solely on the basis that the financial transactions with any finance company would ultimately decide the character of the transaction between the purchaser and the seller - All the dealings that the finance company had would be the arrangement that the dealer had with the finance company for bill discounting - Beyond that, the agreement with the finance company could be taken in as the basis for deciding whether at all there was any transaction of purchase or sale between the parties. The assessee does not deny the fact they had issued invoices in the name of the assessee herein in respect of the sale of dressed skins - The question as to whether there had been a taxable sale or not must be looked at from the facts other than the bill discounting transaction and the purchase ledger extract This does not supply the necessary proof that the assessee had no transaction at all except as a paper transaction - When the assessee was confronted with the documents, the proper course for the assessee was to place necessary materials to show that these transactions were only paper transactions - In the absence of any such proof and the burden not being discharged by the assessee, we have no hesitation in restoring the assessment Plea of the assessee that in the matter of calculating penalty, the AO ought not to have taken in the AST liability to work out the penalty at 150% - Decided partly in favour of revenue.

Summary

Issues:
1. Whether the Tribunal was right in ignoring bills of exchange showing the transfer of consideration on sales of raw skins between two companies.
2. Whether the Appellate Tribunal erred in holding there was no valid evidence of property transfer and in dismissing the existence of bills of exchange as mere negotiable instruments.

Analysis:
1. Issue 1:
- The Tax Case (Revision) involved two assessees, M/s.Golden Leathers and M/s.C.K. Sons Shoes, challenging the common order of the Tamil Nadu Sales Tax Appellate Tribunal.
- The substantial question of law in T.C.(R) No.84 of 2011 was whether the Tribunal was correct in disregarding bills of exchange indicating the transfer of consideration on sales of raw skins to the sister concern.
- The assessment years under consideration were 1994-95 and 1995-96, with the Assessing Authority revising the assessment based on inspection results and recovered statements of bills discounted with a finance company.

2. Issue 2:
- In T.C.(R) No.168 of 2011, the Appellate Tribunal was questioned on the validity of evidence regarding property transfer and the significance of bills of exchange.
- The Appellate Authority initially remanded the case for fresh orders, highlighting that the transactions were paper transactions to facilitate finance for the sister company.
- The Assessing Officer rejected the argument that the bills were for finance purposes only, emphasizing that the transaction had not been accounted for and added the turnover for assessment, including a penalty.
- The First Appellate Authority canceled the assessment on specific turnover but upheld it on others, leading to an appeal before the Sales Tax Appellate Tribunal.
- The Tribunal upheld the cancellation, considering bills of exchange as an accommodation and lacking proper evidence for the assessment, resulting in the Revenue's appeal and subsequent setting aside of the Tribunal's order.

3. Conclusion:
- The High Court found that the Tribunal erred in dismissing the Revenue's appeal based on the vendor's transaction with the finance company, ruling in favor of the Revenue and setting aside the assessment.
- The Court emphasized the need for proper proof to show transactions as paper transactions, ultimately restoring the assessment but adjusting the penalty calculation based on the absence of additional sales tax liability for the relevant years.
- The Court allowed the Tax Case (Revisions) filed by the Revenue, highlighting the importance of substantiating transactions beyond bill discounting agreements with finance companies for tax assessment purposes.