2024 (8) TMI 1485 - HC - VAT / Sales Tax

Challenge to order of assessment was passed on self-assessment basis, accepting the returns filed - Denial of exemption on the ground of second sales of cashew kernels - Penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 - burden to prove - HELD THAT - Admittedly, the petitioner has not produced any material, barring invoices, to establish purchases from the alleged sellers. No attempt was made at any stage of the proceedings to produce the three entities who are stated to have effected sales to the petitioner. Moreover, the enquiry conducted by the respondents has established that the dealer registration numbers furnished by the petitioner belonged to other registered dealers and not the entities named as sellers by the petitioner. The burden of proving a transaction falls upon the entity making the claim in respect of that transaction and thus, the onus of establishing a claim of second sales falls solely upon the dealer making such claim. Section 10(2) specifically states that 'Notwithstanding anything contained in this Act or in any other law for the time being in force, a dealer in any of the goods liable to tax in respect of the first sale or first purchase in the State shall be deemed to be the first seller or first purchaser as the case may be of such goods and shall be liable to pay tax accordingly on his turnover of sale or purchase relating to such goods, unless he proves that the sale or purchase, as the case may be of such goods had already been subjected to tax under this Act.' In the present case, the dealer could well have produced the alleged vendors to support the claim of second sales. This was never done at any stage of the proceedings and hence of the categoric view that there is nothing to support the assessee's contention in this regard. In Govindan Co. 1974 (2) TMI 69 - MADRAS HIGH COURT , there was an inspection of that assessee's premises. Clarifications were sought in regard to certain purchases and the explanation put forth by Govindan and Co., was that the purchases had been made from 12 dealers. Since that dealer had not been in a position to prove the purchases, that turnover had been estimated and brought to tax. Actual payment of the tax at the point of sale is not necessary to establish a second sale. However, in the present case, the petitioner has not discharged the burden of proving the first sale and thus can draw no benefit from the ratio of Govindan and Co. In light of the discussion supra, the concurrent conclusion of the authorities in rejecting the claim of second sales is unassailable and we uphold the same. The admitted facts on record establish the position that the petitioner has (i) consciously put forth a claim of exemption on second sales (ii) furnished the details of fictitious dealers in support of the aforesaid claim (iii) the supporting particulars submitted are false to the knowledge of the petitioner as no attempt was made to produce those dealers before the authorities for confirmation of the alleged first sales. The aforesaid factual position would establish fully that the matter falls within the four contours of the phrase 'wilful non-disclosure of assessable turnover'. Hence, the levy of penalty upheld as well. This writ petition is dismissed.

Summary

Issues:
1. Claim of exemption on second sales of cashew kernels.
2. Violation of principles of natural justice in not furnishing inspection report to the assessee.
3. Burden of proof in a transaction or turnover of a dealer.
4. Failure to establish the first sale and the burden of proving a claim of second sales.
5. Applicability of penalty under Section 16(2) for wrongful claim of exemption.

Detailed Analysis:
1. The petitioner, a dealer in cashew kernels, claimed exemption on second sales of cashew kernels purchased from alleged sellers. However, the assessing authority found discrepancies in the transactions, stating that the sellers were fictitious and bogus, leading to the denial of the exemption claim. The petitioner failed to produce material or the alleged vendors to support the claim of second sales, and the registration numbers provided belonged to other dealers. The burden of proof in such transactions falls on the dealer, as per Section 10 of the Act, and the petitioner did not discharge this burden effectively.

2. The petitioner argued a violation of principles of natural justice for not providing the inspection report during assessment or appeal. However, the court noted that the burden of disproving the claim of second sales falls upon the dealer, as per Section 10 of the Act, and not on the revenue. The failure to establish the first sale and produce evidence supporting the claim led to the rejection of the exemption claim.

3. Section 10 of the Act places the burden of proof on the dealer to establish the liability of a transaction for tax assessment. The court emphasized that the burden of proving a claim of second sales falls solely upon the dealer making such claim. The petitioner's failure to provide substantial evidence supporting the first sale undermined the claim of exemption on second sales.

4. The court highlighted that the burden of proving a transaction falls upon the entity making the claim, and the petitioner did not produce the alleged vendors to substantiate the claim of second sales. The court referenced previous judgments to emphasize that establishing the fact of the first sale is crucial for claiming second sales exemption, irrespective of whether tax was actually paid by the first seller.

5. Regarding the penalty under Section 16(2) for the wrongful claim of exemption, the court upheld the levy of penalty as the petitioner consciously made a false claim of exemption on second sales, provided false supporting particulars, and did not attempt to produce the alleged dealers for confirmation. The court found this to constitute "wilful non-disclosure of assessable turnover," justifying the penalty.

In conclusion, the court dismissed the writ petition, upholding the concurrent findings of the authorities in rejecting the claim of second sales exemption and justifying the penalty for the wrongful claim.