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TMI Blog2001 (1) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... ad (hereinafter, "the first appellate authority"). On an analysis of the record, the Appellate authority held that the assessee was a purchaser of finished beedies and was never a purchaser of beedi leaves let alone the last purchaser. Consequently the appeals were allowed and the revised assessment orders and consequent penalties set aside. (4) By the orders under appeal the Commissioner of Commercial Taxes exercising revisional power under section 20(1) of the Act invalidated the appellate orders in respect of all the five assessment years. While directing that the cost of the beedi leaves shall be subjected to sales tax at the hands of the assessee and at the quantum assessed by the C.T.O., the revisional authority confirmed the orders of the appellate authority to the extent the latter set aside the penalty orders for the five years. 3.. This batch of appeals arise from the revisional orders of the Commissioner of Commercial Taxes dated September 24, 1994, passed under section 20(1) of the Act. 4.. The contentions urged by Sri P. Chandrasekhar, learned counsel for the appellant, inter alia, in brief, are as under: (i) The assessee's agent, M/s. Balaji Co., having paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined. Penalty was also imposed. This determination was arrived at on a finding that the assessee-firm paid the value of beedi leaves to M/s. Balaji Co., Kisannagar, which amounts to purchase of beedi leaves and the assessee thus figures as the last purchaser in the State thus liable to pay tax on the beedi leaves as per item 18 of the Second Schedule of the Act. A finding was also recorded that the assessee-firm supplies tobacco mixture along with other packing material except beedi leaves to M/s. Balaji Co., who in turn hands over the particular brand "No. 1521" beedies to the assessee-firm and collects labour charges, duty (excise duty paid on behalf of the assessee) and the value of the beedi leaves and that this factum is evident from the entries at page 21 of Ledger Folio of the assessee for the assessment year 1985-86. (D) As against the above order the assessee preferred an appeal to the first appellate authority. By the order dated December 2, 1992 the Appellate Deputy Commissioner (C.T.) allowed the appeal. The first appellate authority analysed the ledger extract (L.F. 21 of the ledger for the year 1985-86) and found that the entries indicate certain amounts having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive assessment years 1985-86 to 1989-90) called upon the assessee to file its objections against the proposal to set aside the orders of the first appellate authority and restore the orders of the assessing authority dated March 20, 1992 including of the penalty levied for all the assessment years. The show cause notice was issued on the stated premise that the assessee is a seller of beedies and the last purchaser of beedi leaves in the State to the extent of value of beedi leaves involved in the transaction of beedies. The show cause notice also stated that the orders of the first appellate authority are prejudicial to the interests of Revenue. (F) The assessee submitted a detailed memorandum of objections to the aforesaid show cause notice. The assessee categorically stated that it has not purchased any beedi leaves so as to be fastened with the liability to pay tax on such purchases, the actual purchase of beedi leaves was by M/s. Balaji Co., on whom the liability to pay sales tax vests, M/s. Balaji Co., is an assessee on the rolls of C.T.O., Nizamabad-II and has been assessed to and paid tax on the purchase of beedi leaves made by him, for all the five assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the wording of the agreement that M/s. Balaji Co., were to be paid commission for getting the beedies manufactured. Naturally, since they were also procuring beedi leaves on behalf of the assessee, they should be paid the cost of the beedi leaves on behalf of the assessee, they should be paid the cost of the beedi leaves. They should also be paid the excise duty, as they would be remitting the same on behalf of the assessee. It is to be noted that beedies were not being sold by M/s. Balaji Co., to the assessee; in which case, there will be only one single consolidated price. If certain goods were supplied by the assessee to M/s. Balaji Co., for the manufacture of the beedies, then credit could be taken for the value of the goods like tobacco and accounts settled. This is the procedure adopted for all contractors by the P.W.D. and others. If such were the position, then the situation would be that of a seller and a buyer of beedies. It is very clear from the agreement that it was not so. M/s. Balaji Co., were commissioned to manufacture beedies. They were being paid for getting beedies manufactured. They were buying beedi leaves on behalf of the assessee, who paid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment has been made demonstrably on the basis of the record available with the initial assessing authority and no fresh material was either available or analysed in reopening the assessment. Reliance for this contention was placed on the decisions of this Court in Fatechand and Sons v. Commercial Tax Officer [1983] 54 STC 166, State of Andhra Pradesh v. Ratna Sree Box Makers [1989] 75 STC 82 and Girdharlal Company v. State of Andhra Pradesh [1995] 97 STC 442. The aforesaid two contentions, we decline to adjudicate in the light of our decision, on an analysis of other and substantive questions. 9.. Relying on the decision of this Court in State of Andhra Pradesh v. Loharu Steel Industries Limited [1995] 96 STC 369, it is urged on behalf of the appellants that the revisional order is vitiated by violation of principles of natural justice. The contention, in specie, is that any exercise of powers under section 20 of the Act by the revisional authority could only be on the grounds mentioned in the show cause notice as else the rationale underlying the requirement of affording reasonable opportunity would be subverted. The factual complaint in this area is that the show cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 10, 1987 between the assessee and M/s. Balaji Co., focussing on the expression "commission" employed in the said agreement. In substance, the revisional order identified the meaning of the said expression by a lexicographic approach. Finding the terms of the agreement different from the terms adopted in contracts of the Public Works Department and others, the revisional authority concluded that M/s. Balaji Co., were not the suppliers/sellers of beedies to the assessee, but were mere commission agents for the manufacture of beedies. M/s. Balaji Co., were buying the beedi leaves on behalf of the assessee and were collecting the cost of the beedi leaves apart from the cost of the labour and packing charges, is another finding. 14.. The task of construction/interpretation of contracts is by no means, as simple a task, as would, at first blush, appear. It is as delicate and complex an exercise as is construction and interpretation of statutory instruments. The object sought to be achieved in construing any contract is to ascertain what the actual intentions of the parties were as to the legal obligations each assumed by the contractual words in which they sought to express t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account or other material disclose the existence of a relationship different from that agreed upon by the written instrument. What then are the terms of the written agreement? 19.. The terms of the written contract between the parties as contained in the agreement dated September 10, 1987, construed as a whole, to the extent relevant and material for the purpose of the case, are to the following effect: (A) Both the parties are registered dealers under Andhra Pradesh General Sales Tax Act and Central Sales Tax Act, as also licence holders under the Excise Act. (B) The assessee has requested M/s. Balaji Co., to manufacture beedies on their behalf for the specified brands on commission basis due to labour problems and other practical difficulties encountered by the assessee resulting in inability to continue manufacture of beedies at Nizamabad in respect of its brand names. (C) M/s. Balaji Co., has accorded consent to manufacture the required quantity of beedies on commission basis and has accordingly been so manufacturing the beedies since August 23, 1985 onwards on commission basis and supplying the same to the assessee. (D) M/s. Balaji Co., shall be res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-firm and collect labour charges, duty, etc., and the value of beedi leaves, as is evident from L.F. page 21 of the assessee. It is this finding, viz., that the accounts disclose payment of specific amounts towards cost of beedi leaves by the assessee to M/s. Balaji Co., that influenced the decision that the assessee is the last purchaser of beedi leaves in the State and therefore liable to tax. 22.. The first appellate authority by the orders dated December 2, 1992 however categorically recorded that there has been no purchase at all of beedi leaves at the hands of the appellants as per the material evidence placed on record and further that the manufacturer (M/s. Balaji Co.) has supplied finished beedies ready for sale to the appellants and not the beedi leaves as assumed by the revisional authority, without any basis. The first appellate authority categorically recorded the finding as under: "...................Thus, having regard to the fact that the beedi leaves required for manufacture of beedies put to sale by the appellant-firm were in fact purchased by M/s. Balaji Co., who were duly assessed to tax by the departmental authorities, according to their term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einforces the view that it is M/s. Balaji Co., and not the assessee, who is the last purchaser of beedi leaves in the State. 25.. The purchase of beedi leaves by the assessee should be found to have been the primary object of the transaction and the intention of the parties, to fall within the tax net. As expounded by the Supreme Court in Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314: "Mere passing of property in an article or commodity during the course of performance of the transaction in question does not render the transaction to be transaction of sale. Even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work, and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it" 26.. In the case on hand, we find no material to sustain the assumption that purchase of beedi leaves by the assessee from M/s. Balaji Co., was the primary intendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." This provision came to be interpreted on successive occasions and it is uniformly held that the ingredient of "prejudice to the interests of revenue" must necessarily exist to justify the exercise of power under section 263 of the 1961 Act-vide: Commissioner of Income-tax, Mysore v. Narayana Pai [1975] 98 ITR 422 (Kar); Russell Properties Pvt. Ltd. v. A. Chowdhury, Additional Commissioner of Income-tax, West Bengal [1977] 109 ITR 229 (Cal), Commissioner of Income-tax, Madras v. Royal Textiles [1979] 120 ITR 506 (Mad.), V.G. Krishnamurthy v. Commissioner of Income-tax, Karnataka II [1985] 152 ITR 683 (Kar), Jagadhri Electric Supply and Industrial Co. v. Commissioner of Income-tax [1987] 166 ITR 143 (P H); Commissioner of Income-tax v. Smt. Minalben S. Parikh [1995] 215 ITR 81 (Guj); and Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 243 ITR 83 (SC). 32.. In Shivaputrappa Channappa Mungoli v. Agricultural Income-tax Officer [1986] 160 ITR 123, the Karnataka High Court construed section 35(1) of the Karnataka Agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. If so-and we think it is so-the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income-tax authorities is liable for the income thereof." 35.. The principle enunciated Smt. Tara Devi Aggarwal [1973] 88 ITR 323 (SC) was applied by Paripoornan, J., for the Kerala High Court (as he then was) in Malabar Industrial Co. v. Commissioner of Income-tax [1992] 198 ITR 611 and the decision in Malabar Industrial Co. [1992] 198 ITR 611 has been approved by the apex Court in [2000] 243 ITR 83. 36.. The contours of the revisional power under section 263 of the 1961 Act have been succinctly outlined in the judgment of the Gujarat High Court in Commissioner of Income-tax v. Smt. Minalben S. Parikh [1995] 215 ITR 81: "..................it can well be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 246 (Raj); Bombay Ammonia Pvt. Ltd. v. State of Tamil Nadu [1976] 37 STC 517 (SC). 40.. Judicial dicta have also conditioned the exercise of revisional power under section 263 of Income-tax Act by holding that the condition precedent for initiating proceedings under section 263(1) by the Commissioner is that Commissioner should not only record a finding that the order of the assessing officer was prejudicial to the interests of the Revenue, but he should also mention in the order the material on the basis of which he has arrived at the conclusion and that non-recording the reasons by the Commissioner would vitiate any order that the Commissioner may pass in exercise of his powers under section 263, vide: Commissioner of Income-tax v. Sunderlal [1974] 96 ITR 310 (All.); Commissioner of Income-tax v. R.K. Metal Works [1978] 112 ITR 445 (P H) and Commissioner of Income-tax, Patiala-II v. Chawla Trunk House [1983] 139 ITR 182 (P H). 41.. In the case on hand, the Commissioner of Commercial Taxes has categorically recorded in para 7 of the order that there was no loss of revenue to the Government by way of sales tax by sale of beedi leaves. The record also clearly evidences the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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