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TMI Blog2018 (6) TMI 1632X X X X Extracts X X X X X X X X Extracts X X X X ..... inal proceeding and penalty would not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. It was further observed that penalty should not be imposed merely because it is lawful to do so and it would be a matter of discretion to be exercised judicially, upon consideration of all relevant circumstances. However, the mere fact that there was disagreement between the Members of the earlier Bench of the STAT is not enough to make the subject issue so contentious as to extend the benefit of the above decisions to HLL.-Significantly, the levy of penalty on HLL under the proceedings dated December 28, 1998 was not for the first time. The earlier levy of penalty was set aside by the ADC and the matter was remanded back to the CTO to be decided along with the quantum addition - There was no necessity for the CTO to again call upon HLL to explain as to why it should not be visited with penalty, as the order of remand covered both the quantum addition as well as the penalty. In consequence, passing of the assessment order and the penalty order on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated October 24, 1992, the ADC opined that a fresh probe had to be conducted into the issue of whether the purchase of shrimps by HLL was in the course of export and set aside the assessment. He remitted the matter to the assessing authority for fresh enquiry. As the assessment was set aside and the levy of penalty would depend upon the tax liability, the ADC set aside the penalty proceedings and remanded the penalty issue also, without going into the merits of such levy. Aggrieved by these orders of remand, HLL preferred appeals in T. A. Nos. 766 and 767 of 1993 before the STAT. Therein, HLL contended that the ADC' had failed to give a finding on the main issue as to whether there was any purchase of shrimps by it at all and even so, such purchase, if any, ought to have been accepted as having been made in the course of export. By order dated March 18, 1996 in T. A. No. 766 of 1993, the STAT confirmed the remand of the case to the assessing authority, with the following directions : The C. T. O. should thoroughly scrutinize the contents of the various debit notes or invoices covering the disputed turnover for deciding whether thee appellant purchased the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of catch and the catch was nothing but shrimps. In the Memorandum of Understanding (MoU), there was no mention that HLL was holding orders from foreign buyers for purchase of shrimps and that it was intending to take trawlers on charter from UCIL for catching shrimps. Clause 3 of the agreement also stated that HLL would co-operate with UCIL in the operation of the trawlers and would purchase all the catch from the four trawlers as per clause 8 thereof. Sale of shrimps was mentioned in the agreement in clause 10 also. 6. Referring to the aforestated earlier findings of the assessing authority, the CTO, Hydernagar Circle, held that as HLL deliberately suppressed the turnover of ₹ 89,34,625 pertaining to purchase of shrimps in its returns though it was taxable in its hands and as UCIL had raised debit notes issued each month against HLL with the endorsement Amount payable by you for sale of catch as per agreement dated October 12, 1984 , it was proved beyond doubt that HLL had paid sums for purchase of shrimps only as it could not substantiate its argument to the contrary with documentary evidence. As this turnover was liable to suffer sales tax in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , T. A. Nos. 103 and 104 of 2001 were heard by the Bench comprising honourable Sri Justice P. Lakshmana Reddy (Retired), Chairman, and Sri S. A. Kareem, Departmental Member. By separate orders dated February 16, 2005, the members of the Bench differed with each other. The Chairman opined that the notice dated December 15, 1998 issued by the CTO did not satisfy the mandatory requirement of issuing a pre-assessment show-cause notice before final assessment and therefore, the final assessment order dated December 28, 1998 was not sustainable. As regards the levy of penalty, the chairman opined that the CTO completely misunderstood the observations of the STAT and as he did not issue any show-cause notice to HLL prior to passing such an order, the penalty of ₹ 27,02,725 imposed upon HLL was also unsustainable in law. The Chairman further pointed out that neither of the assessing authorities, be it during the first assessment or the subsequent one, found that any particular quantity of shrimps was purchased by HLL from UCIL and as only purchase of shrimps was taxable and fish were exempted, there could be no guarantee that the entire catch delivered by UCIL to HLL would be only sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o bore the element of sale. In the light of these documents, the Bench opined that it was for HLL to disprove the inference drawn by the Revenue there- from to the effect that there was sale of shrimps by UCIL to HLL. Holding that the contract between the parties in its totality clearly indicated sale of the catch and as HLL failed to produce its books of account or any other documentary evidence, the Bench opined that there was no necessity for the CTO to issue a fresh show-cause notice, as the matter had been remitted for fresh consideration. The Bench also found no grounds to interfere with the penalty, as HLL had wilfully suppressed the transaction and was caught out only when documents were procured from UCIL by the Revenue. Both the appeals were accordingly dismissed vide the common order dated November 24, 2008, presently under revision. 12. At the time of admission of these revisions, the questions of law raised were not determined under section 22(4) of the Act of 1957. Upon consideration of the record and the arguments of the learned counsel for the parties, this court frames the following questions of law : (1) Whether the understanding of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be initially for a period of five years. The parties may extend the charter for another period of five years on terms and conditions to be mutually agreed upon at the expiry of the first charter period. (3) HLL will appoint a marine surveyor to ensure maintenance of class of vessels in accordance with ABS classification prior to the commen cement of the lease agreement. (4) In consideration for the charter, HLL will pay to UCIL rental and other charges as may be agreed upon. (5) Both HLL and UCIL will obtain all necessary approval from their shareholders, Government and other statutory authorities for the arrange ment contemplated herein. It is understood between the parties that this memorandum of understanding will remain in force up to May 31, 1985, unless extended for a further period by mutual agreement. 14. It was further stated that the MoU only summarized the intentions and verbal discussions between HLL and UCIL and that it was the intent of the parties to enter into a formal contract which would embody a charter hire and the usual terms and conditions. The Agreement for sale of catch was executed by the parties o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cost of HSD oil, lubricating oil, spare parts used in the repair of trawlers, nets and gears, salary and other payments (including incen tives) paid to the master and the crew, supplies including provision for the crew, paints, ropes, refrigerant pilotage, berthing charges and port dues relating to the operation of the said trawlers. In respect of these actual expenses UCIL shall submit invoices to HLL within seven days of the expiry of each month and HLL agrees to make the payments within seven days of the submission of the invoices. (c) All taxes and duties in respect of the sale transactions here under will be to HLL's account. 15. Clause 9 provided that HLL would not be liable to pay UCIL any charge or compensation other than payment for the catch, as determined in the manner set out in clause 8, and for this purpose, UCIL would keep for HLL detailed records of all costs incurred on the trawlers and maintain necessary accounting staff to compile these records. Clause 10 stated that it was understood and agreed that HLL would purchase the entire catch from the trawlers in their capacity as a recognised export trading house and would process the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dated November 23, 1984. It reads as under : 23rd November, 1984 Debit note M/s. Hindustan Lever Limited, Lever House, 165/166 Backbay Reclamation, Bombay 400 020. Debit Note No : HLL/3/84 Date : 23/11/84 Amount payable by you for sale of catch as per agreement dated 12/10/84 for the month October, 1984. Rs. (A) As per clause 8(a) of the agreement . . . 3,06,331 (B) As per clause 8(b) of the agreement . . . 4,22,721 Total 7,29,052 Less : Advance received from you on 26/10/84 3,55,000 Balance due from you 3,74,052 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of them nugatory, it is the former that should be adopted on the principle expressed in the maxim ut res magis valeat quam pereat as what has to be considered is whether it is possible to give effect to all the clauses in question. 21. In Union of India v. D. N. Revri and Co. [1976] 4 SCC 147, the Supreme Court observed that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it and it would not be right while interpreting a contract to apply strict rules of construction which are ordinarily applicable to formal documents. It was further observed that the meaning of such a contract must be gathered by adopting a commonsense approach. 22. In State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 (SC) ; [1985] AIR 1985 SC 1293 ; [1985] Supp SCC 280, the Supreme Court observed that a document cannot be interpreted by picking out only a few clauses ignoring other relevant ones. 23. In Provash Chandra Dalui v. Biswanath Banerjee [1989] Supp 1 SCC 487, the Supreme Court affirmed that the best interpretation is made from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of conside ration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied-the bare minimum to achieve this goal. If the contract makes business sense without the term, the courts will not imply the same. The following passage from the opinion of Bowen, L.J. in Moorcock [1889] LR 14 Pd 64 (CA) sums up the position : (PD page 68) '. . . In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the tran saction as must have been intended at all events by both parties who are businessmen ; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances'. 26. In the light of the aforestated principles, the issue essentially boils down to the transaction entered into by HLL with UCIL and what they intended by it. HLL would claim that it merely chartered UCIL's trawlers on l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions would be to HLL's account. Clause 9 of the agreement is equally damaging to HLL's claim of the transaction being one for mere rental of trawlers. Therein, the parties recorded that HLL was not liable to pay UCIL any charge or compensation other than payments for the catch as set out in clause 8. Clause 10 recorded that it was agreed that HLL would purchase the entire catch from the trawlers and would process the same and export it in its own name. 29. Construction of the agreement, as projected by Sri S. Dwarakanath, learned counsel, would mean that HLL chartered UCIL's trawlers on lease, paid the entire operational expenses, inclusive of the crew who would be provided by UCIL, and paid a lump sum amount of ₹ 3,55,000 towards the lease rental for the four trawlers per month, and by way of such trawling operations during the month, whatever fish, shrimps or other marine life were caught would belong to HLL itself. 30. However, in the light of the afore stated clauses, it is clear that HLL did purchase the catch each month from UCIL and the consideration therefor was included in the lump sum payment of ₹ 3,55,000. Though its clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said agreement records a transaction different in nature from that contemplated in the MOU. In effect, the agreement dated October 12, 1984 seems to stand independently and the transaction thereunder does not take its colour completely from the MOU. The terms in the agreement, already discussed supra, clearly bear out that what was agreed upon was the purchase of catch by HLL from UCIL from only four out of its six trawlers. 32. Further, the fact cannot be lost sight of that though UCIL's debit notes always recorded that the amount was payable by HLL for sale of the catch as per the agreement dated October 12, 1984, HLL never objected to this nomenclature. This, in itself, is sufficient to indicate that HLL did not contest the nature of this sale transaction and the consideration paid. 33. It is clear from clause 8(a) of the agreement dated October 12, 1984 that the parties adopted the method of a lump sum consideration being paid by HLL to UCIL. This sum of ₹ 3,55,000 was inclusive of the lease rental payable by HLL to UCIL for the trawlers and also the purchase price for the shrimps delivered by UCIL to HLL during that month. As no material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court observed that when accounts were called for during the course of the enquiry and the same were not produced, the assessing authority was entitled to draw an adverse inference owing to such non-production. Hence, an adverse inference was justified when HLL failed to comply with the direction of the STAT to produce documentary evidence as called upon by the assessing authority. 35. Another issue that is raised by HLL is that it was for the Revenue to prove the taxable event but the assessment proceeded only on the failure of HLL to produce its books of account, thereby placing the burden upon it. The failure to issue a show-cause notice prior to the fresh assessment assumes significance in the context of this argument. It may however be noticed that the whole issue came to light only because of the material found by the Revenue during inspection of UCIL's premises and the documents found were sufficient to prove the taxable event, viz., the agreement dated October 12, 1984 and the debit notes raised by UCIL against HLL. This material was sufficient to prove that HLL had paid money to UCIL for purchase of shrimps/prawns. Thereupon, the onus shifted at that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2), the assessing authority shall give the dealer a reasonable opportunity to explain the omission to disclose the turnover and shall make such enquiry as he considers necessary. Section 14(8) states that the penalty levied under sub-section (2) thereof shall not be less than three times but may extend to five times the tax due in a case where the assessing authority is satisfied that the failure of the dealer to disclose the whole or part of the turnover or any other particulars correctly was wilful and shall not exceed one half of the tax due in a case where such failure was not wilful. The proviso thereto states that where such failure occurred due to a bona fide mistake on the part of the dealer, no penalty shall be levied. 37. In Mahaveer Bangles v. Commercial Tax Officer, Tarapet, Vijayawada [1993] 91 STC 168 (AP) [FB] ; [1993] 17 APSTJ 98, a Full Bench of this court observed that there is no legal sanctity to the plea that levy of penalty must be simultaneous with the making of a best judgment assessment. In the context of section 14(2) of the Act of 1957, it was observed that in tax laws, penalty provisions are meant to be deterrents against tax evasion and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the levy of penalty would be broadly the same, i.e., furnishing of an incomplete or incorrect return, sometimes the assessee may find it useful to press into service the findings/ observations in the assessment order so as to support his plea that it is not a fit case for levy of penalty, even going by such findings. The assessee may therefore take the plea that by reason of simultaneous levy of penalty, the assessee denied the opportunity of taking aid from the contents of the assessment order to the extent they help him and to avoid such objections, it would be desirable, as far as practicable, that penalty proceedings are concluded after assessment is made. However, no proposition was laid down that a penalty order passed simultaneously with the assessment order would be vitiated and the Bench observed that it would depend upon the facts and circumstances of each case. 38. In the light of the afore stated principles and as there is no embargo in the statutory scheme as to passing of orders of assessment and penalty simultaneously, it would essentially depend upon the individual facts of the case to decide the correctness of such procedure. Presently, when the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the correct position of law was not free from doubt as to the status of transport subsidy in relation to taxable turnover and when the assessee had a bonafide belief that such a subsidy was not includible in the turnover, the same could not be the basis for levy of penalty as they had not acted deliberately in defiance of law and that their conduct was neither dishonest nor in conscious disregard of their statutory obligation. 42. Later, in Larsen Toubro Ltd. v. CCE [2007] 9 RC 1 ; [2007] 9 SCC 617, the Supreme Court, while dealing with levy of penalty on the ground of suppression, held that acts of fraud or suppression must be specifically pleaded and allegations in regard to suppression of facts must be clear and explicit so as to enable the noticee to reply thereto effectively. On facts, the Supreme Court found that the issue in relation to which penalty was levied was a debatable one and it was not a case of suppression by the appellant. On similar lines, in Viceroy Hotels Limited v. Commercial Tax Officer [2011] 43 VST 424 (AP) ; [2011] 52 APSTJ 147, a Division Bench of this court accepted that when there was no fraud or wilful neglect established in the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day, viz., December 28, 1998, does not amount to a vital irregularity. 44. Even otherwise, the facts bear out that but for the inspection of UCIL's premises and detection of the agreement dated October 12, 1984 and the supporting material, the non-disclosure of purchase of shrimps by HLL from UCIL would not have come to light and HLL would have gotten away with suppression of this transaction. Such a deliberate and wilful act of non-disclosure therefore attracted penalty and as there were no mitigating circumstances, the levy of highest penalty also cannot be found fault with. 45. On the above analysis, this court finds no merit in the claims of HLL. The questions of law are answered against it as under : Question No. 1 is answered in the affirmative. As regards question No. 2, this court holds that the transactions under the MoU and the agreement dated October 12, 1984 were on different lines and the transaction under the agreement dated October 12, 1984, which was actually acted upon, was also for purchase of shrimps by HLL from UCIL and not for lease of trawlers only. In consequence, question No. 3 is answered holding that the payments made by HLL u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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