Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. _6707 OF 2008
(Arising out of SLP © No. 9606 of 2007)
Haleema Zubair, Tropical Traders …. Appellant
Versus
State of Kerala …. Respondent
J U D G M E N T
S.B. SINHA, J.
1. Leave granted.
2. Appellant, Haleema Zubair, is an assessee under the Kerala General
Sales Tax Act, 1963 (for short ‘the Act’). She is said to be the proprietress
of two concerns, - one known as M/s. Tropical Traders and another .M/s.
Poseidon Food Company.
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3. The said Topical Traders is a dealer in ceramic tiles. The business of
M/s. Poseidon Food Company was to render services to various exporters as
regards inspection and certification of quality of the items sought to be
exported. The total turnover for the purpose of payment of sales tax was
disclosed on the basis of the business carried out in the name of M/s.
Tropical Traders. Whereas the taxable turnover was shown as
28,20,474.97, an addition of Rs.45,80,168.09 thereto was made by the
Assessing Authority assessing a sum of Rs.3,58,87,960.97 by way of total
turnover. The order of assessment proceeded on the basis that receipt
shown as commission amounting to Rs.45,80,168.09 from M/s. Poseidon
Food Company is not supported and proved by any documentary evidence.
Appellant contended that the services so rendered is not a ‘sale’ and thus,
the said order of assessment is wholly illegal and without jurisdiction..
4. An appeal was preferred thereagainst. Before the appellate authority
the appellant produced income-tax returns, orders of assessments passed by
the income-tax officer, orders placed by the exporters and the certificates
granted by Marine Products Export Development Authority (MPEDA),
Cochin.
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5. By reason of an order dated 24 October, 2000 the first appellate
authority upon noticing that the assessee had produced copies of the
certificates issued by the MPEDA, Cochin and copies of letters issued by
various parties requesting the appellant to inspect the goods to be exported,
held that the professional services rendered to the exporters involving skill
and knowledge did not constitute any ‘transfer of property’. It was held that
the levy of tax on the receipt of commission for the sum of Rs.45,80,168.09
was not in order. The appellate authority for the purpose of assessment of
tax reduced the additional income which was added by the taxing authority
in the taxable turnover from 5 % to 2 ½ %.
6. Aggrieved by and dissatisfied therewith both the parties preferred
appeals before the Sales Tax Appellate Tribunal in terms of Section 12 of
the Act.
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7. By an order dated 20 February, 2003, the Tribunal held as under :-
“We are afraid that the first appellate authority has
not correctly understood the legal position
involved. The observation of the first appellate
authority that the sale for valuable consideration
alone is exigible to tax does not appear to be
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correct. As per Section 5(1)(iii) of the KGST Act
the consideration received in the case of transfer
right to use any goods for any purpose is exigible
to tax. We also notice that by a strange reasoning
the first appellate authority shifted the burden of
proof regarding the taxability of the disputed
receipt to the assessing authority, contrary to the
provisions of Section 12 of the KGST Act, as per
which the burden of proving that any transaction
of a dealer is not liable to tax shall lie on the
dealer. We do not think that the assessee was able
to discharge this burden of proof as enjoined under
Section 12 of the KGST Act. From the available
materials on record the first appellate authority
was therefore, not justified in deleting the receipt
of Rs.45,80,168/- from the turnover of the
assessee. It follows that the order of the assessing
authority in this regard as has also to be restored
thereby allowing the State appeal to that extent.”
8. Revision petition filed thereagainst by the appellant has been
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dismissed by the High Court by its order dated 4 August, 2006,stating :-
“Even though Section does not provide a presumption
that such unexplained amount represents sales turn over,
we have no doubt in our mind that the Assessing Officer
is free to consider what exactly is the nature of receipt.
If it is a net credit in the form of an income, it may even
be possible for the officer to take it as income gross up
the turn over (sic) as representing unaccounted sales and
assess the same. In this case, the officer has taken the
amount as unaccounted sales, which is probably the
minimum damage that could be caused to the petitioner
by virtue of Section 12 of the Act. In other words, we
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uphold this addition as a necessary consequence of the
petitioner’s failure to explain the receipt in this account.”
9. A review application filed thereagainst has also been dismissed by an
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order dated 22 March, 2007.
10. Mr. Bali, learned counsel appearing on behalf of the appellant urged :
(i) The learned Tribunal as also the High Court committed a serious
error in so far as they failed to take into consideration that the
appellant having produced documents to show that two sister
concerns of the appellant had been carrying out two different
businesses, the income derived by one could not have been added to
the sales turnover, although the business of the other does not
occasion any sale.
(ii) Although burden of proof in terms of Section 12 of the Act is on the
assessee but having regard to the authentic documents produced by
the appellant, the same must be held to have been discharged.
(iii) The orders of the learned Tribunal as well as the High Court are
manifestly erroneous in so far as they failed to take into consideration
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the distinction between an order of assessment under the Income Tax
Act and the one under the Sales Tax Act.
11. Mr. Dinesh, learned counsel appearing on behalf of the respondent,
however, would draw our attention to the averments made in the review
application which is to the following effect :
“9. In this connection, the petitioner is also producing
a list of persons/exporters/importers from whom
commission was received during the period from
1.4.1988 to 31.3.1988 aggregating to Rs.45,80,168.09.
The above document conclusively supported the
petitioner’s case that the sum of Rs.45,80,168.09 is not
liable to be assessed to Sales Tax. The petitioner was
unable to bring the above documents and evidence
before this Hon’ble Court at the time of hearing of the
Sales Tax Revision due to reasons beyond control. The
dismissal of Sales Tax Revision would result in great
hardship and prejudice and unbearable financial burden
for the petitioner.”
to submit that the said documents do not appear to have been filed before
the assessing authority and, thus, admittedly the appellant could not
discharge the burden of proof cast upon her in terms of Section 12 of the
Act.
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12. The Act indisputably is a taxing statute. The jurisdiction of an
assessing authority, therefore, is confined to assess tax on taxable turnover.
Its primary duty is to ascertain as to whether the figures furnished by the
assessee are correct or not.
13. Assessment of sales tax must be on sale of goods. There is no bar in
law for the same assessee to carry out different businesses. If the contention
of the appellant is correct, the business carried out by her of ceramic tiles
involving transactions of sales and purchase has no connection with the
professional services rendered by her to the exporters.
14. The sine qua non or the condition precedent for passing of an order of
assessment is transaction of sale. Professional service rendered does not
constitute sale. Such a professional service rendered by a person attracts
service tax, which is a different nature of tax, as has been held in Bharat
Sanchar Nigam Ltd. and another v. Union of India and others, [ (2006) 3
SCC 1 ], stating :-
“84. As we have said Article 366(29-A) has no
doubt served to extend the meaning of the word
“sale” to the extent stated but no further. We
cannot presume that the constitutional amendment
was loosely drawn and must proceed on the basis
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that the parameters of “sale” were carefully
defined. But having said that, it is sufficient for
the purposes of this judgment to find, as we do,
that a telephone service is nothing but a service.
There is no sales element apart from the obvious
one relating to the handset, if any. That and any
other accessory supplied by the service provider in
our opinion remain to be taxed under the State
sales tax laws. We have given the reasons earlier
why we have reached this conclusion.”
15. It is true that in terms of Section 12 of the Act the burden is on the
assessee. The said provision reads thus :-
“12. Burden of proof. – (1) The burden of
proving that any transaction of dealer is not
liable to tax under this Act shall lie on such
dealer.
(2) The burden of proving that the dealer has
not received fair market price on any transaction
shall lie on such dealer.
(3) The burden of proving the genuineness of
the transport of goods using the documents
prescribed in section 29, shall lie on such
dealer.”
16. A provision relating to “reverse burden”, must be construed having
regard to the nature of the statute; as the general law is that the burden of
proof would be on the State as has been held by this Court in Cooperative
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Company Ltd. V. Commissioner of Trade Tax, U.P. [ (2007) 4 SCC 480 ],
in the following terms :-
“16. In absence of any stipulation made in the
contract of sale for the purpose of levy of sales tax
or otherwise, the Revenue Authorities must arrive
at a finding as to whether there had been any
implied condition of transfer, burden of proof
wherefor would be on the Revenue. Consideration
of (sic – for) a part of goods may be held to be a
condition precedent for constituting a sale, but
therefore each case must be judged on its own
facts.”
17. Section 12 of the Act, however, places the burden on the assessee.
The said provision would be attracted subject to the condition that first, a
transaction of sale has taken place; secondly that one of the parties thereto is
a dealer.
18. A dealer has been defined in Section 2(viii) to mean –
“(viii) "dealer” means any person who carries
on the business of buying, selling, supplying or
distributing goods, executing works contract,
transferring the right to use any goods or
supplying by way of or as part of any service, any
goods directly or otherwise, whether for cash or
for deferred payment, or for commission
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remuneration or other valuable consideration and
includes:
(a) xxx xxx xxx
(b) a casual trader;
(c) a commission agent, a broker or a delcredere
agent or an auctioneer or any other mercantile
agent, by whatever name called, who carried on
the business of buying, selling, supplying or
distributing goods [executing works contract,
transferring right to use any goods or supplying by
way of or as part of any service, any goods] on
behalf of any principal;
(d) a non-resident dealer or an agent of a non-
resident dealer, or a local branch of a firm or
company of association of body of persons
whether incorporated or not situated outside the
State;
(e) a person who, whether in the course of
business or not, sells;
(i) goods produced by him by manufacture,
agriculture, horticulture or otherwise; or
(ii) trees which grow spontaneously and
which are agreed to be severed before sale
or under the contract of sale;
(f) a person who whether in the course of business
or not:
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(1) transfers any goods, including controlled
goods whether in pursuance of a contract or
not, for cash or deferred payment or other
valuable consideration;
(2) transfers property in goods (whether as
goods or in some other form) involved in
the execution of a works contract;
(3) delivers any goods on hire-purchase or
any system of payment by instalments;
(4) transfers the right to use any goods for
any purpose (whether or not for a specified
period) for cash, deferred payment or other
valuable consideration;
(5) supplies, by way of or as part of any
service or in any other manner whatsoever,
goods, being food or any other articles for
human consumption or any drink (whether
or not intoxicating), where such supply or
service is for cash, deferred payment or
other valuable consideration);
Explanation.-(1) A society (including a
cooperative society, club or firm or an association
or body of persons, whether incorporated or not)
which whether or not in the course of business,
buys, sells, supplies or distributes goods from or to
its members for cash or for deferred payment, or
for commission, remuneration or other valuable
consideration, shall be deemed to be a dealer for
the purposes of this Act;
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Explanation.-(2) The Central Government or a
State Government, which, whether or not in the
course of business, buy, sell, supply or distribute
goods, directly or otherwise, for cash or for
deferred payment, or for commission,
remuneration or other valuable consideration, shall
be deemed to be a dealer for the purposes of this
Act.
(g) a bank or a financing institution which,
whether in the course of its business or not,
sells any gold or other valuable article
pledged with it to secure any loan, for the
realization of such loan amount;
Explanation I. -Bank for the purposes of this
clause includes a Nationalised Bank or a
Scheduled Bank or a Co-operative Bank;
Explanation II. - Financing Institution means a
financing institution other than a bank.”
19. The business activities relating to transaction of M/s. Poseidon Food
Company unless otherwise proved cannot bring the appellant within the
purview of definition of ‘dealer’.
20. If she was not a dealer, the professional fees earned by her would not
be exigible to payment of sales tax; only because the appellant happens to
be the proprietress of M/s. Tropical Traders also.
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21. Both the assessing officer as also the High Court had noticed not only
the payment of income-tax during the relevant assessment years but also the
certificates issued by MPEDA, Cochin and other documents.
The High Court did not take into consideration the contention of the
appellant that by production of such documents the burden of proof, if any,
has been discharged by her.
Furthermore for attracting Section 12 of the Act the foundational
facts must be established.
22. The High Court furthermore committed a serious error in so far as it
failed to draw a distinction between the assessment under income tax and
assessment under sales tax. Whereas income tax is levied on income under
the Income Tax Act irrespective of the sources from which such an income
had been derived, sales tax is levied only on the quantum of sales and,
therefore, element of transaction of sale is pre-requisite for levy of sales tax.
23. This aspect of the matter has been considered by this Court in
Girdhari Lal Nannelal V. The Sales Tax Commissioner, M.P. [ (1996) 3
SCC 701 ] wherein it was held :-
“7. The approach which may be permissible for
imposing liability for payment of income-tax in
respect of the unexplained acquisition of money
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may not hold good in sales tax cases. For the
purpose of income-tax it may in appropriate cases
be permissible to treat unexplained acquisition of
money by the assessee to be the assessee's income
from undisclosed sources and assess him as such.
As against that, for the purpose of levy of sales tax
it would be necessary not only to show that the
source of money has not been explained but also
to show the existence of some material to indicate
that the acquisition of money by the assessee has
resulted from transactions liable to sales tax and
not from other sources. Further, whereas in a case
like the present a credit entry in respect of Rs.
10,000 stands in the name of the wife of the
partner, no presumption arises that the said
amount represents the income of the firm and not
of the partner or his wife. The fact that neither the
assessee-firm nor its partner or his wife adduced
satisfactory material to show the source of that
money would not, in the absence of anything
more, lead to the inference that the said sum
represents the income of the firm accruing from
undisclosed sale transactions. It was, in our
opinion, necessary to produce more material in
order to connect the amount of Rs. 10,000 with the
income of the assessee-firm as a result of sales. In
the absence of such material, the mere absence of
explanation regarding the source of Rs. 10,000
would not justify the conclusion that the sum in
dispute represents profits of the firm derived from
undisclosed sales. “
24. For the reasons aforementioned the impugned judgment cannot be
sustained which is set aside accordingly.
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25. The appeal is allowed. The matter is remitted to the assessing
authority to consider the matter afresh on the basis of the materials placed
by the appellant, namely – income tax returns, orders of assessment,
certificates issued by MPEDA, Cochin etc. The other doucments filed by the
appellant before the revisional authority may also be taken into
consideration. The State, if so advised, may also file additional documents.
No costs.
……………………….J.
( S.B. SINHA )
……………………….J.
( CYRIAC JOSEPH )
New Delhi
November 19, 2008
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