30. Can assessment order be modified, when matter is remanded back in appeal on the issue not related to appeal proceedings?

Held : Not after limitation period for revision

An interesting question came before the Kerala High Court. The appellant was assessed for the period 1987-88, and this order was subject matter of appeal. The appellate authority decided the appeal in April 1995 allowing it partly and remanded back to the assessing authority and directed modification. While giving effect to the appeal order, the Assessing Officer noticed that the sale of industrial gases is taxed at the rate of tax seven per cent, as against the correct rate of tax is eight per cent. The Assessing Officer issued a notice and proposed to tax the same at the rate of eight per cent. The petitioner did not reply to the notice. The Assessing Officer therefore passed an order giving effect to the appeal order and taxing the sale of industrial gases @8%.

Being aggrieved with this order appeals were filed, being unsuccessful in both the appeals, appellant came before the High Court. The appellant submitted that rate of tax on industrial gases was not an issue raised in appeal filed against the assessment order. The issue therefore is whether in the course of giving effect to the appellate order in terms of sec. 34(4) of KGST Act, the officer is free to modify the assessment enhancing the rate of tax beyond the time prescribed u/s 19(1) or 43(1) of the KGST Act.

Section 19(1) & (3) of KGST Act has given authority to Assessing Officer to in relation to turnover or in relation to rate of tax to revise the assessment. The Assessing Officer can revise the assessment not covered by the decision in appeal. The petitioner did not dispute revision of assessment on the issues covered by the appeal order. However, so far as rate of tax is concerned, the revision of assessment u/s 19(1) was beyond the time prescribed. The limitation provided under this section is 4 years from the end of relevant year.

The contention of the revenue was once assessment is revised in terms of direction contained in the appeal order; it is open to the officer to make correction of mistakes in the original assessment. Revenue also tried to protect the action of officer, on the ground that, petitioner has not replied to notice issued by the Assessing Officer, therefore acquire the jurisdiction u/s 19(1). Court was not convinced with this submission, because modification of assessment on issues unrelated to appeal is matter to be done by the Assessing Officer u/s 19(1) or u/s 43(1) as rectification of mistake. Even if this action is treated as rectification of mistake u/s 43(1), this is also barred by limitation.

With this order of Tribunal and revised assessment in regard to rate of tax on industrial gases is set aside.

[West Coast Industrial Gases Ltd. vs State of Kerala 10 VST 773]

31. Can a penalty for evasion of tax be levied merely because explanation given by the assessee is not acceptable ?

Held : No

Petitioner was running a canteen for serving food and drinks in the factory premises for the employees of the company from whom he was receiving subsidy. The petitioner was not registered under Rajasthan Sales Tax Act. On survey made by the Assessing Officer, they found that petitioner is liable to pay tax on the sale of food and drinks. On the basis of books of account maintained by the petitioner, Assessing Officer determined tax liability for the years 1997-98 to 1999-2000 and also imposed interest and penalty.

The petitioner assessee got himself registered as a dealer. The registering authority granted certificate from the date of commencement of business. Petitioner paid tax and interest levied in the order and disputed penalty imposed u/s 65 of the Rajasthan Sales Tax Act. In First Appeal before the Deputy Commissioner of Sales Tax, appellant succeeded. Appeal of revenue before the Tax Board was allowed and penalty imposed is confirmed. Against this order assessee came in reference before the High Court.

Penalty provision u/s 65 of RST Act is attracted, where any dealer, whether or not registered, has concealed any particulars from any return furnished by or deliberately furnished inaccurate particulars therein or has concealed any transaction of sale or purchase from his accounts, or has avoided or evaded tax in any other manner.

High Court took note of the fact, though the registration certificate is obtained after the visit of tax officer, and registration certificate is issued from retrospective date, no penal action for this default is imposed.

It was the case of revenue that, no mens rea is required in the present facts of the case therefore penalty is correctly imposed.

Court observed that, the imposition of penalty is never automatic. Imposition of penalty has to be preceded by a reasonable conclusion arrived at by the concerned authority that there is a conduct contumacious or a guilty intention on the part of the subject or assessee in not paying tax. Such reasonable conclusion can be arrived at only after complying with the principles of natural justice giving of show cause notice to the assessee and after considering and deciding his objections by a speaking order. Nothing of this sort has been done by the assessing authority in the present case.

While deleting the penalty imposed, court referred to various decisions referred by the petitioner. In Commissioner of Income Tax, West Bengal vs. Anwar Ali 76 ITR 696, while dealing with the section 28(1)(c) of I. T. Act, 1922 which dealt with imposition of penalty, Supreme Court held that before penalty can be imposed the entirety of circumstances must be reasonably point to the conclusion that the disputed amount represented income and that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. Following this in Anantharam Veerasinghaiah & Co vs. CIT, AP, while considering the question of imposition of penalty, court observed that, order imposing a penalty is the result of quasi-criminal proceedings and that the burden lies on the revenue to establish the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or deliberately furnished inaccurate particulars. In Vijay Hosiery Mills vs. State of Rajasthan 45 STC 345 division bench court held that, taking all circumstances into consideration, we are inclined to hold that it cannot be said that there was any mens rea or guilty intention on the part of the petitioner when it claimed exemption on the sale of banians on the ground that banian is a garment and not a hosiery product. It cannot, therefore be said that petitioner fraudulently evaded or avoided payment of tax on concealed its liability to tax. In CTO vs. Sojat Lime Co. 74 ST 288 it is held that, it is obvious that the penalty is attracted when act of the dealer is conscious act of concealment of any particular or of deliberate furnishing of inaccurate particulars in his return.

After referring series of judgments court came to conclusion that, penalty u/s 65 cannot be imposed on the assessee unless the revenue establishes that there is deliberateness on the part of assessee or conscious concealment of taxable turnover with the purpose to avoid or evade tax and such penalty cannot be imposed merely because the contention of the assessee that particular sale is not taxable is rejected or explanation furnished by him is not found to be acceptable by the Revenue.

[Lord Venketshwara Caterers vs. Commercial Tax Officer (Rajasthan 10 VST 535]

32. Sale price under CST Act – Freight on f.o.r. destination whether form part of sale price ?

Question referred, whether the freight shown separately in the bill and paid by the purchaser at the time of delivery of goods, dispatched f.o.r. destination, formed part of the sale price?

The respondent sold cotton in interstate trade, freight charges shown in the bill separately, but the transportation expenses were paid by the purchaser. The question is that, when transaction was f.o.r. and the freight was paid by the purchasers though it was shown in the bill, whether it may be included in the sale price. Section 2(h) of C.S.T. Act, 1956 defines "Sale Price" as "sale price means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases whether such cost is separately charged".

The aforesaid definition is very specific in defining sale price. It makes a provision for due adjustment in respect of discount according to the practice normally prevailing in the trade, though inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the deliver thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged.

Petitioner, revenue strongly relied on the decision of Supreme Court in the case of Hindustan Sugar Ltd. (43 STC 13).

The respondents’ submission was as per definition of sale price it is very specific that the cost of freight or delivery or the cost of installation if separately charges is not included in the sale price. When the freight is separately shown in the bill and in fact it was not charged by the seller from the purchaser, then it is not a part of sale price though the transaction may be f.o.r. and in fact the freight was paid by the purchaser so it is not liable to for payment of tax. The respondent placed his reliance on the decision of Supreme Court in the case of Hyderabad Asbestos Cement Products Ltd. vs. State of Andhra Pradesh (24 STC 487) and Division Bench judgment in the case of Straw Products Ltd. vs. CST M.P. (65 STC 20)

Hon'ble Supreme Court while considering the question in Hindustan Sugar Mills Ltd, considered the law laid down in Hyderabad Asbestos Cement Products Ltd. and thus held, "This would plainly and indubitably be the position where the contract of sale entered into by the dealer is f.o.r. destination railway station. But here it is necessary to bear in mind a rather important distinction. There may be a case where the contract of sale may not be f.o.r. destination railway station, but the price alone may be so. Where such is the case, the contract does not have all the incidents of a f.o.r. destination railway station contract, but merely the price is stipulated on that basis. The terms of such a contract may provide that the delivery shall be complete when the goods are put on rail and thereafter it shall be at the risk of the purchaser. Such a stipulation would make the railway agent of the purchaser liable for taking delivery of the goods. The freight in such a case would be payable by the purchaser though the price agreed upon is f.o.r. destination railway station. The price of the goods receivable by the dealer would, in that event, be the f.o.r. destination railway station price less the amount of freight payable by the purchaser. That would be the consideration payable by the purchaser to the dealer for the sale of the goods and the amount of freight being payable by the purchaser would not be included in the ‘sale price’ within the meaning of the first part of the definition. The position would be the same even if the dealer pays the freight and obtains railway receipt ‘freight pre-paid’ and claims the full f.o.r. destination railway station price in the bill. The amount representing freight would not be payable as part of the consideration for the sale of the goods but by way of reimbursement of the freight which was payable by the purchaser but in fact disbursed by the dealer and hence it would not form part of the ‘sale price’.

Court also referred to the decisions of Tungabhadra Industries Ltd, Kurnool vs. C.T.O. Kurnool 11 STC 827, Straw Products Ltd. vs. Commissioner of Sales Tax M. P. 65 STC 20 and Division bench judgment of Punjab and Haryana High Court in Jankai Dass & Co. 79 STC 1 came to the conclusion that, the Tribunal was not justified in excluding the freight charges in the total sale price, though holding that the freight charges were shown separately in the bill and paid by the buyer and the transactions were f.o.r. destination without considering the terms of the contract or transaction between the parties. If as per terms of the contract or transaction, the delivery was complete when the goods were loaded on railway and thereafter the risk of transit was of purchaser then the freight cannot be included in the sale price but in case the seller was responsible for the risk of transportation up to the destination (railway station) then the sale price was includible with the freight charges.

[Commissioner of Commercial Tax
vs. Shah Gordhandas Bhikaridas 10 VST 349]