Jindal Dyechem Industries Pvt. ... vs Sales Tax Officer (Enforcement), ...
2005 Latest Caselaw 974 Del

JUDGMENT

Madan B. Lokur, J.

1. The facts of this case are quite remarkable if not extraordinary.

2. The Petitioner is carrying on business primarily of buying and re-selling bullion (despite its name) besides dealing in other items. During the relevant assessment year 2001-02, the Petitioner says that its total turnover in Delhi was about Rs.244 crores which included bullion sold in Delhi amounting to about Rs. 238 crores. The Petitioner says that it paid the appropriate sales tax on this amount.

3. On or about 12th January 2001 the State of Rajasthan introduced a Compounded Levy Scheme for Bullion Traders (for short the Scheme). In terms of the Scheme, bullion traders could opt for compounding their tax liability in respect of their sales of bullion within the State on payment of a composition amount. In the case of the Petitioner, falling in the residual category, the composition amount payable for 2000-2001 was 125% of the tax paid in the financial year 1999-2000 subject to a minimum of Rs.100 lakhs.

4. On the same day, that is 12th January 2001, the State Government also issued a Notification exempting from tax the sale of bullion by the Metals and Minerals Trading Corporation Ltd. (MMTC) or the Handicraft and Handloom Export Corporation (HHEC) or authorized nationalized banks to a registered dealer, to the extent the rate of tax thereon exceeds 1%.

5. In view of the above Scheme and Notification, the Petitioner, who had its head office in Delhi and branch offices in several other cities, opened a branch office in Jaipur on 16th January 2001 and registered itself with the sales tax department in Rajasthan holding Registration Certificate No.1451/01689.

6. During the relevant assessment year 2001-02 the Petitioner decided to purchase gold in Jaipur from Corporation Bank and opened an account with the said bank. The Petitioner gave a fixed deposit of Rs.10 crores to the said bank.

7. The Petitioner says that gold was purchased and resold by it on a daily basis in Jaipur. Since transactions in the sale and purchase of bullion usually take place in cash, huge amounts of cash were daily generated by the Petitioner. Since the banks in Jaipur did not have the capacity to keep such huge amounts of cash, the Petitioner decided to transfer the cash from Jaipur to Delhi where the banks have a larger infrastructure, cash handling and cash storage capacity.

8. To transfer the cash from Jaipur to Delhi, the Petitioner purchased special security vans and employed armed guards, and in this way, the Petitioner daily transported cash from Jaipur to Delhi. This position prevailed from about 29th June 2001 till the end of the financial year. The Petitioner says it has documents such as toll tax receipts to show the daily movement of its security vans between Jaipur and Delhi.

9. According to the Petitioner, its turnover from bullion transactions from the Jaipur branch during the assessment year 2001-02 was about Rs.479 crores (as against a turnover of about Rs.238 crores from Delhi). Out of this amount the Petitioner transferred about Rs.406 crores to Delhi through its security vans.

10. The Petitioner says that the overall rise in the bullion trade in Jaipur adversely affected sales tax revenue generation in Delhi and this compelled the State Government in Delhi to reduce the rate of sales tax on bullion in Delhi from 1% to 0.5% by a Notification dated 20th November 2002. When this happened the Petitioner" turnover from the bullion trade in Jaipur drastically came down to Rs.1.20 crores during the year 2002-03, while it remained static in Delhi at about Rs.236 crores.

11. On 25th and 28th June 2002, officers of the Delhi Sales Tax (Enforcement) Wing surveyed the premises of the Petitioner in Delhi and even took some documents with them, including a register showing the cash received from Jaipur. According to the Petitioner the said officers found no irregularity in its books. Nevertheless, the Sales Tax Officer, by an assessment order dated 31st March 2003 imposed sales tax on the cash transfer of about Rs.406 crores and this assessment was upheld in revision by an corer dated 6th August 2004 passed by the Additional Commissioner. A penalty of Rs.4 crores was also imposed upon the Petitioner. Being aggrieved by both these orders, the Petitioner has challenged them before us. The view of both the authorities was that the Petitioner had actually brought gold from Jaipur and sold it in Delhi.

12. The Respondents have filed a counter affidavit in which it is stated that the Petitioner was asked to prove that the sale of bullion acquired in Jaipur was made in Jaipur and such sales were not made in Delhi. The Petitioner was apparently not able to convince the sales tax authorities in this regard, nor was it able to inspire confidence in them that the sales of bullion were affected in Rajasthan. This led the sales tax authorities to conclude that the bullion acquired by the Petitioner in Jaipur was sold in Delhi, hence the liability imposed.

13. Learned counsels for the parties were heard and judgment reserved on 7th April 2005 on which date learned counsel for the Respondents informed us that he would be filing an application in the case. However, since no application was preferred for quite some time, we listed the matter again on 17th May 2005 when learned counsel for the Respondents informed us that he has instructions not to file any application and the matter may be disposed of on merits.

14. Having heard learned counsels for the parties, we are of the view that the Respondents have misdirected themselves in law with the result that the writ petition must be allowed. The case of the Respondents in the assessment order dated 31st March 2003 proceeds on certain assumptions, which we feel are not warranted in law or supported by any material.

15. It is trite that sales tax in Delhi can be levied only on the sale of taxable goods in Delhi. The burden of proving that sales have taken place in Delhi is on the Revenue and not on the assessed.

16. In Girdhari Lal Nannelal v. The Sales Tax Commissioner, (1977) 39 STC 30 = (1976) 3 SCC 701 the Supreme Court held that for imposing a liability of sales tax on an amount as profits from undisclosed sales, two things have to be established and they are (paragraph 6 of SCC):

a)That the amount represents the profits of the assessed and nobody else, and

b)That the amount represents profits from income realized as a result of transactions liable to sales tax and not from other sources.

17. The Supreme Court held that the onus of proving both the ingredients is on the Revenue. The Supreme Court also drew a clear distinction between acquisition of money for purposes of income tax and for purposes of sales tax. It was said (paragraph 7 of SCC), "For the purposes of income tax it may in appropriate cases be permissible to treat unexplained acquisition of money by the assessed to be assessedG(tm)s income from undisclosed sources and assess him as such. As against that, for the purpose of levy of ales 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 assessed has resulted from transactions liable to sales tax and not from other sources."

18. It was further held that because the assessed could not adduce satisfactory material or provide an appropriate explanation regarding the source of the amount in its hands, it would not lead to an inference or justify a conclusion that the amount represents profits derived from undisclosed sales transactions.

19. A similar view was taken in M.O. John v. State of Kerala, (1977) 40 STC 134 by the Kerala High Court and in Commercial Taxes Officer v. Auto and Bearings, (2001) 121 STC 304 by the Rajasthan High Court.

20. The burden of proving that a person is chargeable to tax is on the Revenue and this burden has to be discharged by proper evidence. This is quite clear from the decision of the Supreme Court in Union of India v. Garware Nylons Ltd. (1996) 10 SCC 413 wherein it was held in paragraph 15 of the Report, "The burden of proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority."

21. That no one can be taxed by implication, inference or analogy was recently and quite clearly laid down by the Supreme Court in Collector of Central Excise v. Acer India Ltd., (2004) 8 SCC 173. In paragraphs 33 and 34 of the Report, it was held

"33. It is also well-settled rule of construction of a charging section that before taxing a person it must be shown that he falls within the ambit thereof by clear words used as no one can be taxed by implication.

34. It is further well settled that a transaction in a fiscal legislation cannot be taxed only on any doctrine of "the substance of the matter" as distinguished from its legal signification, for a subject is not liable to tax on supposed "spirit of the law' or "by inference or by analogy"

22.Earlier, in Omar Salay Mohd. Sait v. CIT, (1959) 37 ITR 151 the Supreme Court had held that an assessment cannot be made on a pure guess or on a bare suspicion. In Umachandran Shaw v. CIT, (1959) 37 ITR 271 the Supreme Court observed that in tax matters suspicion cannot take the place of proof.

23. Following these principles laid down by the Supreme Court, it would now become necessary to analyze the assessment order passed by the Sales Tax Officer. We may mention in this regard that learned counsel for the Petitioner has rather felicitously dealt with each aspect of the assessment order in his written submissions and has thereby considerably simplified our task.

24. In the written submissions, learned counsel for the Petitioner has outlined six reasons why, according to the Respondents, the Petitioner is liable to pay sales tax. We do not think it is necessary to deal with each of these reasons for the simple reason that we are not sitting in appeal over the assessment order or over the order passed in revision. We are only required to see whether there has been a misdirection in law or a jurisdictional error committed by the Respondents.

25. The unstated premise in the assessment order is that the case of the Petitioner does not appear to be credible, in as much as there is no reason why the Petitioner should day in and day out transfer lakhs of rupees, if not more than a crore from Jaipur to Delhi; there are other less complicated and less adventurous ways of doing so. In so far as this is concerned, the Petitioner has clearly brought out the fact that banks in Jaipur were unable to handle such huge volumes of cash. Adequate material as been placed on record in support of this contention including a newspaper cutting from the Hindustan Times dated 19th July, 2001 pointing out this difficulty being faced by the banks in Jaipur. That apart, in its rejoinder affidavit the Petitioner has placed on record a certificate issued by the Rajasthan Gold Bullion Merchant Association indicating the refusal by banks in Jaipur to accept large cash deposits. Some of the banks such as Centurion Bank, Bank of Rajasthan, Integral Urban Cooperative Bank, State Bank of Bikaner and Jaipur etc. have separately indicated through letters that it is not possible for them to handle huge volumes of cash on a daily basis. Learned counsel for the Petitioner stated before us that his client already has several bank accounts in Jaipur but all of them put together cannot handle such a huge volume of cash. It is for this reason that the amounts have to be transferred to Delhi and deposited in banks in Delhi. There is sufficient evidence to show from the books of the Petitioner (which have not been doubted, except to the extent noted above regarding the credibility of the transactions themselves) that cash deposits have actually been made in the banks in Delhi for which the Petitioner has also paid handling charges. All these facts are verifiable, even though they may prima facie be hard to believe.

26. Similarly, it has been stated by learned counsel for the Petitioner that the Compounded Levy Scheme in force in Rajasthan actually had an impact on the receipts of sales tax due to sale of bullion in Delhi. It is averred in the writ petition that the Finance Minister of the Delhi Government had brought this out in his speech while presenting the Budget for the year 2001-2002 on 22nd March, 2001. The Finance Minister stated as follows:-

"The government of Rajasthan has brought out a composition scheme in lieu of sales tax on bullion. This has caused financial hardship to the bullion traders in Delhi and has led to decline in the sales tax collection in the last quarter of this financial year. Our pleas to the government of Rajasthan for withdrawing this composition scheme, have not borne any fruits. In order to prevent diversion of trade from Delhi and ensure revenue realization, my government is also preparing a composition scheme for bullion trade."

27. Eventually, to nullify the adverse impact of the Compounded Levy Scheme in force in Rajasthan, the Government of Delhi was compelled to take remedial steps by reducing the rate of sales tax on transactions in bullion. By a Notification dated 20th November, 2002, the rate of tax in respect of taxable turn over was made half paisa in a rupee.

28. The Respondents have not disputed that the Petitioner has been duly assessed in the State of Rajasthan and there is no doubt about this. As regards the admitted sales effected by the Petitioner in Delhi, the invoices and transactions are identical in nature (being cash based) to those carried out in Rajasthan and these have been accepted by the sales tax authorities in Delhi. There is no apparent reason, in the absence of any material on record to suggest that the transactions of sale of bullion in Rajasthan were not actually carried out by the Petitioner who, instead, transferred gold to Delhi for surreptitious sale in this city. Learned counsel for the Petitioner is right in contending that there is absolutely no material on record for such a conclusion being arrived at by the sales tax authorities and that the view taken by them is based entirely on suspicion and conjectures.

29. Learned counsel for the Respondents submitted before us that not a single purchaser of gold from Rajasthan was produced by the Petitioner before the sales tax authorities in Delhi. We do not see why this is necessary. The question whether sales in Rajasthan were genuine or not was a matter for the sales tax authorities in Rajasthan to determine and not for the authorities in Delhi. What was expected in law from the Respondents was to show that sales of gold had taken place in Delhi and this could be done by having positive material in this regard rather than by wrongly inferring that because the Petitioner was not able to prove sales of bullion in Rajasthan, it must be assumed that it sold bullion in Delhi. In the face of the fact that the sales tax authorities in Rajasthan had accepted the returns of the Petitioner, it is not open to the Respondents to take the conjectural view that they have taken.

30. Learned counsel for the Respondents also contended before us that the sales tax authorities in Delhi may be permitted to look into the matter again. We are unable to accede to this request. The Respondents had adequate opportunity to properly investigate the issues and apply their mind as required by law but they have failed to do so. We have already mentioned that learned counsel for the Respondents, at the conclusion of arguments on 7th April, 2005, said that he would be filing an application in the matter, presumably praying that the matter be remanded for de novo adjudication. No such application was filed and we were told that the matter may be disposed of on merits. The question of a remand now does not arise nor do we think it is justified because the Respondents have not placed any material, even before us, to suggest that the transactions entered into by the Petitioner in the course of its bullion trade show that bullion and not cash was brought from Jaipur to Delhi for sale in Delhi.

31. Under the circumstances, for the reasons mentioned above, we are of the view that the impugned order dated 31st March, 2001 and the order passed in revision dated 6th August, 2004 are not sustainable in law. There is no option but to quash them. It is ordered accordingly and the writ petition is allowed. No costs.