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Commissioner of Sales Tax Vs. Berar Oil Industries - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 1 of 1974
Judge
Reported in[1975]36STC473(Bom)
ActsBombay Sales Tax Act, 1959 - Sections 11, 12, 14, 14(1), 14(3) and 25
AppellantCommissioner of Sales Tax
RespondentBerar Oil Industries
Appellant AdvocateK.S. Cooper and ;R.A. Dada, Advs.
Respondent AdvocateC.A. Phadkar and ;P.V. Surte, Advs.
Excerpt:
.....an assessee cannot, because of his failure to discharge the statutory burden, be put in the same position as if he has succeeded in discharging it. the adoption of this formula is also not unfair to the assessee, for if one were to place an extremely strict construction upon sub-section (3) of section 14, since the assessee failed to prove that the very goods purchased against certificates in form 15 were utilised in the production of goods which were sold in accordance with the declaration contained in the said certificates, the price of all the purchases made against such certificates would be liable to be included in his turnover of purchases. 419 cannot apply to a case where there is a statutory burden of proof cast upon an assessee and he has failed to discharge it......to be made by the recognised dealer purchasing the goods and giving the certificate that the goods purchased by him would be used by him in the manufacture of taxable goods specified in the said certificate and that such sale would not take place outside the state and that the said goods were included in the list of goods entered in the recognition held by him. under section 14 of the said act, where a dealer has purchased any taxable goods under a certificate given by him, inter alia, under section 12 and contrary to such certificate the goods are used for another purpose or are not resold or despatched in the manner and within the period certified, then such dealer becomes liable to pay purchase tax on the purchase price of the goods purchased against such certificate and,.....
Judgment:

Madon, J.

1. The respondents were registered as a dealer under the Bombay Sales Tax Act, 1959, and carry on the business of manufacture of 'vanaspati', soap and other articles at Akola, their principal article of manufacture being hydrogenated vegetable oil. The respondents had also obtained a recognition under section 25 of the said Act. For the purpose of their manufacturing business the respondents used to purchase raw materials. For the assessment period 1st January, 1960, to 31st July, 1960, the respondents made total purchases of the aggregate value of about Rs. 1,97,72.293. Out of these total purchases, purchases of the value of Rs. 1,15,80,625 were made by the respondents by giving certificates in form 15 to the Bombay Sales Tax Rules, 1959, while the remaining purchases of the aggregate value of Rs. 81,91,668 were made otherwise than by giving a certificate in the said form 15. Under clause (b) of section 12 of the Bombay Sales Tax Act, 1959, as in force during the assessment period, when a dealer holding a recognition, who is referred to in the said Act as a 'recognised dealer', makes purchases of goods mentioned in the said clause by giving a certificate in the prescribed form and the said goods are of the class specified in his recognition and are purchased by him for use by him in the manufacture or packing of taxable goods for sale by him, the amount of sale price paid by him to his vendor is not to be included in the vendor's turnover of sales and would be excluded on the vendor producing in his assessment the certificates in the prescribed form given by the recognised dealer while purchasing the said goods. Under rule 21 of the Bombay Sales Tax Rules, 1959, as then in force, the certificate for the purposes of the said clause (b) of section 12 was to be in form 15. The said certificate required a declaration to be made by the recognised dealer purchasing the goods and giving the certificate that the goods purchased by him would be used by him in the manufacture of taxable goods specified in the said certificate and that such sale would not take place outside the State and that the said goods were included in the list of goods entered in the recognition held by him. Under section 14 of the said Act, where a dealer has purchased any taxable goods under a certificate given by him, inter alia, under section 12 and contrary to such certificate the goods are used for another purpose or are not resold or despatched in the manner and within the period certified, then such dealer becomes liable to pay purchase tax on the purchase price of the goods purchased against such certificate and, accordingly, he is under an obligation to include the purchase price of such goods in his turnover of purchases in his return which he is to furnish next after such unauthorised user of goods.

2. During the assessment period the respondents sold goods for the aggregate price of Rs. 2,50,09,145. Out of these total sales, sales of the aggregate value of Rs. 1,40,97,329 were in accordance with the declaration made by the respondents in the certificates in form 15 given by them while purchasing the raw materials, while sales of the aggregate value of Rs. 1,09,11,816 were sales not in accordance with such declaration, that is, had the raw materials which had gone into the manufacture of such goods been purchased against certificates in form 15, the said sales would have been contrary to the declaration made in such certificates. For the sake of convenience we will refer to the first type of sales, namely, sales where, had the raw materials been purchased against certificates in form 15, the condition of such certificates would have been complied with, as 'qualifying sales' and the sales of the other type, namely, where, had the raw materials been purchased against certificates in form 15, the sales would have been contrary to the declaration contained in the said certificates, as 'non-qualifying sales'. On the figures aforesaid, during the assessment period the purchases made by the petitioners against certificates in form 15 were 59 per cent. of their total purchases of raw materials, while the purchases of raw materials made otherwise than against certificates in form 15 were 41 per cent. of their total purchases. So far as the sales made by the respondents are concerned, their 'qualifying sales' were 56 per cent. of the total sales effected by them during the period of assessment, while their 'non-qualifying sales' were 44 per cent. of the total sales.

3. It appears that the respondents had only one manufacturing unit and that they were not keeping separately the stock of raw materials purchased against certificates in form 15 and the products manufactured out of such stock. For the said reason it was impossible for the respondents to prove that the raw materials purchased against certificates in form 15 were utilised only in the manufacture of products which were sold in accordance with the declaration contained in such certificates. The question, which accordingly arose in the assessment of the respondents for the aforesaid period, was how much of the purchase price of the goods purchased by the respondents should be included in their turnover of purchases and made liable to purchase tax under section 14(1) of the said Act. Relying upon a decision of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 S.T.C. 419, the Sales Tax Officer held that the natural presumption was that a person engaged in a transaction would presumably follow that course which took him out of the taxable category rather than otherwise, and that it should, therefore, be presumed that the raw materials purchased by the respondents against certificates in form 15 were the raw materials which were utilised in the manufacture of products which were sold in conformity with the declaration contained in the said certificates. According to this formula which was applied by the Sales Tax Officer, purchase tax under section 14(1) of the said Act became leviable only on 3 per cent. of the total purchases made by the respondents, during the said period, against certificates.

4. Thereafter the Assistant Commissioner of Sales Tax suo motu revised the said assessment order and held that the formula applied by the Sales Tax Officer was neither proper nor logical and that the only proper method to determine the respondents' turnover liable to purchase tax under section 14(1) of the said Act was a pro rata method in which no presumption was raised in favour of the respondents or against them. According to this pro rata method the Assistant Commissioner arrived at the result that since the 'non-qualifying sales' were 44 per cent. of the total sales and since the purchases of raw materials made against certificates in form 15 were 59 per cent. of the total purchases, the turnover of purchases on which purchase tax under section 14(1) of the said Act would be leviable would be 44 per cent. of 59 units and, accordingly, he held that 26 per cent. of the total purchases were liable to purchase tax and not 3 per cent. of the total purchases as held by the Sales Tax Officer.

5. Against the said order of the Assistant Commissioner in suo motu revision the respondents filed an appeal to the Deputy Commissioner, in which appeal they failed. They thereupon approached the Tribunal in revision. The Tribunal decided the matter in favour of the respondents. It set aside the order of the Deputy Commissioner and restored that of the Sales Tax Officer. Arising out of this order, at the instance of the Commissioner of Sales Tax a reference has been made to this court in which the question submitted for our decision is : 'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the levy of purchase tax under section 14 on pro rata basis was not justified ?'

6. The real point which we are called upon to decide in this reference is the proper formula to be applied in determining the turnover liable to purchase tax under section 14(1) in a case where it is not possible for an assessee either by reason of the circumstances of the case or because separate accounts have not been kept by the assessee to prove that the goods purchased by him against certificates in form 15 have been utilised in the manner specified in the declaration made by him in the said certificates. All the authorities, including the Tribunal, have proceeded upon the assumption that in such a case, the turnover of purchases liable to purchase tax under section 14(1) has to be estimated. This is also the view which was taken in somewhat similar circumstances by the Madras High Court in M. M. Anwaraulla AM. Ghouse and Company v. State of Tamil Nadu [1971] 28 S.T.C. 610, in which it was held that where an assessee fails to keep two types of goods which have gone into the manufacture of certain articles and other goods, one of which qualifies for exemption and the other does not, that is, if he mixes up his stocks of raw materials of two types and has not kept separate accounts, the assessing authority is left with no alternative but to use its best judgment and estimate the relative turnover to be brought to charge. Two competing formulae for estimating the turnover on this basis have been canvassed before us, namely, the one adopted by the Sales Tax Officer and approved of by the Tribunal which was strongly relied upon by Mr. Phadkar on behalf of the respondents and the other adopted by the Assistant Commissioner and approved of by the Deputy Commissioner which was equally strongly relied upon by Mr. Cooper on behalf of the applicant, each of them contending that the formula canvassed by him was the only proper formula consistent with logic and common sense.

7. In arriving at his decision that the formula adopted by the Sales Tax Officer was not proper the Assistant Commissioner has referred to sub-section (3) of section 14 of the said Act, which provides as follows :

'If any question arises whether the purchase price of goods purchased under a certificate given under section 11 or 12 is not liable to be included in the turnover of purchases of a dealer or commission agent under this section, the burden of so proving shall be upon such dealer or, as the case may be, the commission agent.'

8. This sub-section casts the burden of proof upon the assessee. Under it when a question arises whether the turnover of any particular purchase made by an assessee against any certificate given by him under section 11 or 12 of the said Act is liable to be included in his taxable turnover of purchases, it is for the assessee to prove that it is not liable to be so included. If he succeeds in discharging the burden, then the matter is at an end and that particular turnover is not to be included in his turnover of purchases liable to purchase tax. If he fails to discharge that burden, that particular turnover becomes liable to be included in his taxable turnover of purchases. The question of application of either of the above two formulae will only arise when an assessee fails to discharge the burden of proof cast upon him under section 14(3) of the said Act or is unable, may be through no fault of his, to discharge that burden, and the facts of the case are such that though some of the sales were in conformity with the declaration made by the assessee in the certificates given to him, it is not possible to pinpoint those sales. In such a case, to draw a presumption that the assessee must be deemed to have utilised all the purchases which he made against certificates in compliance with the declarations made by him in the certificates given by him is to put him in the same position as if he had completely and fully discharged the burden placed upon him. It would be putting him in a better position than he would have been had he set out to discharge the burden and had succeeded in discharging it only partially. There is no logic about raising the presumption which was raised by the Sales Tax Officer or the Tribunal in favour of the respondents. An assessee cannot, because of his failure to discharge the statutory burden, be put in the same position as if he has succeeded in discharging it. To raise the presumption which was raised by the Sales Tax Officer and Tribunal is to render nugatory the provisions of section 14(3) of the said Act. The formula which can apply in estimating the turnover of purchases in such a case must, therefore, be a different formula. In our view, in such a case the pro rata formula adopted by the Assistant Commissioner and approved by the Deputy Commissioner is a proper and rational formula to apply in estimating such turnover of purchases. The adoption of this formula is also not unfair to the assessee, for if one were to place an extremely strict construction upon sub-section (3) of section 14, since the assessee failed to prove that the very goods purchased against certificates in form 15 were utilised in the production of goods which were sold in accordance with the declaration contained in the said certificates, the price of all the purchases made against such certificates would be liable to be included in his turnover of purchases. The pro rata formula avoids this harsh result. The decision of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 S.T.C. 419, relied upon for drawing the presumption drawn by the Sales Tax Officer and canvassed before us on behalf of the respondents, has really no application to the facts of this case. That was a case under the Madras General Sales Tax Act, 1939. From the judgment of the Madras High Court it does not appear that there was any question of a statutory burden of proof upon the assessee argued before the High Court or any contention with respect thereto taken up before the High Court. In our opinion, the ratio in the case of S. Rathinaswamy Chettiar v. State of Madras [1962] 13 S.T.C. 419 cannot apply to a case where there is a statutory burden of proof cast upon an assessee and he has failed to discharge it. This position is also clear from the decision of the Supreme Court in State of Madras v. V. P. S. A. Narayana Nadar & Co. [1968] 21 S.T.C. 25 (S.C.), a decision under the Madras General Sales Tax Act, 1959, which replaced the Madras General Sales Tax Act, 1939. Under section 10 of that Act the burden of proving that any of the transactions of a dealer is liable to tax or not is on the dealer. Section 40 of the said Act also requires dealers to maintain accounts in particular forms and rule 26 of the Madras General Sales Tax Rules, 1959, prescribes the type of accounts to be kept. In State of Madras v. V. P. S. A. Narayana Nadar & Co. [1968] 21 S.T.C. 25 (S.C.), the respondent, who was a dealer in various commodities including coffee powder, purchased French coffee powder. Out of the stocks so purchased some was sold locally and some was sold out of the State. A certain amount was estimated by the assessing authority as being the proceeds of the sale of coffee powder in the State. In appeal, the Sales Tax Appellate Tribunal held that this item of turnover must be deleted from the taxable turnover in view of the decision of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 S.T.C. 419. A revisional application to the Madras High Court was dismissed in limine. In appeal by special leave to it, the Supreme Court held that in view of the express statutory provisions of sections 10 and 40 of the Madras General Sales Tax Act, 1959, and of rule 26 of the Madras General Sales Tax Rules, 1959, the decision of the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 S.T.C. 419required reconsideration. They accordingly allowed the appeal and remanded the case to the Tribunal for hearing the appeal afresh and determining it in accordance with law.

9. For the reasons aforesaid we answer the question submitted to us in the negative and hold that, on the facts and in the circumstances of this case, the Tribunal was not correct in law in holding that the levy of purchase tax under section 14 of the Bombay Sales Tax Act, 1959, on pro rata basis was not justified.

10. There will be no order as to costs of this reference.

11. Reference answered in the negative.


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