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Joseph Mathew and Brothers Vs. State of Kerala - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case NumberT.R.C. Nos. 189 to 192 of 1979
Judge
Reported in[1982]49STC25(Ker)
AppellantJoseph Mathew and Brothers
RespondentState of Kerala
Appellant Advocate K. Sreenivasan and; G. Sivarajan, Advs.
Respondent AdvocateAdv.-General
Cases Referred and Sales Tax v. Alwaye Agencies
Excerpt:
- - and also on certain entries contained in the books of account of the mundakayam service co-operative bank, as well as on a resolution dated 5th april, 1975, of the mundakayam service co-operative bank. the only materials relied on by the assessing authority as well as by the appellate assistant commissioner and the tribunal are (a) statement of accounts furnished by m/s. relied on by the assessing authority as well as by the tribunal are of the year 1975. the same is the case with the pro for ma invoice issued by the assessee to kappad co-operative society ltd. as well as the agreement between m/s......was made only on the basis of certain entries said to be contained in the books of account of m/s. peirce leslie india ltd. though the assessee had requested for an opportunity to cross-examine the representative of m/s. peirce leslie india ltd., the assessing authority refused to comply with the said request and completed the reassessment proceedings. on appeals filed by the assessee before the concerned appellate assistant commissioner of sales tax, the reassessment orders were set aside and the matters were remanded to the assessing authority for fresh disposal for affording an opportunity to the assessee to cross-examine the representative of m/s. peirce leslie india ltd. after the remand, one shri r. v. narasimhan, assistant manager of m/s. peirce leslie india ltd., was examined.....
Judgment:

V. Balakrishna Eradi, C.J.

1. These four connected revision petitions have been filed by the same assessee and they arise out of assessments to sales tax made against the assessee-firm for the years 1972-73 to 1975-76 (inclusive). T. R. C. No. 191 of 1979 relates to the assessment year 1972-73. T. R. C. No. 189 of 1979 relates to the assessment year 1973-74. T. R. C. Nos. 190 and 192 of 1979 pertain to the assessment years 1974-75 and 1975-76 respectively.

2. For the assessment years 1972-73 and 1973-74 the assessments had been originally completed determining the taxable turnover at Rs. 34,062.12 and Rs. 70,587.32 respectively. Subsequently the assessing authority reopened the assessments for these two years in purported exercise of its powers under Section 19 of the Kerala General Sales Tax Act (for short 'the Act'), on the basis that certain transactions amounting to Rs. 6,94,560 and Rs. 13,03,760 respectively had escaped assessment in respect of those two years. The reopening of the assessments was made only on the basis of certain entries said to be contained in the books of account of M/s. Peirce Leslie India Ltd. Though the assessee had requested for an opportunity to cross-examine the representative of M/s. Peirce Leslie India Ltd., the assessing authority refused to comply with the said request and completed the reassessment proceedings. On appeals filed by the assessee before the concerned Appellate Assistant Commissioner of Sales Tax, the reassessment orders were set aside and the matters were remanded to the assessing authority for fresh disposal for affording an opportunity to the assessee to cross-examine the representative of M/s. Peirce Leslie India Ltd. After the remand, one Shri R. V. Narasimhan, Assistant Manager of M/s. Peirce Leslie India Ltd., was examined before the assessing authority and his evidence regarding the nature of the transactions between M/s. Peirce Leslie India Ltd. and the assessee-firm and a statement of accounts extracted from the books of the company were also brought on record.

3. The ground on which the original assessments were sought to be reopened was that the assessee had effected sales of copper sulphate, oleocop and agricultural spraying oil to some co-operative societies and that the turnover relating to those sales had escaped assessment. The case of the assessee was that the firm had functioned only as the del credere agent of M/s. Peirce Leslie India Ltd. in relation to the transactions in question, that M/s. Peirce Leslie India Ltd. were themselves acting only as agents of M/s. Inkemex India Ltd., who were the sole selling agents of M/s. Travancore Chemical and . who were the manufacturers of the copper sulphate, oleocop, etc. The agreements evidencing the contracting of agency between M/s. Inkemex India Ltd. and M/s. Peirce Leslie India Ltd. and the arrangement of sub-agency between M/s. Peirce Leslie India Ltd. and the assessee-firm were produced before the assessing authority. The assessee contended that under the terms of those agreements the assessee had only to canvass orders and there was no transfer of property in the goods at any time from M/s. Peirce Leslie India Ltd. to the assessee. The title and possession of the goods always vested in the hands of the principal, namely, M/s. Travancore Chemical and ., until the goods were sold to the ultimate buyers. It was also pointed out that M/s. Inkemex India Ltd. had collected the tax from the ultimate buyers in respect of the disputed transactions, included all the transactions in their return and paid the sales tax due thereon. The assessee produced before the assessing authority certificates issued by M/s. Inkemex India Ltd. to the effect that the disputed transactions had been included in their sales turnover and tax had been paid by them in respect thereof.

4. The assessing authority overruled the aforesaid contentions put forward by the assessee relying on the statement of accounts given by M/s. Peirce Leslie India Ltd. and also on certain entries contained in the books of account of the Mundakayam Service Co-operative Bank, as well as on a resolution dated 5th April, 1975, of the Mundakayam Service Co-operative Bank. Relying upon the aforesaid materials and on the further fact that the delivery note issued by the company showed that the goods had been consigned to the assessee, the assessing authority held that the case was governed by the dictum laid down by this Court in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Alwaye Agencies [1974] 34 STC 467 since, in the opinion of the assessing authority, the facts were exactly similar. The assessing authority accordingly held that there had been a transfer of property in the goods from M/s. Peirce Leslie India Ltd. to the assessee and the subsequent supply of the goods in question by the assessee to the co-operative societies and estate owners were by way of sale. -The reassessment proceedings for the years 1972-73 and 1973-74 were completed by the addition of Rs. 6,94,558.95 and Rs. 13,03,760 respectively for 1972-73 and 1973-74 as escaped turnover and subjecting the same to tax.

5. The assessments for the years 1974-75 and 1975-76 were subsequently taken up and they were finalised by including in the taxable turnover of the assessee Rs. 34,83,850 and Rs. 42,13,270 respsctively representing the turnover relating to the disputed transactions relating to copper sulphate, oleocop and agricultural spraying oil supplied to the co-operative societies, etc. The appeals filed by the assessee before the Appellate Assistant Commissioner were dismissed by the said authority. The assessee carried the matters in second appeal before the Sales Tax Appellate Tribunal reiterating the contentions that it had functioned only as a del credere agent in relation to the transactions in dispute and that there had not been any passing of title to the assessee from M/s. Peirce Leslie India Ltd. nor any sale by the assessee to the co-operative societies, etc. The Tribunal overruled the contentions put forward by the assessee and dismissed the appeals. The assessee has thereafter come up to this Court with these revision petitions.

6. From the brief narration of facts given above, it will be seen that in respect of the years 1972-73 and 1973-74 assessments to sales tax had already been made against the assessee. Those assessments were sought to be reopened on the ground that turnover that was legally taxable had escaped assessment. In order to warrant such an action under Section 19 of the Act there should be materials available before the assessing authority which would justify the conclusion that assessable turnover had escaped assessment to tax. The only materials relied on by the assessing authority as well as by the Appellate Assistant Commissioner and the Tribunal are (a) statement of accounts furnished by M/s. Peirce Leslie India Ltd., (b) certain invoices issued by M/s. Peirce Leslie India Ltd. and by M/s. Inkemex India Ltd., (c) one pro forma invoice issued by the assessee to a co-operative society and (d) a resolution dated 5th April, 1975, passed by the Mundakayam Service Co-operative Bank. The statement of accounts furnished by M/s. Peirce Leslie India Ltd. does not at all go to show that the assessee had become the owner of the goods in question at any time and had sold those goods to the co-operative societies, etc. The Assistant Manager of M/s. Peirce Leslie India Ltd.-Shri R. V. Narasimhan-had been examined as a witness before the assessing authority. From the evidence given by him it is clear that the relationship between M/s. Peirce Leslie India Ltd. and the assessee was only one of del credere agency and that the function of the assessee was to canvass orders and transmit them to M/s. Travancore Chemical and . through M/s. Peirce Leslie India Ltd., whereupon sales were to be effected by the manufacturer to the concerned buyer, the assessee being entitled only to a commission in respect of such sales canvassed by it. The entries in the personal folio of the assessee in the books of M/s. Peirce Leslie India Ltd. were explained by the witness as having been made only with a view to watch the collection of the sale proceeds from the buyers, such a procedure being insisted on account of the fact that the relationship of the assessee with M/s. Peirce Leslie India Ltd. was that of a del credere agent who had undertaken the responsibility of carrying out the due payment of the prices by the buyers. We do not find anything in the statement of accounts furnished by M/s. Peirce Leslie India Ltd. which helps the department to establish that the transactions in question were sales effected by the assessee to the co-operative societies, etc. The evidence of Shri Narasimhan has not been disbelieved by the assessing authority and in the face of the said evidence it is difficult to understand how the assessing authority and the Tribunal thought it fit to rely on the statement of accounts of M/s. Peirce Leslie India Ltd. as furnishing a basis for reaching the conclusion that the transactions in question were sales effected by the assessee. The invoices of M/s. Inkemex India Ltd. and M/s. Peirce Leslie India Ltd. relied on by the assessing authority as well as by the Tribunal are of the year 1975. The same is the case with the pro for ma invoice issued by the assessee to Kappad Co-operative Society Ltd., which bears the date 9th June, 1975. It is difficult to see how these invoices of the year 1975 and the resolution dated 5th April, 1975, passed by the Mundakayam Service Co-operative Bank could constitute relevant material for the purpose of determining the nature of the transactions of the assessee which took place in the years 1972-73 and 1973-74. The aforesaid materials were totally irrelevant and extraneous for the said purpose.

7. In the light of the foregoing discussion we have no hesitation to hold that there was absolutely no material whatever before the assessing authority which could reasonably warrant the conclusion that taxable turnover of the assessee had escaped assessment for the years 1972-73 and 1973-74 so as to justify the reopening of the assessments already completed in respect of those two years by invoking the power conferred by Section 19 of the Act.

8. In regard to the assessment years 1974-75 and 1975-76 also we do not find it possible to uphold the order passed by the Tribunal confirming the assessments made by the Sales Tax Officer. The question whether the disputed transactions were sales effected by the assessee would necessarily depend upon a determination of the true character of the relationship that subsisted between the assessee and M/s. Peirce Leslie India Ltd., and between M/s. Peirce Leslie India Ltd. and M/s. Inkemex India Ltd., who were admittedly the sole selling agents of the manufacturers of the goods, namely, M/s. Travancore Chemical and . It strikes us as strange and unfortunate that despite the fact that the Tribunal had before it copies of the agreement entered into between the manufacturer and M/s. Inkemex India Ltd. as well as the agreement between M/s. Inkemex India Ltd. and M/s. Peirce Leslie India Ltd. and also the letter of appointment issued by M/s. Peirce Leslie India Ltd. to the assessee containing the terms of the arrangement of sub-agency given to the assessee, no advertence has been made by the Tribunal to these documents the terms of which have a crucial bearing on the question as to whether the assessee-firm was functioning only as an agent in effecting the disputed transactions or whether the firm itself was the seller. The finding entered by the Tribunal that the assessee had dominion over the goods and that the transactions, in question were sales effected by the assessee is based on inferences drawn by it from six invoices issued by M/s. Inkemex India Ltd. in May, 1975, a pro forma invoice dated 9th June, 1970, issued by the assessee and five bills issued by M/s. Peirce Leslie India Ltd. in the name of Kappad Service Co-operative Society Ltd. Having gone through these documents we are unable to see how they furnish any legal basis for the inference drawn by the Tribunal that the assessee had dominion over the goods before delivery and had effected the sales of the commodities covered by the invoices. The nature of the transactions covered by the invoices and bills referred to above has been explained by the Assistant Manager of Peirce Leslie India Ltd., who was examined before the assessing authority and one would have expected the Tribunal to advert to his evidence while dealing with the question as to what inferences could legally be drawn from the invoices, etc. Unfortunately, the Tribunal has totally ignored this important piece of evidence. The only other document relied on by the Tribunal in support of its finding that the assessee was a seller in respect of the goods is a letter dated 12th September, 1975, addressed by the assessee to the Secretary, Mundakayam Service Co-operative Bank Ltd. In that letter, the assessee had merely stated that it was enclosing therewith 17 invoices relating to the supply of copper sulphate, oleocop and spray oil made during the season. It passes our comprehension how the contents of this letter could provide any clue whatever as to the nature of the transactions in dispute. Most of the invoices referred to in the letter are invoices of M/s. Inkemex India Ltd. Thus we' find that none of the reasons stated by the Tribunal in support of its conclusion that the disputed transactions were sales effected by the assessee of goods over which it had dominion can be regarded as legally correct or sound. As already pointed out, the very approach made by the Tribunal to a consideration of the question relating to the true nature of the transactions was basically defective, in that the Tribunal had omitted to advert to the terms of the two agreements and the letter of appointment which really constitute the primary evidence concerning the nature of the relationship that existed between the assessee, M/s. Peirce Leslie India Ltd., M/s. Inkemex India Ltd. and the manufacturing company. Without a proper understanding of the true nature and the character of the relationship that existed between the assessee and M/s. Peirce Leslie India Ltd., etc., who admittedly effected the supplies of the goods, there cannot be a valid or satisfactory determination of the question as to whether the assessee was acting only as an agent in relation to the transactions or the assessee-firm itself was a seller. The conclusions recorded by the Tribunal cannot, therefore, be sustained and the matter will have to be enquired into by the Tribunal afresh in respect of the two assessment years, namely, 1974-75 and 1975-76, in accordance with law in the light of the observations contained in this Judgment.

9. In the result, we hold that the reassessment proceedings taken against the assessee for the years 1972-73 and 1973-74 are illegal and without jurisdiction and that there were no materials available before the assessing authority to warrant the invocation by him of his power under Section 19 of the Act. T. R. C. Nos. 189 and 191 of 1979 will accordingly stand allowed and the orders passed by the Tribunal, the Appellate Assistant Commissioner and the assessing authority are all set aside. T. R. C. Nos. 190 and 192 of 1979, which relate to the assessment years 1974-75 and 1975-76, are also allowed, the Tribunal's order is set aside and the appeals T. A. Nos. 737 and 738 of 1978 are remanded to the Tribunal for fresh disposal in accordance with law in the light of the observations contained in this Judgment.

The parties will bear their respective costs in all these tax revision cases.

November 26, 1980

At the time when the Judgment in these tax revision cases was pronounced on 14th November, 1980, the learned Government Pleader appearing on behalf of the State orally prayed under Article 134-A for the grant of certificates under Article 133(1) of the Constitution to enable the State Government to carry these matters in appeal before the Supreme Court. The consideration of the said request was deferred to this day. After hearing both sides we have come to the conclusion that these are not fit cases for the grant of the certificates since they do not involve a substantial question of law of general importance on which a pronouncement by the Supreme Court can be said to be needed. Accordingly, we reject the request made on behalf of the State Government for the grant of certificates under Article 133(1) of the Constitution.


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