BLUE STAR LTD. Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) This appeal is by the assessee, challenging the order passed by the revisional authority, setting aside the order passed by the appellate authority, which had held that the additional should be on the basis of the actual profits earned at the rate of 14.3 per cent and not at the rate of 30 per cent which the assessee had admitted in the course of assessment proceedings.

(2.) The assessee is a trade in air-conditioners, water coolers, deep freezers, mineral water dispensary and works contractor in supply, installation and commissioning of air-conditioners. Upon processing of books of account and evidences, the assessing authority concluded final assessment under section 12(3) and section 17(6) of the Karnataka Sales Tax Act, 1957 (for short, hereinafter referred to as, "the Act") on May 25, 2005. By and large, the book figures were accepted in the final assessment under the Act. The succeeding assessing authority observed after verification of assessment records that there is suppression of sales turnover of goods as first dealer goods assessable to tax at the hands of the assessee as suppressed sales turnover of air-conditioners, deep freezers, air coolers, etc., for Rs. 3,95,84,553. He issued a reassessment proposition notice under section 12A(1) of the Act. He considered the opening stock, inter-State purchases, stock inwards, closing stock and sales. In the process, he observed that there was suppressed turnover of goods assessable to tax at Rs. 3,95,84,553 which is liable to tax at 20 per cent. The tax liability was proposed at Rs. 79,16,911. He also proposed penalty under section 12A(1A) of the Act for wilful suppression of taxable turnover. The assessee filed its objection and opposed the reassessment on various grounds. After examining the objections of the assessee, the assessing authority found that the assessee has not declared any closing stock in the form of works-in-progress and it has declared only goods held in opening stock in Rs. 56,95,085 and closing stock as Rs. 69,64,688. The assessee, in the course of its objections submitted that it has claimed 30 per cent as gross profit. However, it contended, that cannot be taken as the basis for addition of the suppressed turnover. The assessing authority held, it is not acceptable since the assessee itself has adopted gross profit at 30 per cent in case of works contract and the gross profit can be more than the trading activity and the assessee is likely to incur expenses towards execution of works contract of supply, installation and commissioning of air-conditioners. Also the assessee itself has declared 30 per cent labour expenditure under work-in-progress as on March 31, 2002 and as on March 31, 2003. Therefore, he proceeded to hold that the assessee has not furnished any documentary evidence to claim that the gross profit earned by it is less than 30 per cent. Therefore, gross profit adopted at 30 per cent, is based on the gross profit declared by the assessee itself and local purchase of air-conditioners, deep freezers, mineral water dispensary and sale of air-conditioners, etc., was made the basis for addition. Accordingly, he claimed a sum of Rs. 1,84,91,110 as the total tax payable.

(3.) Aggrieved by the same, the assessee preferred an appeal. The first appellate authority held that there is no correlation between the opening stock purchases, closing stock and the sales disclosed by the appellant relating to goods dealt in trading activity and also used in the execution of works contract. Therefore, the assessing authority has rightly held that there is under-statement of turnover tax in so far as the first dealer goods are concerned. However, the assessing authority for the purpose of arriving at the sale value of the goods, made addition of gross profit at 30 per cent which is claimed to be declared in respect of second dealer goods. From the copies of the purchase and sales bills and the trading profit and loss accounts, filed by the assessee, relating to traded goods, i.e., first dealer goods and second dealer goods and the works contract executed, it held, gross profit is at 14.3 per cent which is the consolidated gross profit. The element of gross profit is derived with the integration of all the purchases and sales of goods liable to tax and exempt from payment of tax. Taking margin of gross profit at 30 per cent in respect of second dealer goods, the assessee claimed exemption under the works contract. The assessing authority has proposed to adopt the very same margin to gross profit even in respect of first dealer goods and compared the same with the actual first dealer goods available for sale and for use in the execution of works contract with that of the first sales declared and the taxable works contract receipts disclosed for tax under section 5B of the Act. Further, it recorded that when a question was posed to the authorised representative of the company, at the time of hearing of the appeal, as to why 30 per cent of gross profit was reckoned towards local registered dealer purchases, the reply was, under misconception that they are liable to claim the benefit of gross profit at 30 per cent on par with the labour and like charges as enumerated under rule 6(4) of the Karnataka Sales Tax Rules and they had claimed deduction towards gross profit. Therefore, the first appellate authority held the assessing authority in the impugned reassessment proceedings, has not made out a case for adopting the gross profit at 30 per cent, as the same cannot be gathered from the material available on record. He further held, the non-disclosure of taxable sales in this case could be attributed to mis-classification of sale of goods and not on account of wilful non-disclosure. The claim for gross profit at 30 per cent on the local registered dealer purchases used in the execution of works contract against the actual gross profit as per the books of account at 14.3 per cent for declaration of taxable goods received. Therefore, he held, the assessing authority is not justified in imposing penalty in those circumstances. Accordingly, the appeal was partly allowed and the appeal filed against the penalty was allowed in full.