L ABDULLA KUNHI Vs. STATE OF KERALA

JUDGEMENT

(1.) THIS tax revision case is filed against the order of the sales Tax Appellate Tribunal, Additional Bench, Kozhikod e. Petitioner is the proprietor of M/s. Prabhakaran and Company. The company deals in petroleum products as agent of Bharath Petroleum Corporation at Calicut. The petitioner is a registered dealer under the Kerala General Sales Tax Act, 1963. For the assessment year 1991-92, the petitioner declared a total and taxable turnover of Rs. 94, 36, 772. 27 and Rs. 60 respectively and claimed exemption on a turnover of Rs. 94, 36, 716, which represented second sales turnover of petroleum products. The petitioner being an agent of M/s. Bharath Petroleum Corporation gets supply of petroleum products only from the corporation and not from any other source. The accounts submitted by the petitioner were rejected by the Additional Sales Tax Officer, II Circle, Kozhikode and final assessment was completed by order dated August 11, 1993 by estimating the taxable turnover at Rs. 70, 77, 640 as against Rs. 60 declared. The accounts of the petitioner were rejected mainly on the basis of two inspections conducted in the place of business by the intelligence Squad, Kozhikod e , on October 5, 1991 and on January 19, 1992.

(2.) ON the basis of the inspection on October 5, 1991, the intelligence Officer estimated a sales turnover of Rs. 1, 66, 455 as suppression and imposed a penalty of Rs. 65, 000. For the inspection held on january 19, 1992, the suppression was estimated at Rs. 90, 767. 02 and a penalty of Rs. 25, 000 was imposed. Based on these penalties, the Sales Tax Officer issued a pre-assessment notice dated May 14, 1992 proposing to reject the return and accounts and to make an estimated addition of Rs. 18, 18, 313 for the year 1991-92. The above notice was issued without verifying the accounts for the year 1991-92. Upon the receipt of the above notice, petitioner submitted a letter dated June 7, 1997 objecting to the proposal and expressing his readiness to produce the books of accounts for scrutiny. Thereafter, the accounts were verified and the assessing officer issued a second pre-assessment notice dated June 15, 1993 proposing to make an addition of Rs. 70, 77, 579. When the petitioner received the second pre-assessment notice, he filed a detailed objection. The objections were rejected by the Sales Tax Officer and the assessment was completed on the basis of the estimate of the assessing officer. Appeal filed before the Additional Appellate Assistant Commissioner was dismissed. Appeal filed against that before the Appellate Tribunal was also dismissed. The main contention advanced by the learned counsel for the petitioner Shri T. M. Sreedharan is that the turnover has been estimated on the basis of certain materials of which the petitioner was not given an opportunity to explain his case. He contended that it may be true that when the materials are recovered from the place of business, there is a presumption that it belongs to the assessee. But it is only a rebuttable presumption and the assessee can rebut the presumption, if he was given an opportunity for the same. For example, the petitioner points out one of the items of suppression with regard to 12, 000 litres of high speed diesel oil for Rs. 58, 922. The above quantity of 12, 000 litres is a sale by M/s. Hindustan Petroleum corporation, Kozhikode, in favour of M/s. Mahe Beach Trading Company, Mahe. The document relied on for the estimate by the assessing officer is a slip No. 8, which is a draft purchased by M/s. Mahe Beach Trading Company, Mahe, on October 1, 1991 for a sum of Rs. 30, 000 from the Kozhikode District Co-operative Bank limited, Kozhikode, in favour of M/s. Hindustan Petroleum Corporation Limited, kozhikode. M/s. Hindustan Petroleum Corporation Limited, Kozhikode, sold 12, 000 litres of diesel valued at Rs. 58, 922 in favour of M/s. Mahe Beach Trading company, Mahe, and the sum of Rs. 30, 000 was a part payment for the above transaction. The assessing officer treated this transaction as a transaction of the petitioner on the ground that the quantity of 12, 000 litres of high speed diesel sold by M/s. Hindustan Petroleum Corporation to M/s. Mahe Beach Trading company did not pass through the sales tax check-post at Azhiyur Chungam and therefore, it was presumed that the consignment was purchased by the petitioner and sold in Kozhikode without accounting. In annexure C letter, the petitioner has stated thus : "the only reason for linking slip No. 8 with my business is that invoice No. 17154 dated October 1, 1991 issued by M/s. Hindustan petroleum Corporation Ltd. , Kozhikode, for 12, 000 litres of high speed diesel to M/s. Mahe Beach Trading Company, Mahe, for Rs. 58, 922 did not pass through the sales tax check-post at Azhiyur Chungam and therefore, you have presumed that this consignment was purchased by me and sold in Calicut without accounting. This is clearly unjustifiable. I am not a dealer under M/s. Hindustan Petroleum Corporation Ltd. I understand that in respect of the same transaction, viz. , consignment of 12, 000 litres of H. S. D. in favour of M/s. Mahe Beach Trading Company, Mahe, as per Invoice No. 17154 dated October 1, 1991 which was an inter-State sale effected by M/s. Hindustan Petroleum corporation Ltd. , in favour of M/s. Mahe Beach Trading Company, Mahe, the inspecting Assistant Commissioner (IIC), Agricultural Income-tax and Sales Tax, kozhikode, has levied a penalty on M/s. Hindustan Petroleum Corporation Ltd. , under section 45a. The basis for levying the penalty is stated to be that M/s. Hindustan Petroleum Corporation Ltd. , made an inter-State sale to M/s. Mahe beach Trading Company, Mahe, from their Elathur depot and the goods did not pass through the sales tax check post, Azhiyur Chungam and therefore, it was presumed that M/s. Hindustan Petroleum Corporation Ltd. , sold the goods to other dealers without accounting. . . . . . . . When both the consignor and consignee are verifiable parties and when the transactions are admittedly done by them, there is no warrant or justification for you to allege that I made the purchase and sold the goods without accounting. I request you to kindly verify the above facts that M/s. Hindustan Petroleum Corporation Ltd. , who is the consignor and m/s. Mahe Beach Trading Company, who is the consignee in respect of the 12, 000 litres of H. S. D. If your enquiry reveals any information or evidence against what I have submitted above, I may be allowed an opportunity to substantiate my case, including an opportunity to cross-examine the aforesaid dealers". In the assessment order, this is dealt with at page 32 of the paper book. The officer stated thus : "this establishes link between Mahe Beach Trading company and Prabhakaran & Co. and proves that they are sister concerns". It is also not disputed that goods as per this invoice No. 17154 was loaded in Lorry No. KRC 8738 on October 1, 1991. This lorry was owned by C. Abdulla Kunhi, owner of Mahe Beach Trading Company. The records of the sales tax check-post, Azhiyur Chungam, establishes that, the goods as per invoice No. 17154 have not gone to Mahe. Excess stock found and other corroborative evidence like slip No. 8 leads to irresistible inference that, the goods under invoice No. 17154 instead of taking to Mahe was sold through prabhakaran & Co. Enquiries conducted by the department reveal the C. Abdul gafoor, Mahe Beach Trading Company, is the real person behind the business of prabhakaran & Co. Even though Prabhakaran & Co. is not a dealer of h. P. C. Mahe Beach Trading Company, is a dealer of H. P. C. The goods invoiced of mahe Beach Trading Company was sold through Prabhakaran and Co. Of course, Mahe beach Trading Company might have accounted the invoice, but really the goods were sold through Prabhakaran & Co. Under the circumstances, a sum of Rs. 58, 922 had to be taken as unaccounted purchase made by the assessee from Mahe beach Trading Co. The above discussion of the assessing officer shows that the assessing officer has acted arbitrarily. There is no evidence to show how the assessing officer came to know that the real person behind the business is C. Abdul Gafoor and how he came to the conclusion that really the goods were sold through Prabhakaran & Co. The assessee has clearly in his objections stated that he wanted an opportunity to cross-examine the witnesses, if it was proved that the goods were sold by the assessee. Further, it is to be noted that the company involved is a public sector undertaking. It cannot be presumed that the products were diverted with the collusion of the petroleum company. The judgments of the appellate authority as well as the Appellate Tribunal have not considered this aspect of the matter properly. It is now well-settled that though under section 17 (3) of the Kerala General Sales Tax Act, the officer is empowered to make best judgment assessment that assessment should be based on reasonable conclusions and it should not be arbitrary. The principles of natural justice also applies to such proceedings. In the decision reported in state of Kerala v. K. T. Shaduli Yusuff 1977 39 STC 478, the Supreme Court held as follows : "tax authorities entrusted with the power to make assessment of tax discharge quasi-judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. Although a taxing officer is not fettered by technical rules of evidence and pleadings and he is entitled to act on materials which may not be accepted as evidence in a court of law that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law as principles of natural justice. However rules of natural justice are not a constant; they are not absolute and rigid rules having universal application". In P. C. Ittymathew Son v. State of Kerala 1976 37 STC 184, a division Bench of this Court held as follows : "best judgment assessment should be based on an honest and rational estimate which has a reasonable nexus to the available materials and circumstances of each case.