METALEX AGENCIES Vs. STATE OF KERALA

JUDGEMENT

(1.) The tax revision case arises out of the order of the Sales Tax Appellate Tribunal, Ernakulam in respect of petitioner's sales tax assessment under the Kerala General Sales Tax Act, 1963 for the year 1994-95. The petitioner is a dealer in steel items engaged mainly in second sales of items purchased from companies like TISCO, Andhra Ispat Ltd., etc. Besides being a dealer in steel, petitioner was managing the depot of TISCO at Willington Island. During the relevant year the petitioner had to pay an amount of Rs. 6,97,193.69 being compensation for the value of goods of TISCO found short in their godown. Even though the assessing officer has stated in the assessment that petitioner is a consignment agent of TISCO, annexure IV certificate produced by the petitioner shows that apart from maintaining TISCO's godown by the petitioner, petitioner was not effecting sales on behalf of TISCO. The assessment also proves that petitioner has no turnover on consignment agency sales for TISCO. The petitioner's accounts were found true and correct except in regard to payment of compensation to TISCO for the value of goods found short in the godown of TISCO which was under the management of the petitioner. Consequent to payment of compensation by the petitioner to the TISCO for the shortage of their goods, the assessing officer rejected the books of account and made an addition of 10 per cent to the turnover declared by the petitioner. In the first appeal, rejection of books of account was sustained but addition was reduced to two per cent as against 10 per cent made in the assessment. On further appeal to the Tribunal, the Tribunal also confirmed the rejection of books of account but the addition was limited to the actual amount of compensation paid by the petitioner for the shortage of goods noticed in the godown managed by the petitioner. It is to be noted that all the authorities took the view that the shortage is probably unaccounted sale by the petitioner and additions are sustained on this basis. The petitioner has approached this Court challenging the order of the Tribunal in sustaining rejection of books of account on the ground of payment of compensation to the TISCO for loss of their goods in the godown.

(2.) We have heard Senior Counsel Dr. K.B. Mohammed Kutty appearing for the petitioner and the Special Government Pleader for the respondent. On going through the order of the Tribunal, we find that the Tribunal like lower authorities has assumed that the compensation paid is in respect of goods probably sold unaccounted by the petitioner and the Tribunal has accordingly sustained the addition only to the extent of compensation amount paid by the petitioner to TISCO for loss of goods from their godown which was under the petitioner's management. Even though the assessing officer maintained the stand that petitioner is a consignment agent of TISCO, no turnover of sales made on behalf of TISCO as consignment agent is assessed. Moreover, annexure IV certificate issued by the TISCO produced in this Court shows that TISCO was holding the stock in the godown in their own name and they have made sales in their account and have remitted the tax. Details of KGST and CST registration numbers of TISCO are also mentioned in the assessment order. In view of the certificate issued by TISCO and the absence of any assessment of turnover in the hands of the petitioner as consignment sales on behalf of TISCO, we are inclined to accept the factual position that petitioner is only a godown keeper of TISCO. Therefore, the compensation paid by the petitioner to TISCO is unconnected with petitioner's trading transaction for which petitioner has separate sales office and godown. The assessing officer has no case that the petitioner's account is otherwise unacceptable for any reason whatsoever. Therefore, the short question is whether the payment of compensation by the petitioner for shortage of goods noticed in the godown of TISCO entrusted to them for managing justifies rejection of books of account and estimation of turnover. We are of the view that since compensation paid is not in the trading transaction but on account of petitioner's lapses in maintaining the godown properly, it cannot be treated as sales turnover or compensation relating to sales. In principle, the Tribunal appears to have accepted petitioner's accounts because addition is limited to only the compensation amount. In other words, the question that arises from the order of the Tribunal is whether the compensation amount is sustainable as turnover or not. Obviously compensation does not represent sales turnover though it is stated to be the value of goods found short. If at all the transaction has to be treated as sale on account of recovery of cost by the godown owner from the godown keeper, namely, the petitioner, the assessment should have been considered at the hands of TISCO. Even though senior counsel appearing for the petitioner produced TISCO's return for the year wherein the amount is disclosed, we do not think there is any need for us to go into the details of transactions of TISCO which is not required for deciding the issue before us. The petitioner has cited decision of this Court in Southern Cable & Engineering Works v. State of Kerala, 2002 126 STC 178 and that of the Bombay High Court in Britannia Biscuit Co. Ltd. v. State of Maharashtra,1983 53 STC 179 and contended that compensation amount paid does not have the character of sales turnover. Even though decisions are not exactly on the point arising for decision in this case, the principle laid down therein support the case of the petitioner. Since we have found that the compensation amount if at all assessable as value of goods has to be considered at the hands of TISCO, there is no need to consider whether it is a turnover assessable in the hands of the petitioner. All what is required herein is to consider whether the payment of compensation justifies rejection of books of account and addition to the turnover. We are of the view that from the foregoing facts, the payment of compensation is unrelated to trading and is admittedly for the shortage of goods noticed from the godown of TISCO which was under the management of the petitioner and there is no justification to reject the petitioner's trading accounts and make addition to the turnover. In the circumstances, tax revision case is allowed cancelling the addition sustained by the Tribunal.