Anna Aluminium Ltd. vs The Commissioner of Commercil Taxes, TVM

J.B. Koshy, J.—Appellant is a company incorporated under the provisions of the Companies Act engaged in the manufacture of aluminium alloys, utensils etc. It is a registered establishment under the Kerala General Sales Tax Act and Central Sales Tax Act. Appellant has got branches in Karnataka State and Mahe in Pondicherry State. Appellant made a branch transfer of 620 pressure cookers to Mahe branch on 19.4.1997. Another consignment of 900 numbers of pressure cookers was transported during September, 1997. On the basis of orders received from ANERT, a Government undertaking, it was transported to Kerala State after paying Central Sales Tax. While transporting the same, the above vehicles were intercepted at the check post as it was transported allegedly without proper documents required and u/s 29A the appellant was directed to make deposit for release of the same. Contention of the appellant was that these consignments were branch transfers and thereafter it was transported from the Mahe branch depending upon the orders placed. The above contention was accepted by the appellate authority by Annexure A2 and A2 (a) orders with the following observations:

Here, in the instant case, the appellant consigned the goods first to its Mahe branch. This can be treated as a Branch transfer of goods. The Sales Tax Officer (Enquiry) has no case that the goods consigned by the appellant to Mahe Branch is not a Branch transfer. From Mahe, the goods were consigned to ANERT at Thiruvananthapuram. This transaction can only be treated as the interstate sale of the appellant. Further, there is no law, which prohibits the appellant from supplying the goods from their Branch at Mahe to ANERT at Thiruvananthapuram. Besides the STO has no case that the transport of goods are not accompanied by proper records, as required under the KGST Act in this case.

Sales Tax returns for the years 1996-97 and 1997-98 were filed. The assessments are not finalised. Meanwhile, proceedings were taken for offence u/s 45A(1)(d) of the Act and appellant was imposed penalty amounting to double the amount of tax due under the KGST Act on the value of the consignments despatched from Mahe Branch after paying tax under the Central Sales Tax Act. According to the appellant, only CST need be paid as it is a case of inter-State sale. Therefore, appellant authority set aside the penalty orders imposed in both the cases by Annexure A8 and A10 orders. The operative portion of the appellate authority''s order is as follows:

Now, the question for consideration is whether the above acts done by the petitioner is prohibited by the law either under the Kerala General Sales Tax Act, 1963 or under the Central Sales Tax Act, 1956. The petitioner is entitled to effect the branch transfer of his goods u/s 6A of the Central Sales Tax Act, 1956 read with Rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules, 1957. Being a registered dealer under the Pondicherry General Sales Tax Act and Central Sales Tax Act, 1956 at the State of Pondicherry, the petitioner is entitled to effect the inter-State sales from Mahe. In these circumstances, I am not in a position to hold that the act of the petitioner is illegal or irregular. The Intelligence Officer (IB) has no case that the petitioner effected sales from its manufacturing unit at Aluva to various customers in the State of Kerala under the guise of the sale from Mahe to the customers in the State of Kerala. From the details disclosed from the records, it is revealed that the petitioner adopted such a method of transaction of the goods to minimise the liability of the tax to 3% from 12.5%. The tax liability for Pressure Cooker is at 12.5% for the first sale in the State of Kerala whereas the tax rate at Mahe is at 3% on the sales of Pressure Cooker. The petitioner lessed their tax burden by despatching the goods to Mahe under Branch transfer and thereafter effect the inter-State to the customers of Kerala from the Mahe branch of the petitioner. The branch transfer of the goods to Mahe from Aluva and the subsequent sales to the customers of the State of Kerala are legally supported and authorised.

But, Commissioner in suo motu revision u/s 37 of the Kerala General Sales Tax Act restored the order of the Intelligence Officer imposing penalty for the years 1996-97 and 1997-98 by Annexure A13 order. The above order is challenged in this appeal.

Contention of the appellant is that branch transfer is permitted. They have got a branch at Mahe, among other places, and Mahe branch is registered for sales-tax purposes. Branch transfer is permitted. There was order from ANERT, a Government establishment in Kerala. Thereafter, they sold the articles from Mahe office and Mahe branch office despatched the articles and they are liable to pay only CST as it is an inter-State sale. They have not done any illegality. In any event, they have not suppressed any materials and hence they are not liable to pay any penalty. It is also clear from the proceedings taken u/s 29A. According to the Intelligence Officer, since the orders for supply of the articles to ANERT was there before despatching of the articles to Mahe branch, sending of good on branch transfer to Mahe was with malafide intention to avoid tax and hence there is suppression of turn over and they are liable to pay penalty u/s 45A of the Kerala General Sales Tax Act. They made branch transfer only to avoid tax under the KGST Act. But, the contention of the appellant that they have only arranged their affairs in such a way so as to reduce payment of tax and it is not an illegal activity. They have not suppressed any turn over or transferred any material illegally and branch transfer was permitted by law at that time. It is not a case that goods were transferred from one place of Kerala to another place in Kerala via. inter-State so as to make it inter-State sale. The goods were transferred to their branch as branch transfer.

From the branch, it was sent to customers and since goods were moved on the basis of sale from Mahe branch to customers, it is an inter-State sale and according to the appellate authority since there is no illegality, no penalty is possible. But, revisional authority has confirmed the order of the Intelligence Officer setting aside the order of the appellate authority. It is argued before us that there is no suppression of any material. Apart from the fact that there is no illegality in the transaction, it was argued that ANERT is a Government agency and payment of tax was exempted. So, there is no question of any avoidance of tax or suppression of materials. It is further argued that the revisional authority mainly relied on the judgment of the Supreme Court in McDowell and Co. Ltd. Vs. Commercial Tax Officer, . The above case was subsequently explained by the Supreme Court in Union of India (UOI) and Another Vs. Azadi Bachao Andolan and Another, . There, it was held that the assessee can adjust the affairs so as to reduce tax burden. Evasion of tax is different from avoidance of tax. It is further contended that even if an order is passed u/s 29(1), that will not be a bar in re-opening the matter u/s 45A. There shall be some additional material found out to satisfy the condition u/s 45A (1). The very same point was adjudicated in the earlier matter and in Annexure A2 order of the appellate authority it was held that there is no illegality in the transaction. The very same transactions were considered and the matter was decided. Therefore, no fresh material was found out. Annexure A2 order of the appellate authority has become final and, therefore, on the facts of this case, the proceedings taken u/s 45A (1) itself is illegal and malafide. It was further pointed out that since the proceedings u/s 45A are criminal in nature in the absence of mens rea, no penalty can be imposed u/s 45A (1) and strict interpretation is necessary. It was also argued that even if goods were supplied to ANERT under KGST Act, no tax was payable as it was a Government undertaking. Hence, there is no question of evasion of tax. All the points were not considered by the revisional authority. We are not expressing any opinion on the merits of the matter as matters argued were not considered by the statutory authority. Therefore, we are of the opinion that the impugned order should be set aside and the matter should be reconsidered. Hence order No. R2-25304 and 25305/2000 of the Commissioner of Commercial Taxes, Thiruvananthapuram dated 30.5.2001 is set aside and remanded. The appeal is allowed for passing fresh order.