Lakshmi Trade Credits Limited vs State of Tamil Nadu

Chitra Venkataraman, J.—The assessee is on revisions as against the order of the Tribunal. The above revisions are admitted on the

following common questions of law:

(i) Whether for imposition of penalty u/s 16(2) of the Tamil Nadu General Sales Tax Act, 1959, a finding of willful nondisclosure is necessary?

(ii) Whether, when the petitioners had completely disclosed their turnover pertaining to the transaction with Alsa, but only claimed deduction, the

petitioners could be stated to have not disclosed their turnover within the meaning of section 16(2) of the Tamil Nadu General Sales Tax Act,

1959?

The assessment years under consideration are 1994-95, 1995-96 and 1996-97, respectively. The petitioner is a company engaged in the hire-

purchase and leasing. During the assessment years under consideration, the petitioner herein leased out centering sheets to M/s. Alsa investments

Limited. In respect of all lease transactions, originally, the petitioner''s claim for deduction u/s 3A(2)(b) of the Tamil Nadu General Sales Tax Act,

1959, was allowed, thereby, the taxable turnover was shown as NIL. On March 10, 1998, there was an inspection in the petitioner''s premises. At

that time, the petitioner was informed that the sellers from whom the petitioner had purchased the centering sheets were fictitious persons.

Consequently, the claim for exemption was not maintainable under the provisions of section 3A(2)(b) of the Act. In terms of the materials thus

recovered, a notice of revision was issued u/s 16 of the Act. In respect of abovesaid assessment years, the petitioner filed his objection contending

that their leasing business for the past years had been carried on in the following manner, viz., customers interested in entering into a leasing

transaction with the assessee has to approach the assessee after identifying a prospective seller. The customer would prepare a proposal form

indicating the name of the proposed supplier from whom the petitioner would be required to effect purchase of the goods for the prospective

lessee. The pro forma from the intended supplier would reveal description of the supplier, apart from the details of the goods proposed to be

supplied, including the price at which it was going to be supplied at. Thereupon, the assessee would verify the financial capacity of the proposed

lessee. Then they would enter into a lease agreement. Lease agreement contained the clause regarding the lessee having the sole responsibility for

taking delivery and possession of the equipment leased in the agreement, the responsibility of packing, loading, incurring freight, transporting the

goods, lease and unloading the same at the premises of the lessee. Except for stating that the ownership vested with the assessee herein, the lease

agreement clearly imposes various obligations, which pointed out that the petitioner would never directly or indirectly interact with the seller

identified by the lessee. The delivery challans were handed over to the assessee by the representative of the lessee and the sale invoice would be

raised on the assessee by the seller. The covering letters addressed to the suppliers mentioned the name of ""M/s. Alsa Investments Private

Limited"", to whom cheques are issued. The representative of the lessee would thereafter collect the sale price from the assessee. As and when the

cheques were honoured and the sale price realised, the acknowledgment of the receipt of the sale price would be handed over to the petitioner by

the representative of the lessee. Thus, the assessee submitted that at no point of time, they had interacted with the supplier but the assessee had

acted solely on the basis of the representation by the lessees. In the circumstances, the petitioner submitted that they were shocked to receive the

notice informing about the non-existence of the suppliers. Immediately thereon, the petitioner communicated with the lessee and sought for proof of

the existence of sellers. In the meanwhile, it was found that there was no such sellers in the addresses mentioned in the sales invoices raised on the

petitioner. As M/s. Alsa Investments Private Limited had not produced proof of the existence of the sellers, the petitioner became victims of the

fraud played on them by M/s. Alsa Investments Private Limited.

In the circumstances, the petitioner, submitted that there was no nondisclosure to warrant levy of penalty. After considering the objection,

assessment was made thereby, imposing liability on the assessee u/s 3A of the Tamil Nadu General Sales Tax Act. While making assessment, the

assessing officer also levied penalty on the suppressed turnover u/s 16(2) of the Tamil Nadu General Sales Tax Act. Except for mere statement

that, but for the inspection by the Enforcement Wing Officials the transaction would not have come to light, admittedly, there are no findings as

regards willful non-disclosure. Aggrieved by this assessment, the assessee went on appeal before the Appellate Assistant Commissioner, who

confirmed the revision of, assessment, including the penalty, Aggrieved by this, the assessee went on further appeal before the Sales Tax Appellate

Tribunal.

A perusal of the order of the Tribunal shows that while the Tribunal confirmed the quantum in the appeal, on the question of levy of penalty, it

however pointed out that the assessee had paid the tax voluntarily. In the circumstances, the penalty was reduced from 150 per cent to 50 per

cent. On the question of willful non-disclosure, the Tribunal, however, relied on the decision of this court reported in The State of Tamil Nadu Vs.

S.K.M. Ayya Nadar and Co., and Deputy Commissioner of Commercial Taxes, Trichy Division, Trichy Vs. V.R. Kuppusamy Gounder and Sons

as well as the order of the Sales Tax Appellate Tribunal (Main Bench) rendered in T.A. Nos. 164 and 165 of 1998 and confirmed the penalty to

the extent of 50 per cent. Aggrieved by this, the present tax case revisions are filed at the instance of the assessee.

The learned counsel for the assessee pointed out that the assessee had placed before the assessing authority the assessable turnover on the

leasing transactions. But at no point of time, they had interacted with the sellers. On the other hand, it acted on the basis of the representations

made by the lessees only. Hence, the question of willful non-disclosure of the assessable turnover did not arise. In any event, having regard to the

fact that for the purpose of levy of penalty, there should have been a finding on willful nondisclosure, in the absence of any such discussion in the

order, levy of penalty has to be set aside. In this connection, learned counsel for the assessee placed reliance on the decision reported in The State

of Tamil Nadu Vs. S.M. Baba Sahib, wherein this court reiterated the scope of levy of penalty u/s 16(2) of the Act, holding that for the purpose of

levy of penalty u/s 16(2), the mere use of the expression ""suppression"" in the order is not enough. This court pointed out that a willful non-

disclosure of assessable turnover is a necessary ingredient to make out that part of the section, namely, a deliberate intention to suppress an

assessable turnover, which should, in fact, have existed. It is not possible to say, merely from the fact that there has been a reassessment of

escaped turnover on the basis of best judgment, that there has been a willful non-disclosure of assessable turnover. There must be something to

indicate that the turnover did in fact exist and that the assessee had willfully not disclosed that assessable turnover.

Per contra, learned Special Government Pleader (Taxes) appearing for the Revenue sought to support the order of the assessing authority as

well as the appellate authority on the ground that but for the inspection the turnover would not have come to light for re-opening of the assessment.

Thus, the question of giving any relief on the penalty will not arise.

Heard learned counsel for the assessee as well as the learned Special Government Pleader (Taxes).

A perusal of the order of the assessment made in respect of the above-said years point out that except for mere statement that but for the

inspection of the enforcement wing officials, the transactions would not have come to light, there is absolutely no discussion as to whether a

wrongful claim was an intentional one so as to result in willful non-disclosure. The assessee has explained the modus operandi of the leasing

transactions and pointed out that at no point of time, the assessee had interacted with the supplier and acted only under the instructions of the

lessee. The order of the assessing authority as well as the appellate authorities, does not pay any attention to the aspect of the contention of the

assessee in the matter of levying penalty. In the decision reported in The State of Tamil Nadu Vs. S.M. Baba Sahib, this court pointed out to the

earlier decision of this court reported in State of Tamil Nadu Vs. Sri Swamy and Company, and held that willful non-disclosure of assessment

turnover is a necessary ingredient to make out that part of the section, namely, a deliberate intention to suppress an assessable turnover to attract

levy of penalty u/s 16(1) of the Act. A mere reassessment of escaped turnover, per se, would not lead to a finding that non-disclosure of

assessable turnover was a willful one. This court pointed out that there must be something more to indicate that the assessee had willfully not

disclosed that assessable turnover. Hence, this court held that in the absence of such a finding on willful nondisclosure, there could be no question

of levy of penalty u/s 16 of the Act. The learned Special Government Pleader could not point out any finding in the order of the assessing authority

as regards this necessary ingredient on willful non-disclosure so as to attract the levy of penalty u/s 16(2) of the Act. Even though section 16(2) of

the Act had undergone amendment with effect from May 20, 1993, necessary ingredients of willful non-disclosure including the penalty, remains as

it is. In the circumstances, we have no hesitation in setting aside the order of the Tribunal, thereby allowing the above appeals by holding that in the

absence of any finding as regards willful non-disclosure, the levy of penalty could not be sustained. No costs.