Narayanaswamy Naidu vs State of Karnataka

N. Kumar, J.—These revision petitions are preferred by the appellant challenging the order passed by the Karnataka Appellate Tribunal at Bangalore, which has declined to entertain the appeals by affirming the order of the Appellate Authority. The material on record discloses that the petitioner is an individual engaged in the manufacture and sale of construction equipments like concrete mixers, vibrators, etc. On 1-12-2006 is premises was inspected. It was found that the petitioner has been collecting advances from customers and fabricating and supplying machinery/equipments to such customers on the strength of pro forma invoices. Regular tax invoices regularizing such pro forma invoices are issued only in respect of some transactions and the sale effected on the strength of other pro forma invoices are not at all reflected in the books of account. In the statement of the petitioner recorded on 1-12-2006, he has given the details of all the pro forma invoices issued from 1-4-2006 to 29-11-2006. The said statement discloses that he had issued 80 pro forma invoices and the total turnover covered was Rs. 84,09,325/-. However, the taxable turnover declared by him both under the Karnataka Value Added Tax Act, 2003 and Central Sales Tax Act, 1956 comes to only Rs. 49,82,480/-. No tenable explanation was put forth. Similar discrepancies were noticed for the tax periods August 2005, January 2006, February 2006 and March 2006. Therefore, he was issued with a notice for prosecution. The petitioner admitted the offences and compounded the same by paying Rs. 25,000/-. It is in this background, the Assessing Authority assessed the petitioner to tax in respect of the turnover, which was not disclosed in the accounts. Aggrieved by the said order, he preferred a statutory appeal. In appeal, wherever the petitioner was able to produce the sale invoices, deletion was made; wherever he was unable to produce such sale invoices, the order of the Assessing Authority was confirmed. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal.

The Tribunal on a careful reconsideration of the entire material on record found no fault with the order passed by the Appellate Authority. Therefore, it dismissed all the appeals. Aggrieved by the said order, the assessee is before this Court.

The learned Counsel appearing for the petitioner vehemently contended that, the procedure followed by the petitioner was that, first he used to issue pro forma invoices giving roughly the amount of cost of equipments, which he supplies. Thereafter, the equipment is to be supplied and sale invoice is to be issued. If the customer does not place orders after taking pro forma invoice, no machinery is manufactured, no sale invoice is issued. The authorities have taken the value mentioned in the pro forma invoice but came to the conclusion that the assessee supplied machinery of that value in respect of all the pro forma invoices issued and therefore, she submits that, the order requires to be interfered with.

In support of her contention, she relied on a judgment of the Allahabad High Court in the case of Hemraj Udyog v. Commissioner of Trade Tax, Uttar Pradesh Lucknow (1997)105 STC 418 (All.), wherein it was held that the value mentioned in the pro forma invoice is not the purchase price of the goods, it is only the approximate value of the goods or the value at which the dealer expected the goods to be sold and therefore, that cannot be the basis for calculating the total turnover.

She also relied on a judgment of the Madras High Court in the case of State of Tamil Nadu v. Marble Palace (2011)43 VST 519 (Mad.), wherein it was held that, in the absence of any material treating the quotation as sale bill and estimating the turnover on the basis of the quotation is not proper. The Assessing Authority has not probed the matter beyond treating the quotation book as sale bill and therefore, it was held that the amount mentioned in the pro forma invoice cannot be the basis for calculating the total turnover.

Per contra, learned Government Advocate submitted that, this is a case where the assessee admitted not having maintained the accounts properly and he compounded the offences, paid Rs. 25,000/- as fine and also paid the money as demanded by the authorities. Therefore, it is too late in the day for the assessee to contend that the amount mentioned in the pro forma invoice cannot be taken into consideration. She submitted that, the authorities have rightly levied the tax on the undisclosed turnover, as such, no case for interference is made out.

From the aforesaid material on record, it is clear that, in the course of business, the assessee has issued a pro forma invoice, giving the value of the machinery to be supplied. He is manufacturing the machinery as per the requirement of the customers. From the material on record, it discloses that the amount, which is accounted in the books of account is less than the amount mentioned in the pro forma invoice. No satisfactory explanation is forthcoming from the assessee for mentioning the lesser amount except saying, all pro forma invoices did not result in actual sales. Except a bare assertion, no convincing material was placed to prove the said fact. On the contrary, when notice was issued bringing to the notice of the authorities the irregularities, and when they wanted to prosecute the matter, the assessee compounded the offence and paid tax. The Assessing Authority has recorded a categorical finding that the dealer is not in the habit of maintaining true and correct books of account in the usual course of business, as required under the provisions of Karnataka Value Added Tax Act, 2003 and an attempt was made to suppress the sales turnover and the dealer had deliberate intention of avoiding legitimate taxes due to the Government by way of not issuing valid sales bills towards supply/sale of machinery as identified by the Inspecting Authority. When the petitioner has received advances from the customers and orders are placed from the customers, the required machinery is manufactured by the petitioner in accordance with the requirement of such customers. Therefore, after issuance of pro forma invoices mentioning the amount, if the customer has paid a portion of the said amount, it does not mean that the customer did not had any transaction at all. It is only after payment of money and placing of the orders, machineries are manufactured, the cost of the machinery is found in the pro forma invoice, a part of the consideration is paid and for payment of balance consideration, the assessee would not have handed over the manufactured goods. Under these circumstances, the contention that the pro forma invoice cannot be the basis for calculating the total turnover is unsustainable. As rightly pointed out by the authorities, the assessee has mentioned in the books of accounts, the amounts, which are far less than what is mentioned in the pro forma invoice. Therefore, we do not find fault with the finding recorded by three authorities. In fact, the First Appellate Authority on a careful consideration of the entire material on record has granted the benefits where he was convinced that the assessee was entitled to the same. In that view of the matter, we do not see any merit in these petitions. Accordingly, these revision petitions are dismissed.