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Judgment
D. Murugesan, J.—The above tax case revision petitions are filed by the Revenue challenging the order of the Tamil Nadu Sales Tax
Appellate Tribunal (Main Bench), Chennai dated 26.7.2000 made in S.T.A.Nos.11 and 13 of 1998 for the assessment years 1989-90 and 1992-
93 and raising the following substantial question of law:
Whether in the facts and circumstances of the case, the Tribunal is right in affirming the allowance of second sales exemption in respect of 50% of
the turnover ordered by the Appellate Assistant Commissioner (CT) when there was no further evidence of movement of goods in addition to the
fact that some dealers were non-existent and registration cancelled in respect of some dealers?
The facts giving rise to the present revision petitions are as follows. The respondent-Tvl.Gupta Iron & Steel Company are the dealers in iron and
steel. For the assessment year 1989-90, the assessee reported Nil taxable turnover and total turnover of Rs. 57,87,441.69. Their place of
business was inspected by the officers of Enforcement Wing on 26.2.90 and based on the details gathered from the assessee during spot enquiry
and the verification of records in the assessment circle, it was noticed that certain purchases were made by the assessee from non-existing dealers
and whose registration were cancelled prior to the purchase. The details of the non-existing dealers are Tvl.Omega Enterprises, S.M.Traders and
Steel Syndicate. Similarly for the assessment year 1992-93, it was noticed that the purchases were made from non-existing dealers. Based on the
inspection, notices were issued to the assessee and revised assessment orders together with penalty u/s 12(3) at the rate of 150 per cent of the tax
due were confirmed by holding that the assessee did not prove the bona fide of the purchase and there were no materials to prove the genuineness
of the purchase and that such purchases were made from non-existing dealers namely, Santhi Traders and Selvam Traders whose registration had
been cancelled prior to the date of purchase.
Questioning the assessment orders, the assessee preferred two appeals before the Appellate Assistant Commissioner(CT), Chennai, who also
found that the alleged purchases were made by the assessee from non-existing dealers whose registration were cancelled prior to the purchases.
Nevertheless, the Appellate Assistant Commissioner found that the assessee can be taken to have purchased the goods representing 50 per cent of
the escaped turnover from local dealers and therefore to that extent the sale should be taken to be second sale. Accordingly, the first appellate
authority adopted the ratio of 50:50 for the disputed turnover, namely, as first sale and second sale respectively and ordered exemption on the
turnover in respect of the second sales on the ground that all the purchases had been made from local dealers. Simultaneously, the first appellate
authority also reduced the penalty in respect of the assessment year 1989-90 and no penalty was imposed in respect of the assessment year 1992-
93.
The said orders were questioned by the Revenue before the Tamil Nadu Sales Tax Appellate Tribunal. The Appellate Tribunal also confirmed
the orders of the Appellate Assistant Commissioner by holding that at the time when the purchases were made by the assessee, the dealers in
question were registered in the books of the assessing authority and that the assessee had produced the copy of the registration certificates of the
dealers to establish that they had made the purchases from registered dealers and accordingly granted the exemption on the 50 per cent turnover
as second sales. Challenging the above order, the present tax case revision petitions have been filed by the Revenue.
We heard the learned Special Government Pleader (Taxes) for the petitioner and the learned counsel for the respondent.
We have considered the rival submissions and perused the records as well. The assessing authority, on the basis of the inspection made by the
Enforcement Wing, factually found that the purchases were made by the assessee from non-existing dealers. The assessing authority also factually
found that the registration certificates of the dealers in question were cancelled much prior to the purchases effected. Hence, the assessing authority
re-determined the total and taxable turnover of the assessee on the ground that no material evidence was produced by the assessee to claim
exemption as second sales. This being a factual finding, the first appellate authority has rightly appreciated the issue and also concurred with the
finding of the assessing authority in holding that the dealers in question did not have the valid registration on the date when the purchases were
made by the assessee. Nevertheless, once the said finding was rendered, the first appellate authority ought to have confirmed the order of the
assessing authority instead of giving the benefit to the assessee on the presumption that the assessee can be taken to have purchased the goods
representing 50 per cent of the escaped turnover from local dealers and therefore to that extent the sale should be taken to be second sale. In our
opinion, this finding is not supported by any material and is only on presumption. Once the assessing authority factually found that the purchases
were effected by the assessee from non-existing dealers without any valid registration on the date of purchases and the said finding was confirmed
by the first appellate authority, there is no other option left to the first appellate authority but to confirm the order of re-assessment, rather giving the
benefit to the assessee on presumption. The Appellate Tribunal has committed further error in confirming the order of the first appellate authority
by holding that the purchases had been made from the local dealers and that the assessee could be made entitled for 50 per cent exemption as
second sales. Here again the finding of the Appellate Tribunal is contrary to the materials gathered at the time of inspection and also contrary to the
factual finding of both the assessing authority and the first appellate authority.
It is the contention of the learned counsel for the respondent-assessee that once the invoices were produced by the assessee to show that the
purchases had been made, the burden of proof u/s 10 of the Tamil Nadu General Sales Tax Act lies only with the dealer and not on the assessee.
Hence the returns should have been accepted and confirmed for exemption. In our opinion, the said contention cannot be accepted. Section 10
contemplates that for the purpose of assessment of tax under the Act, the burden of proof that any transaction or turnover of a dealer is not liable
to tax shall lie on such dealer. This provision would apply only in case of an existing dealer. In the event the materials show that the dealers are
non-existing and there were no registration on the date of sale, they will be only called as bill traders. In such circumstances, the question of placing
reliance on Section 10 by the assessee does not arise. When the exemption of tax on second sales is sought to be claimed by the assessee, it is for
the assessee to establish that the transactions were bona fide on two aspects, namely, (i) that the purchases were made by the assessee and the
goods so purchased had suffered tax already and (ii) that such purchases were made from the dealers whose registration were in force on the date
of purchases. This onus cannot be shifted from the assessee by placing reliance on Section 10 of the Act.
The learned counsel for the respondent-assessee also placed reliance upon a judgment of this Court in National Iron Traders v. State of Tamil
Nadu, (1997) 106 STC 42 and contended that once the bills were produced with all particulars, it should be deemed that the assessee had
discharged the burden. In our opinion, the said judgment is not applicable to the facts of the case. In that case, this Court was considering the case
of purchase of goods from registered dealers as found by the first appellate authority. With that factual finding, this Court found that for the
purpose of second sales, it is enough for the assessee to produce the particulars that the purchase was made from the dealer and in such event the
burden had been discharged. In the given case, when the assessee has not produced any material to show that the purchases have been made and
the goods had suffered tax that too from the registered dealers, the reliance placed on the above judgment cannot be accepted. Inasmuch as the
assessing authority as well as the first appellate authority factually found that the purchases were effected by the assessee from non-existing dealers
and their registration certificates were cancelled prior to such purchases, the first appellate authority as well as the Appellate Tribunal cannot come
to a different conclusion contrary to the materials to hold that the dealers had valid registration certificates on the date of purchase by the assessee.
To this extent, the findings of both the first appellate authority and the Appellate Tribunal are perverse. On the facts of the case, when once it is
found that there were no materials to show that the purchases were made from the dealers with valid registration certificates, the only course open
to the authorities is to deny the exemption as to the second sales. For the foregoing reasons, the tax case revision petitions deserve to be allowed.
Accordingly, both the tax case revision petitions are allowed and the substantial question of law is answered against the assessee, but in favour of
the Revenue. No costs.