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M/s. Minar Castings Pvt. Ltd., (Formerly Hadeed Steels Pvt. Ltd.), Kanjikode, Palakkad, Represented by Its Managing Director, A. Mohammed Shafi v/s State of Kerala, Represented by Its Secretary, Taxes Department, Govt. Secretariat, Thiruvananthapuram

    OT. Rev. No. 50 of 2016

    Decided On, 18 March 2020

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE A.M. SHAFFIQUE & THE HONOURABLE MR. JUSTICE P. GOPINATH

    For the Petitioner: Harisankar V. Menon, Meera V. Menon, Advocates. For the Respondent: Muhammed Rafiq, Sr. GP.



Judgment Text


Gopinath, J.

1. This Revision Petition has been filed challenging the order of the Kerala Value Added Tax Appellate Tribunal, Palakkad in TA (VAT)No.115/2015 dated 14-12-2015. The revision petitioner is engaged in the manufacture of MS ingots. For the assessment year 2019-2020, the assessment of the revision petitioner under the Value Added Tax was completed in terms of Annexure-A order dated 14.02.2012. We are concerned only with the one of the issues on the basis of which additions were made to the taxable turn over, which is the addition made on the basis of the allegation that there is sales suppression, since the value of the goods sold was less than the cost of the goods, on assessment in the manner set out in Annexure-A. The revision petitioner unsuccessfully challenged this addition before the Deputy Commissioner (Appeals) and the Kerala Value Added Tax Appellate Tribunal.

2. We have heard Sri. Harisankar V. Menon, learned counsel for the petitioner and Sri. Mohammed Rafiq, learned Senior Government Pleader (Taxes) on behalf of the respondent.

3. The learned counsel for the petitioner would contend inter alia that additions made to the taxable turn over on the ground that the sale price was below the cost incurred by the revision petitioner, cannot be sustained in the absence of any material to show that there has been suppression of sales turn over. It is his case that merely on account of the fact that certain loss was suffered during the year in question, the Department cannot take the stand that such loss is actually suppressed turnover. He also says that the reliance placed by the Tribunal on the decision of the Ernakulam Bench of the Appellate Tribunal in Tamil Nadu News Print and Papers Ltd. v. State of Kerala (2012) 20 KTR 14 (Tr) is misplaced and that the said judgment has been reversed by this Court through the judgment in O.T.Revn. No.9/2012 dated 24.2.2012.

4. On the other hand, the learned Government Pleader would submit that no person is expected to conduct his business at a loss and that the loss is actually nothing but suppression of taxable turnover. He would also argue that the judgment in O.T.Revn.No.9/2012 is completely different on facts and that we should not, therefore, apply the law laid down therein to the facts of this case. He would point out that the facts in O.T.Revn. No.9/2012 would reveal that, that was a case of stock transfer and the interdiction by the Division Bench in that case was on the assessment made on the basis that there was a difference in the value of stock transfer and the actual sale disclosed by the assessee therein . He would contend that we should take a different view, in the light of the fact that assessee in this case is engaged in manufacturing of MS ingots and therefore, that, it is not apposite for us to compare the situation in this case with the situation considered by this Court in O.T.Revn.No.9/2012.

5. Having bestowed our anxious considerations to the contentions raised by both sides, we proceed to hold as follows:-

The facts of the case and the various orders referred to above clearly show that the department had not conducted any independent verification of the sale price of MS ingots produced by the other manufacturers and that the allegation of suppression of sales turn over is based on no material other the fact that loss has been occasioned. We must agree with the contention of the learned counsel for the assessee on account of the fact that there is nothing on record to show that the Department had conducted any sort of investigation to determine whether there was purposeful attempt on the part of the assessee to suppress his taxable turnover by reducing the actual amount billed. As already indicated, this could have been easily verified by determining the price of similar products in the market. Apart from the bald assertion that the loss pre-supposses a suppression of taxable turnover, and an assertion that MS ingots have a ready market, there is nothing to suggest that the assessee was surreptitiously evading tax by reducing the actual amount billed. Without any cogent material to suggest that there has been suppression of the actual sales turnover, the Department cannot presume on the basis of surmises and conjunctures that there has been suppression of sales turnover. If such additions were permitted merely on the basis that there is a loss, it would amount to permitting the State to levy a tax, without authority of law and would thus be violative of Article 265 of the Constitution of India. While we accept the contention of the learned Government Pleader that the fact situation in O.T.Revn. No.9/2012 was different, we feel that the principle laid down in that case is that difference in stock transfer value and the sales turn over cannot be the sole basis for holding that there has been a suppression of the sales turnover. Of course, there may be cases, where the dealer purposefully and surreptitiously reduces the value of the goods sold in order to evade tax, but that does not mean that every time there is a loss, the Department must assume that this is on account of suppression of sales turnover. In other words, there must be some material (like a comparative study of the price of similar products) or other acceptable material before the Department can suggest that there has been a deliberate attempt to evade tax by under invoicing. The learned counsel for the the petitioner has also drawn our attention to the judgment of this Court in Classic Marbles v. State of Kerala [(2009) 25 VST 295(Ker)], wherein a Division Bench of this Court held as follows:-

“7. On thing is clear that even in the case of best judgment assessment, the assessing authority is expected to assign valid reasons, firstly, for rejecting the books of account and the return filed by the assessee. Secondly, even the best judgment assessment is an assessment and therefore, the assessing authority, on mere assumptions and presumptions, is not expected to make additio

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ns to the conceded turnover and also to the conceded gross profit in the return filed. There must be valid reason for the assessing authority to reject the returns filed and to proceed for the best judgment assessment.” The principle laid down by the Division Bench in the above judgment is squarely applicable to the facts of this case also. We, therefore, have no hesitation to hold that the addition of Rs.1,93,75,306/- to the disclosed turn over on account of loss in the sale of the product cannot be sustained. We, therefore, set aside the order of the Tribunal confirming that addition. We, therefore, allow this O.T. Revision, in the manner indicated above.
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