Introduction:
Under fiscal laws, and more particularly under Sales Tax Laws, many a time an issue arises as to whether any taxable transaction has taken place or not? The tax under Sales Tax Laws can be levied only if there is a transaction of sale or purchase, as the case may be. It is possible that on the facts of the case the dealer may be contending that his transaction is not sale/purchase transaction and hence no tax should be levied on the same. Under the above circumstances, dispute arises as to on whom the burden lies to prove the taxable event. There are a number of judgments throwing light on the said issue. Reference can be made to the following important judgments.
Judgments:
(a) Haleema Zubair Tropical Traders v. State of Kerala, (19 VST 142) (SC)
The gist of the judgment is as under:
The assessee was the proprietor of two concerns: Tropical Traders and Poseidon Food Co. Tropical Traders was a dealer in tiles, and, the business of Poseidon Food Co. was to render services to various exporters in respect of inspection and certification of quality of the items sought to be exported.
The assessee declared taxable turnover of Rs.28,20,474, being sale of goods, for the purpose of sales tax under the Kerala General Sales Tax Act, 1963. However, receipt shown as commission amounting to Rs.45,80,168 from the business of Poseidon Food Co. was also sought to be assessed by the Department on the ground that it was not supported and proved by any documentary evidence. Before the Appellate Authority the assessee produced the income-tax returns and the assessment orders as well as copy of orders placed by exporters and the certificate granted by the Marine Products Export Development Authority. The first Appellate Authority held that the profes-sional services rendered by the assessee to the exporters involving skill and knowledge did not constitute any transfer of property and that the levy of sales tax on the sum of Rs.45,80,168 was not in order. The Sales Tax Appellate Tribunal, however, reversed the decision of the first Appellate Authority on the ground that the onus was on the assessee to prove that the receipts were not the result of sale. The High Court dismissed the revision petition of the assessee as well as a review application.
On appeal, the Supreme Court, setting aside the decision of the High Court and remitting the matter to the Assessing Authority, held that the Assessing Authority ought to consider the matter afresh on the basis of the materials placed by the assessee, viz., income-tax returns, assessment orders, certificate issued by the MPDEA, etc.
This shows that the authorities are under obligation to consider the material placed before it and prove the taxable event. They cannot put such burden upon an assessee.
(b) Girdharilal Nannelal (39 STC 30) (SC)
The facts of the case can be noted as under:
The Sales Tax Assessing Authority treated a cash-credit entry of Rs.10,000 (which was declared as undisclosed income for income-tax purpose) in the account books of the appellant-firm in the name of the wife of one of its partners as income of the appellant out of concealed sales and added Rs.1,00,000 to the turnover of the appellant on the basis that the sum of Rs.10,000 represented 10% of the profit. The explanation offered by the appellant that the sum of Rs.10,000 was given by the partner of the firm to his wife to obtain her consent for his second marriage and that the amount was lying with her and had been deposited by her with the appellant was not accepted by the sales tax authorities. The High Court also was not satisfied with the explanation and inferred that the amount reflected profits of the appellant’s business and those profits arose out of sales not shown in the account books.
On further appeal, the Supreme Court held that in order to impose liability upon the appellant for payment of sales tax by treating the amount of Rs.10,000 as profits arising out of undisclosed sales of the appellant, two things had to be established: (i) The amount was the income of the appellant and not of the partner or his wife. (ii) The amount represented profits from income realised as a result of transactions liable to sales tax and not from other sources. The onus to prove the above two ingredients was upon the Department. The fact that the appellant or its partner and his wife failed to adduce satisfactory or reasonable explanation with regard to the source of that amount would not in the absence of some further material had the effect of discharging that onus and proving both the ingredients. In such a case no presumption arose that the amount represented the income of the appellant and not of the partner or his wife. It was necessary to produce more material in order to connect that amount with the income of the appellant as a result of sales. In the absence of such material, mere absence of explanation regarding the source of the amount would not justify the conclusion that the amount represented profits of the appellant derived from undisclosed sales.
The above judgment also further reiterates the principle that the burden lies on the Sales Tax Department, if it wants to levy sales tax.
(c) Mittal & Co. (69 STC 42) (All.) The gist of the judgment is as under:
The assessee did not maintain manufacturing account and contended that no sale was effected inside the State during the assessment year and the Assessing Officer estimated the sale on the ground that the assessee, in past, had effected sale inside the State. In revision the Allahabad High Court held that though the initial onus to establish that no sale was made by the assessee is on the assessee, no evidence could be adduced for establishing a negative fact. When the assessee denies the factum of sale, the onus shifts to the
Revenue to disprove the contention of the assessee.
This judgment also clearly lays down that negative burden cannot be cast on the assessee. It is the Department who has to bring evidence for justifying levy of tax.
(d) M. Appukutty v. STO, (17 STC 380) (Ker.)
The Kerala High Court observed that principles of natural justice demand that there should be a fair determination of a question by quasi -judicial authorities. Arbitrariness will certainly not ensure fairness. If giving a mere opportunity to show cause, and to explain, would satisfy the principles of natural justice, the notice to show cause be-comes an empty formality signifying nothing, for, after issuing the notice to show cause, the authority can decide according to his whim and fancy. The judicial process does not end by making known to a person the proposal against him and giving him a chance to explain. It extends further to a judicial consideration of his representations and the materials and a fair determination of the question involved.
If the quasi-judicial authority dis-regards the materials available or if it refuses to apply its mind to the question and if it reaches a conclusion which bears no relation to the facts before it, to allow those decisions to stand would be violative of the principles of natural justice. Arbitrary decisions can also, therefore, result in violation of the principles of natural justice which is a fundamental concept of Indian jurisprudence. If a decision is allowed to be made as it likes, it may amount to even a mala fide decision.
In particular the High Court observed as under:
“The rejection of the account books does not give the Taxing Authority a right to make any assessment in any way it likes without any reference to the materials before him. The process of best judgment assessment, whether it be one relating to income-tax, agricultural income-tax or sales tax, is a quasi-judicial process, an honest and bona fide attempt in a judicial manner to determine the tax liability of a person. And such determination must be related to the materials before the authority.”
Therefore, even in the best judgment assessment, the authorities are under obligation to refer to the material on record and to arrive at just and proper conclusion. In one way this judgment also casts burden on the authorities to establish taxable event before levy of tax.
Conclusion:
From the above precedents, it can very well be said that for levying tax, it is the duty of the taxing authority to prove the taxable event. Even in cases where dealer fails to prove his case, it will not automatically entitle the authorities to levy tax. In such cases also they will be required to bring sufficient supporting evidence about taxable event before levy of tax.
