MAESTRO COOLING TOWERS v. STATE OF KERALA. — 1996 DIGILAW 150 (KER)

JUDGMENT The judgment of the Court was delivered by V. V. KAMAT, J. - The order of the Sales Tax Appellate Tribunal, Additional Bench, Palakkad, in T.A. No. 539 of 1988, dated March 13, 1992, upsetting the order dated June 16, 1988 of the Appellate Assistant Commissioner of Agricultural Income-tax and Sales Tax, Palakkad, cancelling the penalty proceedings before the Intelligence Officer, Palakkad, is the subject-matter of the present revision case under section 41 of the Kerala General Sales Tax Act, 1963. 2. The Intelligence Officer initiated proceedings under section 29A of the Kerala General Sales Tax Act in regard to interception of lorry No. KLZ-5991 at Sales Tax Check-post, Walayar, on January 20, 1987. The lorry was transporting cooling tower materials and components from Madras to Cochin. The check-post authorities were suspicious about the documents accompanying the transport. Notice and subsequent enquiries proceeded. The present petitioners filed replies on the basis of the material, the trial authority (annexure A) imposed penalty in the nature of adjustment towards the security deposit of Rs. 45,540 realised from the petitioner on February 5, 1987, as per the cash receipt. The authority reached the conclusion on the basis that the consignor is a supply contractor and therefore has to be a registered dealer under the Kerala General Sales Tax Act and consequently, by reason of non-taking of registration even at the time of the order, there being an attempt as such at evasion of tax, there is no question of refund of security deposit collection. 3. However, the first appellate authority (the Appellate Assistant Commissioner, Agricultural Income-tax and Sales Tax, Palakkad) disagreed with the conclusions of the Intelligence Officer. Reading the order placed for supply, the only document tendered on record, the appellate authority reached the factual conclusion that the supply is made in pursuance of the orders placed by the Cochin Shipyard Ltd. with the appellant and the transaction is inter-State sales which would be more obvious from the charging of tax at 10 per cent under section 3 of the Central Sales Tax Act. The appellate authority found that the Cochin Shipyard had placed order for supply of cooling materials as per the order dated August 26, 1986 for Rs. 1,49,000. The appellate authority found that the Cochin Shipyard had placed order for supply of cooling materials as per the order dated August 26, 1986 for Rs. 1,49,000. The appellate authority considered the order because it was in pursuance of the said order the goods were despatched in lorry KLZ-5991 with the delivery note dated January 18, 1987, prescribed under the Tamil Nadu General Sales Tax Act. It is observed in the context that the lorry is intercepted suspecting evasion of tax on two grounds, namely, (a) the consignee's registration number not seen quoted in the delivery note produced, (b) the value is seen subsequently written in the delivery note produced and therefore bona fides of the transport and thereby evasion became the basis of suspicion. 4. In this context the appellate authority recorded that the appellant had produced the certificate of consignee showing the registration number under both the Acts obtained from the assessing authority, Ernakulam. With regard to the addition of the value found in the delivery note, the appellate authority found the difference as regards the use of carbon paper as a routine affair and not a basis for suspicion that prompted the check-post authorities. The authority observed that naturally carbon paper readily available is taken for use and as such the factors do not make out a case as a fit one for imposition of penalty. 5. On facts the authority found that the Cochin Shipyard Ltd., placed orders with the appellant for supply of materials which were despatched in the lorry accompanying the delivery note dated January 18, 1987. The value of goods as seen from the pro forma invoice dated January 15, 1987, would show at Rs. 1,15,000 and 10 per cent Central sales tax at Rs. 11,500 making a total at Rs. 1,26,500, making it crystal clear that the transaction was an inter-State sales in pursuance of the purchase order placed by the consignee. The value of goods as seen from the pro forma invoice dated January 15, 1987, would show at Rs. 1,15,000 and 10 per cent Central sales tax at Rs. 11,500 making a total at Rs. 1,26,500, making it crystal clear that the transaction was an inter-State sales in pursuance of the purchase order placed by the consignee. The authority also held that the position is clear from the sale bills that 10 per cent Central sales tax were charged and there is no material to show that this order could be said to be in pursuance of a supply contract in view of the position that the goods were supplied in pursuance of the purchase order issued by the consignee and therefore consequently the transaction would be in the course of inter-State sales coming under section 3(a) of the Central Sales Tax Act. 6. This view is upset by the Appellate Tribunal (annexure C) by the order dated March 13, 1992. 7. After quoting verbatim the findings of the Intelligence Officer and the first appellate authority, the Tribunal has reproduced the order placed by the Cochin Shipyard. It is necessary and is as follows : ---------------------------------------------------------------- "Please arrange to supply the following materials as per conditions of purchase on the back hereof : Quantity Unit price Total Rs. Rs. 1. Spares for cooling tower Lump sum Lump sum 1,30,000 model 372-102 as per attached annexure. 2. Labour charges for cooling 19,000 tower dismantling and re-erection after replacement item at SER 1. -------- 1,49,000 -------- Note : 1. The materials are to be guaranteed for its trouble-free operation for 5 years from the date of erection. 2. The dismantling and erection will be arranged by the supplier at their own risk and cost and no responsibility whatsoever will be entertained by CSL. Delivery period : Supply will be completed within 8-12 weeks (before 30-11-1986) and dismantling/re-erection will be completed before 31-12-1986. Terms of delivery : Free delivery at CSL stores. Mode of transport : By road preferably through Transport Corporation of India Limited. Insurance : To be arranged by you at your cost. Payment : Within 30 days of completion of work." ----------------------------------------------------------------- On reading of the order the Tribunal considered it to be a case of works contract to the effect that the spares are to be delivered at Cochin Shipyard Ltd., stores on specified conditions overleaf the purchase order. Insurance : To be arranged by you at your cost. Payment : Within 30 days of completion of work." ----------------------------------------------------------------- On reading of the order the Tribunal considered it to be a case of works contract to the effect that the spares are to be delivered at Cochin Shipyard Ltd., stores on specified conditions overleaf the purchase order. The reasoning is as follows : "From the above, it is clear that the respondent-assessee has been entrusted with the work of dismantling and re-erecting the cooling tower. It is a case of works contract. It is pertinent to note that the spares are to be delivered at CSL stores and the insurance charges is to be borne by the respondent-assessee. The materials are to be guaranteed for its trouble-free operation for five years from the date of erection. All these facts indicate that it is a case of works contract and not inter-State sale of materials as contended by the respondent-assessee. The respondent-assessee is therefore liable to sales tax under the KGST Act on the completion of the work. They have not got themselves registered under the Act. Hence the enquiry officer was justified in concluding that there was an attempt to evade payment of tax due under this Act. We, therefore, set aside the order of the Appellate Assistant Commissioner, and restore the order of the enquiry officer." The Tribunal comes to the conclusion that it is a case of works contract and not inter-State sale of materials leading to the situation that there is a liability to sales tax on the completion of the work and because there is no registration under the Act, the penalty is justifiable as there is an attempt to evade payment of tax. 8. Considering the situation it would be seen that in a proceeding under section 29A of the Kerala General Sales Tax Act, 1963, the basic requirement that there is or there has been an attempt to evade tax due under the Act is a pre-condition of sustenance of an action for imposition of penalty. The undisputed facts make it abundantly clear that the petitioner transported the goods on the basis of an order, quoted above, from the Cochin Shipyard Ltd. The supply was inter-State. The undisputed facts make it abundantly clear that the petitioner transported the goods on the basis of an order, quoted above, from the Cochin Shipyard Ltd. The supply was inter-State. Merely by reason of the fact that the petitioner is not registered, by a process of an inductive leap of reasoning it cannot be inferred that there is any attempt to evade the tax due under the Act. We find from the careful perusal of the three orders that this statutory requirement as a pre-condition for sustenance of the penalty order is conspicuous by its absence of consideration by the three authorities. It is more than settled that the penalty order cannot get justification on the basis of technical compliances, on the basis of non-registration as isolatory factors, in the absence of any material to display many more things which are necessary to spell out an attitude of evasion to pay the tax due under the Act. The position is more than well-settled by a catena of decisions in regard thereto Thommen v. State of Kerala 1994 KLJ (TC) 477, McDowell & Co. Ltd. v. Sales Tax Officer (Enquiry), Kasaragod [1993] 91 STC 610 (Ker); 1993 KLJ (TC) 394, Gentle Joseph & Co. v. State of Kerala [1993] 89 STC 494 (Ker) and Rams v. Sales Tax Officer [1993] 91 STC 216 (Ker); 1993 (2) KLT 219, to the effect that sustenance of the imposition of penalty requires genuine and real satisfaction on the basis of the material on record that there is some kind of a deliberate attempt to evade the tax due under this Act. The penalty proceeding, in our judgment, is therefore liable to be cancelled on this threshold, there being no material for reaching the satisfaction of the above statutory requirement. 9. We further find from the material on record that the transaction is to be understood on the basis of the order placed by the Cochin Shipyard Ltd., reproduced hereinbefore, being dated August 26, 1986, the one which was found at the time of interception on January 18, 1987 as document accompanying the transport. We have already reproduced the contents of the said order hereinbefore. Reading the order, as it would be revealed from the very first two lines thereof that it is a request to supply the material as per the conditions of purchase on the back - overleaf - conditions Nos. We have already reproduced the contents of the said order hereinbefore. Reading the order, as it would be revealed from the very first two lines thereof that it is a request to supply the material as per the conditions of purchase on the back - overleaf - conditions Nos. 1 and 2 are general conditions with regard to guarantee of the material in the process of utilisation and operation thereof for a specified period of five years. Secondly the condition also speaks of the arrangement regarding dismantling and erection. It also speaks of the delivery period, emphasised on free delivery at Cochin Shipyard Ltd. stores, prescribing the mode of transport by road preferably through the Transport Corporation of India Ltd. Reading the text of the material, because there is nothing else other than this purchase order to appreciate the situation as peculiarities of the facts and circumstances of the proceeding before us, in our judgment, it would have to be understood as the purchase order as has been rightly considered by the first appellate authority. The purchase order is for supply of goods from Madras at the Cochin Shipyard Ltd. Stores, free delivery by road through the transport specified as preference are the facets of the order apart from the two aspects with regard to the guarantee and arrangement in regard thereto. In the absence of any other material it would not be possible to link it as a works contract on the facts and circumstances of the case. Even all this much would not be necessary in the light of the next aspect for consideration, but we state this as this is the isolated material on record asking us to infer the transaction as a works contract which is not possible as a factual peculiarity. 10. Be that as it may, assuming that even the document read in isolation, is a case of works contract, it would not be a salvation because even if in the process of executing a works contract, a transfer of property in goods takes place in the course of an inter-State sale, the State would not get any power to levy tax on such a transfer, in view of the declaration of law in the context by the Supreme Court [1987] 73 STC 370 (Builders Association of India v. Union of India). Therefore even on an alternative assumption of the supply being under the works contract, the proceeding would not get any kind of justification. For the above reasons the revision case is allowed and consequently the impugned order (annexure C) gets quashed and set aside and in its turn the order dated June 16, 1988 of the Appellate Assistant Commissioner, Agricultural Income-tax and Sales Tax, Palakkad (annexure B) in S.T. Appeal No. 150 of 1987 is endorsed and confirmed, whereby the penalty proceedings stand cancelled. Order accordingly. Petition allowed.