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2014 DIGILAW 997 (GAU)

Devendra Sethia v. State of Assam

2014-11-14

K.SREEDHAR RAO, UJJAL BHUYAN

body2014
Order 1. The petitioner entered into a contract with Sahara Airlines for supply of food articles for catering to passengers in the aircraft of the latter. Rates at which the articles were to be supplied were finalised and incorporated in the agreement. Sales were virtually in the nature of bulk sales. The sales tax authorities found that the rates fixed for sales to the airliner was much lower than the market value of sales made by the petitioner at his restaurant, therefore disagreed with the rates shown for the sales made to the airliner as undervalued and with reference to the prices at which the articles sold at the restaurant is considered for assessment and also found that there is wilful evasion of tax and levied a maximum penalty. The petitioner aggrieved by the said order (at annexure G) filed this petition. The provisions of section 2(44) of the Assam Value Added Tax Act, 2003, hereinafter referred to as the AVAT Act, defines the "sale price" in the following manner : "'sale price' means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery of the goods other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged." 2. The provisions of section 78 of the AVAT Act is a provision where it is provided that if goods are undervalued the Department has power to purchase the said undervalued goods after giving reasonable opportunity of being heard to the owner of the goods. The provisions of section 78(1)is extracted hereunder for convenient reference. The provisions of section 78 of the AVAT Act is a provision where it is provided that if goods are undervalued the Department has power to purchase the said undervalued goods after giving reasonable opportunity of being heard to the owner of the goods. The provisions of section 78(1)is extracted hereunder for convenient reference. "Where in respect of any taxable goods, carried in a goods vehicle or held in stock by any dealer or on his behalf by any other person, or held in the custody of any transporter, the prescribed authority or any authority to assist the Commissioner under sub-section (2) of section 3, has reason to believe that the value disclosed in invoice, challan, stock transfer memo or any other related document is lower than the prevailing market price or maximum retail price, in case of packaged goods by a difference of thirty per cent or more of the prevailing market price or maximum retail price, as the case may be, such authority, for reasons to be recorded in writing, may purchase such goods. No such order for purchase shall be passed unless the person or dealer being dispossessed of such goods, is afforded a reasonable opportunity of being heard." 3. The counsel for the petitioner relied on the decision of a Division Bench of the Andhra Pradesh High Court in Delux Wines v. State of Andhra Pradesh reported in [1990] 77 STC 373 (AP), where the Andhra Pradesh High Court made the following observation (pages 388 and 389 in 77 STC): "Let us therefore, examine the scope and ambit of section 2(1)(s)(ii) and section 14B(1) of the Act as incorporated by the Amendment Act 18 of 1985. Section 14B(1) of the Act enacts that it shall be open to the assessing authority to determine the turnover to the best of his judgment if the assessee shows in his account sales or purchases of any goods at prices which are abnormally low when compared to the prevailing market prices of the goods. Sub-section (2) of section 14B enacts that in relation to such an assessment the provisions relating to imposition of penalty shall also apply. It is not in dispute that the Act does not define as to what is meant by the expression "prevailing market prices". Sub-section (2) of section 14B enacts that in relation to such an assessment the provisions relating to imposition of penalty shall also apply. It is not in dispute that the Act does not define as to what is meant by the expression "prevailing market prices". If section 14B(1) of the Act is sought to be applied to the commodities which are regulated by the statute, no problem arises, but it should be borne in mind that in respect of 99 per cent of the goods taxable under the A.P. General Sales Tax Act, there is no law or regulation prescribing fixed prices and prohibiting sales in excess of the fixed prices. It is therefore, open to the dealers to fix sale price of their goods depending upon various factors such as, purchase price, terms of sale, freight, creditworthiness, solvency of the buyers, their overheads and liquidity and the rapport with buyers. One dealer may make heavy turnover at lesser rate and make more profits with lesser overheads and another dealer may sell at higher rate and make less business with equal or less profit. It is common knowledge that in cases of cash sales, seller gives heavy discount to buyers. The Sales Tax Act cannot compel the sellers to sell their goods at a particular price. But section 2(1)(s)(ii) of the Act enacts that a dealer can be assessed on the turnover determined by the assessing authority where he is satisfied that the price charged by the dealer is low when compared to the prevailing market price thereby compelling the dealer to inevitably sell his products only at the alleged market rates as determined by the assessing authority as otherwise, the dealer would be not only liable to pay sales tax on the difference of turnover from out of his pocket, but also would stand exposed to penalty under section 14B(2) of the Act. Is there any legislative sanction for such a course? It should be borne in mind that the Act can only make such incidental or ancillary provisions to effectuate the levy and collection of sales tax. Section 2(1)(s)(ii) of the Act, if construed as enabling the assessing authority to estimate the turnover even in a case where a dealer who collected sale price as mentioned in the bill of sale, would become ultra vires of the Legislature. Section 2(1)(s)(ii) of the Act, if construed as enabling the assessing authority to estimate the turnover even in a case where a dealer who collected sale price as mentioned in the bill of sale, would become ultra vires of the Legislature. As already stated, the Act does not prescribe any method or manner of determination of "the prevailing market prices". No rules are either framed for the purpose. Section 14-B(1) of the Act as already stated contemplates best judgment assessment and estimate of turnover for levying tax if the assessing authority is satisfied that the prices charged by the dealer are abnormally low when compared to the prevailing market prices. The expression "abnormally low" is also not defined in the Act. Such a vague and uncertain provision is capable of being interpreted by each assessing authority according to his whims and fancies. While a particular authority may hold that variation of prices by 50 per cent as abnormally low, another authority may say even variation of prices by 10 per cent, is abnormally low." 4. In the cited case, the observation discloses that there was a provision under the Act where the goods are undervalued. There was discretion for the assessing authority to review the sale price with reference to market price. However, in the said observation it is laid down that the determination of the market price of most of the goods is not possible. 5. The counsel for the petitioner with reference to the provisions of section 78 of the AVAT Act and the decision in Delux Wines case [1990] 77 STC 373 (AP) submitted that the definition "sale price" under section 2(44) of the AVAT Act is distinct. There is no provision in the Act the assessing authority should consider the valuable consideration received by the dealer as the market price was determined by the prescribed manner. 6. In the instant case, the sales made are a bulk sale and the market is a competitive market. Merely because the sales made to the Sahara Airlines is much lower price than the price at which it is sold at the restaurant is not a ground in itself that the price is undervalued. The contract is a written contract and the amounts received are also assessable to income-tax. Both, the petitioner and the Sahara Airlines are income-tax assessees and the payments are made by cheques. The contract is a written contract and the amounts received are also assessable to income-tax. Both, the petitioner and the Sahara Airlines are income-tax assessees and the payments are made by cheques. In that view of the matter the view taken by the assessing authority that the sale price is undervalued and that assessing the goods at the market value is untenable. Accordingly the petition is allowed. 7. The counsel for the respondent submits that the order is an appealable order and the writ petition is not maintainable. In this regard the counsel relied on the decision of the Supreme Court in State of Tripura v. Manoranjan Chakraborty reported in [2001] 122 STC 594 (SC); [2001] 10 SCC 740 where the Supreme Court held that if gross injustice is done and it can be shown that for good reason the court should interfere then notwithstanding the alternative remedy which may be available by way of an appeal under section 20 or revision under section 21, a writ court can in an appropriate case exercise its jurisdiction to do substantive justice. 8. It is also a fact that the writ petition is of the year 2007 and it is admitted coming up for hearing after almost seven years. Therefore it is inequitable at this stage to drive the petitioner to have recourse to the remedy of appeal. With regard to the levy of maximum penalty this court in Braja Lal Banik v. State of Tripura reported in [1990] 79 STC 217 (Gauhati) held that for levy of maximum penalty substantial reasons have to be shown. Here (in this case) no substantial reasons have been shown. In that view of the matter the petition is allowed. The impugned order is set aside. In favour of Assessee.