1. This tax appeal case is against the order of the Joint Commissioner (SMR) of Commercial Taxes, Chennai in Ref. No. M2/9025/92 dated February 26, 1993. The facts leading to the present appeal are as follows : 2. The assessing authority in TNGST No. 208826/89-90 dated September 15, 1989, passed orders by determining the provisional assessment by disallowing the claim of exemption with reference to the purchases from M/s. Rekha Distributors for the months of April and May 1989. The assessing authority held that M/s. Rekha Distributors were only bill traders and therefore it was proposed to disallow the exemption. The sales turnover disallowed was Rs. 2,24,543 for April, 1989 and Rs. 1,26,690 for the month of May, 1989. The assessee filed a revision petition before the Deputy Commissioner of Commercial Taxes against the provisional assessment. The Deputy Commissioner of Commercial Taxes, Coimbatore Division, in the order passed on March 22, 1990 confirmed the order of the assessing authority. While confirming the order, the Deputy Commissioner of Commercial Taxes observed that the registration of the sellers, namely, M/s. Rekha Distributors, Madras was not renewed for the assessment year 1989-90 and therefore the seller was not a registered dealer for the assessment year 1989-90. No documents for transport of goods were produced at the time of provisional assessment.
Even the transport documents produced before him showed that the sale bills have not been sealed at the check-post on the way and therefore the transport documents do not appear to be genuine. Even in respect of cheque payments made through Syndicate Bank, Coimbatore, the sellers obtained the money of Rs. 1,44,330 in cash across the counter from the bank after being identified by the appellants. Therefore it was construed by the Deputy Commissioner of Commercial Taxes that the selling dealer was not a genuine dealer. The assessee filed second revision before the Joint Commissioner of Commercial Taxes (Revision Petition) Chennai. When the revision petition was pending, the assessing authority finalised the assessment of the assessee for the year 1989-90 by disallowing the claim of exemption with reference to the purchases from M/s. Rekha Distributors, Chennai and brought to assessment a turnover of Rs. 3,50,663 taxable at 10 per cent. In the first appeal, the Appellate Assistant Commissioner observed that the assessee filed bills obtained from the sellers, namely, M/s. Rekha Distributors for the receipt of the goods and the bills disclosed the registration certificate number, sufferance of tax, the movement of goods from Madras to Coimbatore. Further freight has been paid as per the way-bills for the transport of goods to Coimbatore. Thus, the assessee has proved with reference to the available records that the sellers, namely, M/s. Rekha Distributors were existing dealers having registration number and that the bills issued by them are not bogus.
However, the Revenue failed to establish that the bills produced by the assessee were bogus and that they were not really issued by the sellers. On that basis, relief was granted on a turnover of Rs. 3,50,663 by treating the sales as second sales at the hands of the assessee. This order of the Appellate Assistant Commissioner was proposed to be revised in the suo motu revision by observing that M/s.
Rekha Distributors whose registration was cancelled already for the year 1989-90 were bill traders. Further, the proof for despatch was also not adduced. After considering the objections, the Joint Commissioner of Commercial Taxes observed that the Appellate Assistant Commissioner allowed the claim of the assessee on the basis of bills issued by M/s. Rekha Distributors, Madras and the evidence shown by way of lorry receipts towards transportation of the goods and also the cheques issued to M/s. Rekha Distributors by the assessee. However, the fact remains that the sellers, namely, M/s. Rekha Distributors were not registered dealers as the registration for the year 1989-90 was not renewed by the sellers. Further, though there are many check-posts on the way from Madras to Coimbatore, none of the bills issued by the sellers contained any seal of the check-post. Thus the lorry receipts for freight payments do not prove conclusively the movement of goods.
Even the payments made by cheque were found to be paid across the counter to M/s. Rekha Distributors after obtaining necessary identification from the assessee. Based on the above observation, the Joint Commissioner of Commercial Taxes stated as follows : "Only in cases wherever no actual movement of goods, cheques would be issued and encashed across the counter instead of realising the amounts through the banks of the sellers in order to avoid proof of accounting. If this is considered, the realisation of all the cheques across the counter throws ample light as to the shady dealings by this assessee with the alleged sellers, namely, Rekha Distributors." 3. Thereafter, referring to the records of M/s. Rekha Distributors, the Joint Commissioner of Commercial Taxes observed that even the assessments for the year 1987-88 and 1988-89 were to the best judgment in the absence of accounts and that as early as on November 28, 1988, it was found that there was no person in the premises declared as the business premises of M/s. Rekha Distributors. On February 9, 1989 a detailed enquiry was conducted which revealed the non-existence of M/s.
Rekha Distributors in the declared premises. The investigation by the department also revealed the non-existence of M/s. Rekha Distributors.
A verification of the person who signed as witness in the registration application showed that he had no knowledge of the dealer while signing as a witness for registration in the application. On the basis of the show cause notice issued on February 16, 1989 to M/s. Rekha Distributors, Chennai for the non-existence at the place of business, by proceedings dated April 28, 1989 the registration certificate of M/s. Rekha Distributors was cancelled. Therefore the Joint Commissioner of Commercial Taxes observed that from April 1, 1989 onwards M/s. Rekha Distributors did not exist as a dealer and therefore the transactions disallowed for the months of April, 1989 and May, 1989 are quite in order. Referring to the records of M/s. Rekha Distributors, the Joint Commissioner of Commercial Taxes further observed that it was evident that one R.S. Metha acted as a dummy man for Thiru Savarilal so as to obtain a registration certificate and to act under the name of R.S.Metha. The house owner who rented the premises to R.S. Metha was also enquired on February 15, 1990 and he stated that the premises were rented to Metha for business from February, 1987 and the premises was vacated after six months and thereafter the whereabouts of the said Metha was not known. After narrating all these events, while reversing the order of the Appellate Assistant Commissioner in this case, the Joint Commissioner of Commercial Taxes observed as follows : "So far as this case is concerned and consequently hold that the sellers had only issued bills without actual movement of goods and in the absence of any concrete proof of existence of the earlier sellers, the earlier taxable liability has not been categorically proved by the buyers and therefore the assessing authority was fully justified in rejecting the second sales claim made by this assessee.
Consequently, I set aside the order of the learned Appellate Assistant Commissioner in part and restore a turnover of Rs. 3,33,855 with attendant tax and surcharge thereon after adding 9.31 per cent towards gross profit on the actual purchase value of Rs. 3,05,420 because the assessing officer had proceeded to determine the total and taxable turnover of the assessee only with reference to net purchase value by adding the book gross profit of 9.31 per cent." 4. Mr. K. Ramagopal, the learned counsel for the appellant, contended that in this case, the Appellate Assistant Commissioner granted relief on the basis of bills issued by existing sellers, the lorry way-bills showing movement of goods from Madras to Coimbatore and the payments effected by issuing cheques to the sellers. Thus, the assessee has proved that the sales effected by him are only second sales and that the sellers, namely, M/s. Rekha Distributors alone are liable to tax as first sellers. In such circumstances, the Joint Commissioner of Commercial Taxes was not justified in reversing the order of the Appellate Assistant Commissioner. On the basis of the records of M/s.
Rekha Distributors, the sellers, the claim of exemption relating to the assessee cannot be rejected. Neither the absence of check-post seals in the bills nor the encashment of cheques across the counter will result in denial of exemption to the appellant in this case. M/s. Rekha Distributors were registered dealers during 1987-88 and 1988-89 and in such circumstances, the non-renewal of registration during 1988-89 should not be held against the appellant who has obtained clear bills for purchases effected from the sellers during April 1989 and May 1989 as held in Sree Narayan Timbers v. Joint Commissioner (Commercial Taxes) reported in [1990] 78 STC 195 (Mad.).
"Where goods are liable to single point tax at the point of first sale in the State, once the fact that the first sale is a taxable sale is established, the second sale cannot be brought into the net of taxation simply on the ground that the first sale was not by a registered dealer." 5. Similarly, in the case of Lakshmi Steel Traders v. Board of Revenue (Commercial Taxes) reported in [1991] 82 STC 409 (Mad.), it was held that the closing down of the business of the selling dealers during the assessment year was not sufficient to conclude that the sales in question were not taxable sales. In the absence of the Revenue establishing that the bills produced by the assessee are bogus and were not really issued by the first seller, then the assessee cannot be denied the exemption on the second sales. As observed by the Madras High Court in P. Narayanasamy v. State of Tamil Nadu reported in [1997] 104 STC 421, the Joint Commissioner of Commercial Taxes cannot rely upon the extraneous materials, which were not on record before the order was passed by the lower authorities so as to resort to suo motu revision order. Thus in this case, the reliance placed on the records of M/s. Rekha Distributors really vitiate the suo motu revision order of the Joint Commissioner of Commercial Taxes. Further, as held by the Kerala High Court in N.S. Choodamani v. Commissioner of Income-tax reported in [1959] 35 ITR 676, the materials gathered from the proceedings of another dealer were not legal evidence in the proceedings against the assessee, inasmuch as the assessee had no opportunity to cross examine the other dealer.
6. Mr. M. Venkateswaran, the learned Senior Standing Counsel, supported the order of the Joint Commissioner of Commercial Taxes and stated that the Joint Commissioner of Commercial Taxes while reversing the order of the Appellate Assistant Commissioner has confined to the records before him though a reference was made to the investigation done by the department in regard to the sellers, namely, M/s. Rekha Distributors.
7. We have considered the contentions carefully and perused the records. According to the observations of the Supreme Court in State of Tamil Nadu v. Govindan & Co. reported in [1994] 93 STC 185, "to claim benefit of tax on the ground that the sales effected by the assessees were second sales, they need not show that their sellers had in fact paid the tax at the first point and it was enough for them to show that the earlier sales were taxable sales and that the tax was really payable by their sellers." 8. In the present case, the assessing authority disallowed the claim because the sellers, namely, M/s. Rekha Distributors, Chennai were bogus dealers and that the registration was not renewed for the assessment year 1989-90. Even when the assessee preferred a revision against the provisional assessment, the Deputy Commissioner of Commercial Taxes clearly held that the assessee did not show any transport documents before the assessing authority and that the documents shown before him also did not bear the check-post seals and that payment have been obtained in cash against the cheques issued after the sellers have been identified at Coimbatore by the assessee.
With this back ground, if we look at the order of the Joint Commissioner of Commercial Taxes, we find that the order of the Appellate Assistant Commissioner who relied on the bills and waybills so as to allow the claim of the assessee was reversed only by categorically stating once again the reasons urged by the Deputy Commissioner of Commercial Taxes in the revision petition against the provisional assessment order so as to conclude that the taxable sales at the earlier stage did not take place. The Joint Commissioner of Commercial Taxes has clearly showed that there was no evidence for movement of goods from Madras to Coimbatore inasmuch as in none of the bills there was any seal by even one of the check-posts situated on the highway from Madras to Coimbatore. This fact was not disputed even before us. In the light of the above position, if the payments obtained in cash from the bank at Coimbatore is considered, clearly it shows that though purchases were effected for a sum of Rs. 3,05,420 for two months, the payments were made through bearer cheques so as to enable the person to obtain the money in cash. In fact, the cash payments were made at Coimbatore itself and that too after the beneficiary being identified by the issuer of the cheques, namely, the appellant in this case which clearly established no real transaction. Thus we find that the conclusion reached by the Joint Commissioner of Commercial Taxes that there was no taxable sale inasmuch as there was no movement of goods and that the seller was also not in existence as per the investigation done by the department on February 9, 1989 is in order and that the denial of exemption in the absence of showing any earlier taxable sale and also that the tax was payable by such seller really requires no interference by us. It is also seen that the department took action to verify the existence of the seller on February 9, 1989 and finding the non-existence of the seller, namely, M/s. Rekha Distributors issued show cause notice on February 16, 1989 and eventually cancelled the registration on April 28, 1989. Thus, the statement of the Joint Commissioner of Commercial Taxes that the sellers were not in existence from April 1, 1989 is to be accepted. In the decision reported in [1990] 78 STC 195 (Mad.) [Sree Narayan Timbers v. Joint Commissioner II (Commercial Taxes)], the first seller was a registered dealer for the year 1980-81 and because he failed to renew registration for the year 1981-82, the registration was cancelled on August 16, 1981 with effect from April 1, 1981 though the transactions in dispute took place on August 9, 1981. Only in that context, it was held that the exemption claimed as second sales by the dealer cannot be rejected. In the decision reported in Lakshmi Steel Traders v. Board of Revenue (Commercial Taxes) [1991] 82 STC 409 (Mad.) also, the observation of the High Court was that merely on the closure of the business by the sellers during the assessment year, the sale bills issued by the sellers subsequent to the date of closure reported cannot be rejected without further investigation as to the genuineness of the transaction. In the decision reported in P. Narayanasamy v. State of Tamil Nadu [1997] 104 STC 421 (Mad.), the Appellate Assistant Commissioner granted relief on July 28, 1989 by holding that the assessee was only decorticating groundnut gathered from the ryots and that the assessee is not a dealer in groundnut. However, the Joint Commissioner of Commercial Taxes on the basis of reports gathered subsequently on March 18, 1993, April 15, 1993 and May 11, 1993 came to the conclusion that the assessee is a dealer in groundnut. Only in the context, the Madras High Court set aside the order passed by the Joint Commissioner of Commercial Taxes by holding that the finding arrived at by the Joint Commissioner of Commercial Taxes based on records gathered subsequent to the order of the Appellate Assistant Commissioner was not sustainable. In the reported decision in N.S. Choodamani v.Commissioner of Income-tax [1959] 35 ITR 676 (Ker), originally for the assessment year 1943-44, one "H" was assessed as the sole owner of cloth business conducted in his name. In the appeal before the Appellate Assistant Commissioner "H" contended that the business carried on in his name was benami and the real owner was N.S.V. family.
The Appellate Assistant Commissioner rejected the claim of "H". In the second appeal, the Appellate Tribunal directed the Income-tax Officer to make further investigation in the matter. In the proceedings before the Appellate Tribunal "C" gave evidence on behalf of the N.S.V. family but neither the N.S.V. family nor "C" was permitted to cross-examine "H". However, the assessment reopened in respect of the N.S.V. family was set aside in the appellate forum on the ground that there was no evidence to fix the ownership of the business with the N.S.V. family.
Meanwhile, a notice was issued under Section 34 to "C" and "H" as an "association of persons" requiring the association to furnish a return of income for the year 1943-44. This notice was served only on "C" and not on "H". The Income-tax Officer assessed "C" and "H" as "association of persons" by rejecting the objections of "C". "C" appealed against the order by contending that the finding that "C" and "H" formed an "association of persons" was based on evidence taken in the assessment proceedings of "H" which was not admissible in these proceedings.
Adverting to the significant fact that even "H" in the original proceedings against him had never contended that there was a partnership between him and the family or "C", the Appellate Assistant Commissioner held that there was no evidence to show that there was any such partnership as held by the Income-tax Officer. On further appeal, the Appellate Tribunal found that "C" had vital role in the business, but that there was no clear evidence as to how the profits were enjoyed between "H" and "C", and restored the assessment on the "association of persons", namely, on "C" and "H". On a reference, the Madras High Court among others, held that the material gathered in the assessment proceedings of "H" were not legal evidence in the assessment proceedings against "C" and another and that the statements of "H" in those proceedings were valueless inasmuch as "C" had no opportunity to cross-examine "H".
9. However in the present case before us as discussed supra, the revenue has established that the sellers, namely, M/s. Rekha Distributors did not renew the registration for the assessment year 1989-90 and that the department has also after investigation of the sellers on February 9, 1989 issued a notice for cancellation of registration on February 16, 1989 and eventually passed an order cancelling the registration on April 28, 1989. In fact, the cancellation of registration in this case was on the basis of the dealer not being found at the place of business. This is not a mere case of cancellation for non-renewal alone and the registration cancellation is on the basis of investigation done by the department after noticing no business activity at the place of business of sellers on February 9, 1989. Therefore, this is not a case of closed business during the assessment year as considered in the decision reported in Lakshmi Steel Traders v. Board of Revenue (Commercial Taxes) [1991] 82 STC 409 (Mad.) or a mere cancellation of registration of a dealer doing business merely on the fact of non-renewal of registration as considered in the decision reported in Sree Narayan Timbers v. Joint Commissioner II (Commercial Taxes) [1990] 78 STC 195 (Mad.). The Joint Commissioner of Commercial Taxes has referred to the absence of check-post seals and payment across the counter in his order and these were the facts considered as far back as on March 22, 1990 by the Deputy Commissioner of Commercial Taxes while dismissing the revision petition filed against the provisional assessment wherein the claim of exemption with reference to purchases from M/s. Rekha Distributors was rejected by the assessing authority. Therefore, the reliance placed on the decision reported in P. Narayanasamy v. State of Tamil Nadu [1997] 104 STC 421 (Mad.) is not relevant. It is not a case of reports gathered subsequent to the disposal of the appeal by the Appellate Assistant Commissioner on September 11, 1991. The materials were on records on the basis of investigation done by the department even prior to the order passed by the Appellate Assistant Commissioner on September 11, 1991. As observed by us earlier, the Revenue has established the fact of no movement of goods from Madras to Coimbatore.
In fact, the payment across the counter of the bank at Coimbatore against bearer cheques clearly shows that the person identified by the assessee in this case was considered as the seller, namely, M/s. Rekha Distributors. It is true that a statement given in the assessment proceedings of the sellers, namely, M/s. Rekha Distributors cannot be relied on while making the assessment of the appellant in this case in terms of the decision of the Kerala High Court reported in N.S.Choodamani v. Commissioner of Income-tax [19591 35 ITR 676. However, in the present case, the Joint Commissioner of Commercial Taxes has referred to the statement of R.S. Metha in the file of the sellers, namely, M/s. Rekha Distributors in order to show that a registration certificate was obtained for bogus activities. However, ultimately, the Joint Commissioner of Commercial Taxes has relied on the fact regarding non-movement of goods which proved the issue of bills only without parting with the goods so as to fix the liability on the assessee.
Thus, the conclusion reached by the Joint Commissioner of Commercial Taxes was with reference to the materials available on record and not with reference to any extraneous materials gathered subsequent to the order passed by the Appellate Assistant Commissioner. Therefore, the reliance placed on the decision reported in N.S. Choodamani v.Commissioner of Income-tax [1959] 35 ITR 676 (Ker) also is not relevant to the present case.
10. On the whole, we find that it has been clearly established that the sellers, namely, M/s. Rekha Distributors were not doing business during 1989-90 and that really no movement of goods took place from Madras to Coimbatore as contended and in such circumstances, as the appellant in this case has not proved that the earlier sales were taxable sales and that tax was payable by the earlier sellers in terms of the ratio of the decision of the Supreme Court in State of Tamil Nadu v. Govindari & Co. [19941 93 STC 185, the conclusions reached by the Joint Commissioner of Commercial Taxes so as to assess a turnover of Rs. 3,33,855 by adding gross profit of 9.31 per cent on the purchase value of Rs. 3,05,420 is fully justified and there is no case to interfere and accordingly the tax appeal case is dismissed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 1st day of February, 2001.