Somnath Dey Vs. C.T.O. and ors. - Court Judgment

Excerpt:
1. the applicant before us is a partner of luxmi narayan steel industries of andul road, chunubhati, howrah, which is engaged in manufacture of m.s. round bars and ribbed bars, and is a registered dealer on that count. the firm claims that it also takes material from other dealers for conversion of the same into m.s. round bars and ribbed bars against conversion charges. during the period of four quarters ending on march 31, 1987 the firm had a gross receipt of rs. 34,60,794.77. the firm's case is that out of the said gross receipt, rs. 9,64,287.50 was received as conversion charges and that the said amount of conversion charges consisted of rs. 3,31,622.50 as received from jaiswal steel industries and rs. 6,32,665 as from steel and hardware stores, of 23a, netaji subhas road, calcutta. during the assessment, the commercial tax officer (hereinafter referred to as, "the cto") while allowed receipt of rs. 3,31,622.50 as conversion charge, disallowed the balance amount on the ground that steel & hardware stores was, on local verification, found non-existent at the given address. the applicant alleges that the c.t.o. rejected books of accounts and treated the said transaction of alleged conversion work as sale suppression. fixing the conversion charge of re. 1 per k.g. the c.t.o. concluded that 632.665 metric tons of finished products were involved in such suppressed sale. taking rs. 7 as the sale price of a kg. of the finished product the c.t.o. fixed the value of the sale involved at rs. 44,28,655 and assessed tax accordingly and levied also interest and penalty thereon. aggrieved by such levy of tax, interest, etc., the applicant preferred an appeal, but the appellate authority (respondent no. 2) affirmed the assessment order. after a revision was filed, the west bengal commercial taxes appellate and revisional board (the revisional authority) affirmed the rejection of books of accounts and also approved the enhancement of gross turnover ; but the board set aside the order of assessment and the order of the appellate authority on the ground that the basis for calculations was wrong. the imposition of penalty and interest was also set aside on the ground that the same was illegal and arbitrary. the applicant-firm dissatisfied with the decision of the board relating to conversion job, has filed before this tribunal the instant application under section 8 of the west bengal taxation tribunal act, 1987.2. the main contention of the applicant-firm is that the respondents not having found any discrepancy in the books of accounts should not have treated a part of the receipt for conversion jobs as turnover of suppressed sales. its further contention is that if a dealer from whom conversion jobs were taken is found non-existent at the declared place of business several years after the actual conversion job, it (the firm) cannot be faulted for that and cannot be penalised by disbelieving its claim relating to conversion job. the applicant prays for a declaration that rs. 6,32,665 is the genuine receipt as conversion charges and is not liable to be taxed and that the impugned orders of the respondent nos. 1, 2 and 3 are illegal.3. the respondents in their affidavit-in-opposition have disputed the applicant's claim as regards a sum of rs. 6,32,665 on the ground that steel & hardware stores from whom the applicant claims to have received the said sum as conversion charge never existed at the given address at the material time or even at any time and this was established by local verification. according to the respondents, the initial onus to prove its case lies on the applicant-firm and it has miserably failed to discharge such onus. while disputing all the material averments of the applicant-firm the respondents submit that the assessing authority was justified to consider the disputed amount as the manipulation for suppression of sales, and to proceed accordingly. on the said ground the respondents defend the impugned orders of the respondents nos. 1, 2 and 3.4. the gross turnover has been enhanced by the c.t.o. by an amount of rs. 44,28,655 because he disbelieved the story of conversion job done for steel and hardware stores.5. the only issue before us is whether the respondent nos. 1, 2 and the board were unjustified in disbelieving the applicant's plea that rs. 6,32,665 was received from steel & hardware stores as conversion charge.6. the undeniable position is that the firm at its factory manufactures its products, viz., m.s. round bars and ribbed bars for sale in the market and also receives by way of job contract, from other concerns, materials for conversion into identical products against conversion charges. therefore, if certain quantity of finished products is undisputedly taken out of the factory premises for delivery to another party (not being an agent of the firm), the same must be either in course of sale transaction or by way of delivery of the product to a concern who gave the raw materials for conversion against conversion charges. there can be no third possibility nor has the applicant claimed any such third possibility. admittedly, certain quantity of finished products was taken out in the name of steel & hardware stores (hereinafter referred to as "the store"). now, if it is found that the store is a fictitious concern having no existence in reality at the relevant time the story of giving raw materials by such concern to the applicant-firm for the purpose of converting the same into such finished product against conversion charges will definitely fall through. in such event, the inescapable conclusions are that such products as were taken out in the name of the store were nothing but the product which the firm has manufactured out of its own raw material and that the removed quantity of the product from the manufactory in the name of the store was in reality in course of sale transactions not disclosed in the books of accounts of the firm.7. there is no gainsaying of the fact that the store was not in existence at present nor could the c.t.o. on enquiry trace out the existence of any such concern during the course of assessment proceeding. all the three fact-finding authorities below have made the concurrent finding as to the fictitious nature of the store and treated the story of conversion job for the store as unworthy of credence. this tribunal should not interfere with such concurrent findings on facts by the fact-finding authorities below unless the same are shown to be totally perverse. mr. m.l. bhattacharyya has contended that before coming to such finding the applicant was not given adequate opportunity of being heard and that had such an opportunity been given, the applicant-firm could have established its case. but before the appellate authority and the board the applicant had the full opportunity of disputing the correctness of the finding on the point and yet no attempt was made by it to adduce any cogent evidence in support of its claim. even during the hearing before us when asked as to what additional evidence could the firm produce had it been given opportunity, mr. bhattacharyya could not give any specific answer but simply submitted that after such a long lapse of time the applicant is not supposed to keep proofs, besides the challans of the store for despatch of raw materials and that the applicant is under no obligation to keep the dealer, i.e., the store, at the given address for verification of the transaction. even the petition before us and the grounds for revision (enclosed with the application) do not go beyond this plea. therefore, the plea of lack of opportunity is of little significance. the applicant-firm could not have improved its case. it is beyond comprehension how a concern having transaction of lakhs of rupees with a single party (the applicant), having activities of purchase of raw materials worth huge sums and ultimate sale transactions in respect of finished goods could totally disappear without trace leaving no record of its existence anywhere either in the municipal corporation's record for the purpose of trade licence or with the landlord of the building or with its customers. the applicant could have made ventures to explore these avenues for some proof. a mere plea that the firm has no obligation to keep all material particulars of his customer is not enough.8. the bills drawn by the firm on the so-called steel hardware stores refer to order numbers of the latter concern. but the firm has not produced a single order for scrutiny of the same vis-a-vis the other documents whereon the firm rests the claim of conversion job. the applicant during the hearing before us submitted that it has filed all documents available in his custody, without making any whisper about those job-orders the number of which has been mentioned in the bills.mr. m.c. mukhopadhyay, learned state representative, contends that the firm was not in possession of any such order and that unilateral creation of some challans will not be enough to prove existence of the said stores. be that as it may, there is no explanation why the orders were not produced.9. secondly, there is a very unusual mode of payment in respect of that disputed transaction. the firm has shown in its books of accounts the payment of rs. 6,32,665 by several instalments in cash and each time payment is stated to have been made by a sum more than a lakh of rupees. we agree with mr. mukhopadhyay that the alleged payment of such considerable sums of money in cash is unusual in the context of the present day commercial practice as well as safety and security. payment of such big sums of money in cash may arise on exceptional circumstances but the story of alleged payment of the entire amount of rs. 6,32,665 in cash weakens the credibility of the firm's story in the absence of any special circumstance. it is not the applicant's case that with other parties too it had all transaction in cash by such big sums of money. mr. mukhopadhyay contends that had there been a genuine dealer named steel & hardware stores payment should have been made in cheques and that might justify the genuine existence of a concern with such name. we find some substance in his argument.10. again mr. mukhopadhyay brands all the challans and the bills (pages 21 to 28 of the application with their annexures) relating to the store as fabrication to prop up a false story of conversion. without indulging in any elaborate scrutiny of these documents we may point out that mr. bhattacharyya has failed to explain how a genuine bill dated july 12, 1986 could contain entry in respect of a challan dated july 19, 1986 (vide page 26 of the application).11. having considered all these aspects we are unable to hold that the impugned findings of the respondents nos. 1 and 2 and the board relating to so-called conversion job were perverse.12. we, however, note that the c.t.o. calculated the total weight of the finished product despatched in the name of conversion job to be 632.665 m.t. on an assumption that the conversion charge is at the rate of re. 1 per kg. it is not clear wherefrom he got this rate. it is the rate which was charged on the other undisputed concern, viz. jaiswal steel industries the rate as mentioned in the bill is, on an average rs. 1.95 per kg. this aspect has been fully dealt with by the board in its judgment. the matter requires reconsideration as directed by the board. as regards charging of interest the board has based its finding on the correct position of law. we find no ground to interfere with the same. as regards the penalty, the board's direction for reconsideration should in our opinion remain. the quantum of penalty must be commensurate with the quantum of suppressed sale which can be calculated on the basis of the rate of conversion charge as mentioned above.13. thus, we find nothing to interfere with the finding and the order of the board. whatever mistakes committed by the assessing authority or the appellate authority have been duly taken care of by the board in its judgment.14. hence, the petition is dismissed and the order of the board is affirmed. we make no order as to costs.

Judgment:
1. The applicant before us is a partner of Luxmi Narayan Steel Industries of Andul Road, Chunubhati, Howrah, which is engaged in manufacture of M.S. round bars and ribbed bars, and is a registered dealer on that count. The firm claims that it also takes material from other dealers for conversion of the same into M.S. round bars and ribbed bars against conversion charges. During the period of four quarters ending on March 31, 1987 the firm had a gross receipt of Rs. 34,60,794.77. The firm's case is that out of the said gross receipt, Rs. 9,64,287.50 was received as conversion charges and that the said amount of conversion charges consisted of Rs. 3,31,622.50 as received from Jaiswal Steel Industries and Rs. 6,32,665 as from Steel and Hardware Stores, of 23A, Netaji Subhas Road, Calcutta. During the assessment, the Commercial Tax Officer (hereinafter referred to as, "the CTO") while allowed receipt of Rs. 3,31,622.50 as conversion charge, disallowed the balance amount on the ground that Steel & Hardware Stores was, on local verification, found non-existent at the given address. The applicant alleges that the C.T.O. rejected books of accounts and treated the said transaction of alleged conversion work as sale suppression. Fixing the conversion charge of Re. 1 per k.g. the C.T.O. concluded that 632.665 metric tons of finished products were involved in such suppressed sale. Taking Rs. 7 as the sale price of a kg. of the finished product the C.T.O. fixed the value of the sale involved at Rs. 44,28,655 and assessed tax accordingly and levied also interest and penalty thereon. Aggrieved by such levy of tax, interest, etc., the applicant preferred an appeal, but the appellate authority (respondent No. 2) affirmed the assessment order. After a revision was filed, the West Bengal Commercial Taxes Appellate and Revisional Board (the revisional authority) affirmed the rejection of books of accounts and also approved the enhancement of gross turnover ; but the Board set aside the order of assessment and the order of the appellate authority on the ground that the basis for calculations was wrong. The imposition of penalty and interest was also set aside on the ground that the same was illegal and arbitrary. The applicant-firm dissatisfied with the decision of the Board relating to conversion job, has filed before this Tribunal the instant application under Section 8 of the West Bengal Taxation Tribunal Act, 1987.

2. The main contention of the applicant-firm is that the respondents not having found any discrepancy in the books of accounts should not have treated a part of the receipt for conversion jobs as turnover of suppressed sales. Its further contention is that if a dealer from whom conversion jobs were taken is found non-existent at the declared place of business several years after the actual conversion job, it (the firm) cannot be faulted for that and cannot be penalised by disbelieving its claim relating to conversion job. The applicant prays for a declaration that Rs. 6,32,665 is the genuine receipt as conversion charges and is not liable to be taxed and that the impugned orders of the respondent Nos. 1, 2 and 3 are illegal.

3. The respondents in their affidavit-in-opposition have disputed the applicant's claim as regards a sum of Rs. 6,32,665 on the ground that Steel & Hardware Stores from whom the applicant claims to have received the said sum as conversion charge never existed at the given address at the material time or even at any time and this was established by local verification. According to the respondents, the initial onus to prove its case lies on the applicant-firm and it has miserably failed to discharge such onus. While disputing all the material averments of the applicant-firm the respondents submit that the assessing authority was justified to consider the disputed amount as the manipulation for suppression of sales, and to proceed accordingly. On the said ground the respondents defend the impugned orders of the respondents Nos. 1, 2 and 3.

4. The gross turnover has been enhanced by the C.T.O. by an amount of Rs. 44,28,655 because he disbelieved the story of conversion job done for Steel and Hardware Stores.

5. The only issue before us is whether the respondent Nos. 1, 2 and the Board were unjustified in disbelieving the applicant's plea that Rs. 6,32,665 was received from Steel & Hardware Stores as conversion charge.

6. The undeniable position is that the firm at its factory manufactures its products, viz., M.S. round bars and ribbed bars for sale in the market and also receives by way of job contract, from other concerns, materials for conversion into identical products against conversion charges. Therefore, if certain quantity of finished products is undisputedly taken out of the factory premises for delivery to another party (not being an agent of the firm), the same must be either in course of sale transaction or by way of delivery of the product to a concern who gave the raw materials for conversion against conversion charges. There can be no third possibility nor has the applicant claimed any such third possibility. Admittedly, certain quantity of finished products was taken out in the name of Steel & Hardware Stores (hereinafter referred to as "the store"). Now, if it is found that the store is a fictitious concern having no existence in reality at the relevant time the story of giving raw materials by such concern to the applicant-firm for the purpose of converting the same into such finished product against conversion charges will definitely fall through. In such event, the inescapable conclusions are that such products as were taken out in the name of the store were nothing but the product which the firm has manufactured out of its own raw material and that the removed quantity of the product from the manufactory in the name of the store was in reality in course of sale transactions not disclosed in the books of accounts of the firm.

7. There is no gainsaying of the fact that the store was not in existence at present nor could the C.T.O. on enquiry trace out the existence of any such concern during the course of assessment proceeding. All the three fact-finding authorities below have made the concurrent finding as to the fictitious nature of the store and treated the story of conversion job for the store as unworthy of credence. This Tribunal should not interfere with such concurrent findings on facts by the fact-finding authorities below unless the same are shown to be totally perverse. Mr. M.L. Bhattacharyya has contended that before coming to such finding the applicant was not given adequate opportunity of being heard and that had such an opportunity been given, the applicant-firm could have established its case. But before the appellate authority and the Board the applicant had the full opportunity of disputing the correctness of the finding on the point and yet no attempt was made by it to adduce any cogent evidence in support of its claim. Even during the hearing before us when asked as to what additional evidence could the firm produce had it been given opportunity, Mr. Bhattacharyya could not give any specific answer but simply submitted that after such a long lapse of time the applicant is not supposed to keep proofs, besides the challans of the store for despatch of raw materials and that the applicant is under no obligation to keep the dealer, i.e., the store, at the given address for verification of the transaction. Even the petition before us and the grounds for revision (enclosed with the application) do not go beyond this plea. Therefore, the plea of lack of opportunity is of little significance. The applicant-firm could not have improved its case. It is beyond comprehension how a concern having transaction of lakhs of rupees with a single party (the applicant), having activities of purchase of raw materials worth huge sums and ultimate sale transactions in respect of finished goods could totally disappear without trace leaving no record of its existence anywhere either in the Municipal Corporation's record for the purpose of trade licence or with the landlord of the building or with its customers. The applicant could have made ventures to explore these avenues for some proof. A mere plea that the firm has no obligation to keep all material particulars of his customer is not enough.

8. The bills drawn by the firm on the so-called Steel Hardware Stores refer to order numbers of the latter concern. But the firm has not produced a single order for scrutiny of the same vis-a-vis the other documents whereon the firm rests the claim of conversion job. The applicant during the hearing before us submitted that it has filed all documents available in his custody, without making any whisper about those job-orders the number of which has been mentioned in the bills.

Mr. M.C. Mukhopadhyay, learned State Representative, contends that the firm was not in possession of any such order and that unilateral creation of some challans will not be enough to prove existence of the said stores. Be that as it may, there is no explanation why the orders were not produced.

9. Secondly, there is a very unusual mode of payment in respect of that disputed transaction. The firm has shown in its books of accounts the payment of Rs. 6,32,665 by several instalments in cash and each time payment is stated to have been made by a sum more than a lakh of rupees. We agree with Mr. Mukhopadhyay that the alleged payment of such considerable sums of money in cash is unusual in the context of the present day commercial practice as well as safety and security. Payment of such big sums of money in cash may arise on exceptional circumstances but the story of alleged payment of the entire amount of Rs. 6,32,665 in cash weakens the credibility of the firm's story in the absence of any special circumstance. It is not the applicant's case that with other parties too it had all transaction in cash by such big sums of money. Mr. Mukhopadhyay contends that had there been a genuine dealer named Steel & Hardware Stores payment should have been made in cheques and that might justify the genuine existence of a concern with such name. We find some substance in his argument.

10. Again Mr. Mukhopadhyay brands all the challans and the bills (pages 21 to 28 of the application with their annexures) relating to the store as fabrication to prop up a false story of conversion. Without indulging in any elaborate scrutiny of these documents we may point out that Mr. Bhattacharyya has failed to explain how a genuine bill dated July 12, 1986 could contain entry in respect of a challan dated July 19, 1986 (vide page 26 of the application).

11. Having considered all these aspects we are unable to hold that the impugned findings of the respondents Nos. 1 and 2 and the Board relating to so-called conversion job were perverse.

12. We, however, note that the C.T.O. calculated the total weight of the finished product despatched in the name of conversion job to be 632.665 M.T. on an assumption that the conversion charge is at the rate of Re. 1 per kg. It is not clear wherefrom he got this rate. It is the rate which was charged on the other undisputed concern, viz. Jaiswal Steel Industries The rate as mentioned in the bill is, on an average Rs. 1.95 per kg. This aspect has been fully dealt with by the Board in its judgment. The matter requires reconsideration as directed by the Board. As regards charging of interest the Board has based its finding on the correct position of law. We find no ground to interfere with the same. As regards the penalty, the Board's direction for reconsideration should in our opinion remain. The quantum of penalty must be commensurate with the quantum of suppressed sale which can be calculated on the basis of the rate of conversion charge as mentioned above.

13. Thus, we find nothing to interfere with the finding and the order of the Board. Whatever mistakes committed by the assessing authority or the appellate authority have been duly taken care of by the Board in its judgment.

14. Hence, the petition is dismissed and the order of the Board is affirmed. We make no order as to costs.