Lakshmi Trade Credits Limited. Vs. the State of Tamil Nadu. - Court Judgment

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[chitra venkataraman; k.ravichandra baabu, jj.] - tamil nadu general sales tax act, 1959 - section (2), 3-a(2)(b), 16(2), 16(1) -- whether for imposition of penalty under section 16(2) of the tamil nadu general sales tax act, 1959,  a finding of wilful non disclosure is necessary. while making assessment, the assessing officer also levied penalty on the suppressed turnover under section 16(2) of the tamil nadu general sales tax act.  aggrieved by this, the assessee went on further appeal before the sales tax appellate tribunal. learned counsel for the assessee pointed out that the assessee had placed before the assessing authority the assessable turnover on the leasing transactions.tax case revisions to revise the order of  the tamil nadu sales tax appellate tribunal (additional bench), chennai dated 1.2.2000 in t.a.no. 500/99, 501/99 and 502/99 respectively.chitra venkataraman; k.ravichandra baabu, jj.order(order of the court was made by chitra venkataraman,j)1. the assessee is on revisions as against the order of the tribunal. the above revisions are admitted on the following common questions of law:-(i) whether for imposition of penalty under section 16(2) of the tamil nadu general sales tax act, 1959,  a finding of wilful non disclosure is necessary?(ii) whether, when the petitioners had completely disclosed their turnover pertaining to the transaction with alsa, but only claimed deduction, the petitioners could be stated to have not disclosed their turnover within the meaning of section 16(2) of the tamil nadu general sales tax at, 1959?"2. the assessment years under consideration are 1994-95, 1995-96 and 1996-97 respectively. the petitioner is a company engaged in the hire purchase and leasing. during the assessment years under consideration, the petitioner herein leased out centering sheets to m/s. also investments limited. in respect of all lease transactions, originally, the petitioner's claim for deduction under section 3-a(2)(b) of the tamil nadu general sales tax act, 1959, was allowed, thereby, the taxable turnover was shown as nil. on 10.3.1998, there was an inspection in the petitioner's premises. at that time, the petitioner was informed that the sellers from whom the petitioner had purchased the centering sheets were fictitious persons. consequently,  the claim for exemption was not maintainable under the provisions of section 3-a(2)(b) of the act. in terms of the materials thus recovered, a notice of revision was issued under section 16 of the act. in respect of above said assessment years, the petitioner filed his objection contending that their leasing business for the past years had been carried on in the following manner viz., customers interested in entering into a leasing transaction with the assessee has to approach the assesse after identifying a prospective seller.  the customer would prepare a proposal form indicating the name of the proposed supplier from whom the petitioner would be required to effect purchase of the goods for the prospective lessee.  the proforma from the intended supplier would reveal description of the supplier, apart from the details of the goods proposed to be supplied, including the price at which it was going to be supplied at. thereupon, the assessee would verify the financial capacity of the proposed lessee.  then they would enter into a lease agreement. lease agreement contained the clause regarding the lessee having the sole responsibility for taking delivery and possession of the equipment leased in the agreement, the responsibility of packing, loading, incurring freight, transporting the goods, lease and unloading the same at the premises of the lessee.  except for stating that the ownership vested with the assessee herein, the lease agreement clearly imposes various obligations, which pointed out that the petitioner would never directly or indirectly interact with the seller identified by the lessee. the delivery challans were handed over to the assessee by the representative of the lessee and the sale invoice would be raised on the assessee by the seller. the covering letters addressed to the suppliers mentioned the name of "m/s.alsa investments private limited", to whom cheques are issued. the representative of the lessee would thereafter collect the sale price from the assessee.  as and when the cheques were honoured and the sale price realised, the acknowledgment of the receipt of the sale price would be handed over to the petitioner by the representative of the lessee.  thus, the assessee submitted that at no point of time, they had interacted with the supplier but the assessee had acted solely on the basis of the representation by the lessees. in the circumstances, the petitioner submitted that they were shocked to receive the notice informing about the non-existence of the suppliers. immediately thereon, the petitioner communicated with the lessee and sought for proof of the existence of sellers. in the meanwhile, it was found that there was no such sellers in the addresses mentioned in the sales invoices raised on the petitioner. as m/s.alsa investments private limited had not produced proof of the existence of the sellers, the petitioner became victims of the fraud played on them by m/s. also investments private limited.3. in the circumstances, the petitioner submitted that there was no non-disclosure to warrant levy of penalty. after considering the objection, assessment was made thereby, imposing liability on the assessee under section 3a of the tamil nadu general sales tax act. while making assessment, the assessing officer also levied penalty on the suppressed turnover under section 16(2) of the tamil nadu general sales tax act.  except for mere statement that, but for the inspection by the enforcement wing  officials the transaction would not have come to light, admittedly, there are no findings as regards wilful non-disclosure. aggrieved by this assessment, the assessee went on appeal before the appellate assistant commissioner, who confirmed the revision of assessment, including the penalty.  aggrieved by this, the assessee went on further appeal before the sales tax appellate tribunal.4. a perusal of the order of the tribunal shows that while the tribunal confirmed the quantum in the appeal, on the question of levy of penalty, it however pointed out that the assessee had paid the tax voluntarily. in the circumstances, the penalty was reduced from 150% to 50%.  on the question of wilful non-disclosure, the tribunal, however, relied on the decision of this court reported in 41 stc 375  the state of tamil nadu v. k.m.ayyanadar and co., and 98 stc 408  deputy commissioner of commercial taxes, trichy division, trichy v. v.r.kuppusamy gounder & sons as well as the order of the sales tax appellate tribunal (main bench) rendered in t.a.no. 164 and 165 of 1998 and confirmed the penalty to the extent of 50%. aggrieved by this, present tax case revisions are filed at the instance of the assessee.5. learned counsel for the assessee pointed out that the assessee had placed before the assessing authority the assessable turnover on the leasing transactions. but at no point of time, they had interacted with the sellers.  on the other hand, it acted on the basis of the representations made by the lessees only.  hence, the question of wilful non-disclosure of the assessable turnover did not arise. in any event, having regard to the fact that for the purpose of levy of penalty, there should have been a finding on wilful non disclosure, in the absence of any such discussion in the order,  levy of penalty has to be set aside.  in this connection, learned counsel for the assessee placed reliance on the decision reported in 44 stc 299  state of tamil nadu v.s.m.baba sahib, wherein this court reiterated the scope of levy of penalty under section 16(2) of the act, holding that for the purpose of levy of penalty under section 16(2), the mere use of the expression "suppression" in the order is not enough.  this court pointed out that a wilful non-disclosure of assessable turnover is a necessary ingredient to make out that part of the section, namely, a deliberate intention to suppress an assessable turnover, which should, in fact, have existed.  it is not possible to say, merely from the fact that there has been a reassessment of escaped turnover on the basis of best judgment, that there has been a wilful non-disclosure of assessable turnover.  there must be something to indicate that the turnover did in fact exist and that the assessee had wilfully not disclosed that assessable turnover. 6. per contra, learned special government pleader (taxes) appearing for the revenue sought to support the order of the assessing authority as well as the appellate authority on the ground that but for the inspection the turnover would not have come to light for re-opening of the assessment. thus, the question of giving any relief on the penalty will not arise.7. heard learned counsel for the assessee as well as the learned special government pleader (taxes).8. a perusal of the order of the assessment made in respect of above said years point out that except for mere statement that but for the inspection of the enforcement wing officials, the transactions would not have come to light, there is absolutely no discussion as to whether a wrongful claim was an intentional one so as to result in wilful non-disclosure. the assessee has explained the modus operandi of the leasing transactions and pointed out that at no point of time, the assessee had interacted with the supplier and acted only under the instructions of the lessee. the order of the assessing authority as well as the appellate authorities does not pay any attention to the aspect of the contention of the assessee in the matter of levying penalty. in the decision reported in 44 stc 299  state of tamil nadu v.s.m.baba sahib, this court pointed out to the earlier decision of this court reported in 39 stc 85  state of tamil nadu v. sri swamy & co., and held that wilful non-disclosure of assessment turnover is a necessary ingredient to make out that part of the section, namely, a deliberate intention to suppress an assessable turnover to attract levy of penalty under section 16(1) of the act.  a mere reassessment of escaped turnover, per se, would not lead to a finding that non-disclosure of assessable turnover was a wilful one.  this court pointed out that there must be something more to indicate that the assesee had wilfully not disclosed that assessable turnover. hence, this court held that in the absence of such a finding on wilful non-disclosure, there could be no question of levy of penalty under section 16 of the act.9. learned special government pleader could not point out any finding in the order of the assessing authority as regards this necessary ingredient on wilful non-disclosure so as to attract the levy of penalty under section 16(2) of the act. even though section 16(2) of the act had undergone amendment with effect from 20th may 1993, necessary ingredients of wilful non-disclosure including the penalty, remains as it is.  in the circumstances, we have no hesitation in setting aside the order of the tribunal, thereby allowing the above appeals by holding that in the absence of any finding as regards wilful non disclosure, the levy of penalty could not be sustained. no costs.