JUDGMENT
Venkataswami, J.
1. This tax case (appeal) is preferred against the order of the erstwhile Board of Revenue in B.P. Rt. No. 425 of 1980 dated 18th February, 1980.
2. The appellant-assessee returned a total and taxable turnover of Rs. 5,68,581.22 and “NIL” respectively, for the assessment year 1973-74 under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called “the Act”). The Joint Commercial Tax Officer, Tondiarpet, found that purchases of iron and steel for Rs. 1,51,747.66 were not supported by proper purchase bills and further the assessee was found to have purchased goods for Rs. 30,034.38 from outside the State. The sale out of local purchases was estimated at Rs. 1,74,509.80. On that basis, the assessing officer, by order dated 24th January, 1975, determined the total and taxable turnover at Rs. 5,67,509 and Rs. 2,11,443 respectively. Aggrieved by the order of the assessing officer, the appellant preferred and appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, on a perusal of the records, found that some of the local purchases of iron and steel for a sum of Rs. 1,10,110 out of Rs. 1,51,747.66 were from persons who were registered dealers and hence the same could not be subjected to tax when the appellant-assessee disposed of the same. Accordingly, the Appellate Assistant Commissioner deleted from taxable turnover Rs. 1,10,110.
3. The Board of Revenue, while reviewing the order of the Appellate Assistant Commissioner, found that the turnover amounting to Rs. 1,10,110 represents the purchases from three dealers, namely, Peeman Steel Corporation, Mohideen Traders and Manickam Enterprises of which, excepting Peeman Steel Corporation, the other two dealers, though were originally registered dealers, closed their business during 1973-74 and, therefore, the sales of iron and steel by those two dealers cannot be considered as taxable sales enabling the appellant to claim exemption on the sales of goods purchased from them. Accordingly, a notice was issued, inviting objections.
4. After hearing the appellant through its counsel and overruling the objections, the Board of Revenue held that the purchases from two dealers, namely, Mohideen Traders and Manickam Enterprises, amounting to Rs. 1,06,351 are not eligible for exemption, and on that ground, revising the order of the Appellate Assistant Commissioner, included that turnover in the taxable turnover.
5. Aggrieved by the order of the Board of Revenue, the present appeal is filed by the assessee.
6. Mr. Pramod Kumar Chopda, learned counsel appearing for the appellant, submitted that factually it has been found by the Board of Revenue that Mohideen Traders was a registered dealers and the business was found to have been closed during the year 1973-74. Likewise, Manickam Enterprises was also a registered dealer and they had closed their business only on 9th November, 1973. Though the purchases of iron and steel from those two dealers were subsequent to the closure of their business appellant-assessee cannot be imparted with the knowledge of the closure, to deprive the appellant-assessee from claiming exemption. According to the learned counsel, in those circumstances, the appellant-assessee is entitled to claim exemption on the sales of iron and steel on the ground that these purchases were from dealers whose sales alone were liable to tax as first sales. He cited a number of decisions of this Court in support of his contention. They are, Govindan & Co. v. State of Tamil Nadu reported in [1975] 35 STC 50, Deputy Commissioner (CT) v. Sivakumar and Company reported in [1980] 45 STC 436, State of Tamil Nadu v. Chamundeswari Enterprises reported in [1983] 52 STC 124, State of Tamil Nadu v. C. K. Gajapathy & Co. reported in [1984] 57 STC 137, State of Tamil Nadu v. J.C. Electricals reported in [1984] 57 STC 16, State of Tamil Nadu v. Devendra Electricals reported in [1984] 57 STC 17 [App.], State of Tamil Nadu v. P. M. Abdul Muthaliff and Bros. reported in [1991] 82 STC 405 supra; (1989) 31 STL 77, State of Tamil Nadu v. Raichael Chacko reported in [1985] 59 STC 144, State of Tamil Nadu v. A. R. Duraisamy Chettiar and Brothers reported in [1986] 61 STC 360 and M. S. Viswanathan & Co. v. State of Tamil Nadu reported in [1990] 76 STC 221.
7. The learned Additional Government Pleader, contending contra, submitted that factually when it has been found that the dealers from whom the appellant-assessee purchased iron and steel ceased to carry on business at the time of purchase, it cannot be considered that the assessee has proved that there were taxable sales to claim exemption. Therefore, the Board of Revenue was right in including the turnover in dispute in the taxable turnover. He also distinguished the cases cited by the learned counsel for the appellant-assessee.
8. To appreciate the rival submissions, it is advisable to set out the ratios laid down in the judgments cited above.
9. In [1975] 35 STC 50 (Mad.) (Govindan & Co. v. State of Tamil Nadu), Ramanujam, J., speaking for the Bench, has held as follows :
“Though the order of the Tribunal is one upholding the remit order passed by the Appellate Assistant Commissioner, the learned counsel for the petitioners contends that the direction of the Tribunal that the petitioners are to prove that the twelve dealers from whom they purchased the goods were real persons and that they had in fact paid the tax on the iron and steel is not correct and that it is not the duty of the petitioners to prove that their sellers have in fact paid the tax on their sales. The learned counsel appears to be right in his submission that the petitioners who claimed exemption from tax on the ground that their sales are second sales are bound to show that there has been an anterior taxable sale and that they need not prove that tax had in fact been paid on those anterior sales. To claim the benefit of tax on the ground that their sales are second sales, the petitioners need not show that their sellers have in fact paid tax and it is enough for them to show that the earlier sales are taxable sales and that the tax is really payable by their sellers. Therefore, the direction given by the Tribunal that the petitioners are to show that the tax has been paid by their sellers on the iron and steel goods sold by them to the petitioners does not appear to be correct.”
In [1980] 45 STC 436 (Mad.), [Deputy Commissioner (C.T.) v. Sivakumar and Company], Sethuraman, J., speaking for the Bench, has held as follows :
“……… As recorded by the Tribunal, the revenue did not deny that the dealers were in existence or that they were registered dealers. It was, however, stated that the registration has subsequently been cancelled. That would not be material so far as the assessee is concerned, because so long as the assessee’s purchases are second purchases from a person or persons who were then registered dealers, it would not be liable to be taxed under section 4.”
In [1983] 52 STC 124 (Mad.) (State of Tamil Nadu v. Chamundeswari Enterprises), Ramanujam, J., speaking for the Bench, has held as follows :
“The learned counsel for the revenue contends before us that the assessee must, for getting exemption in relation to his sale, not only show that his sale was not the first sale but also prove that the first sale has suffered tax in the State. We are not inclined to accept this proposition of law as correct. If the sale effected by the assessee is not the first sale, then under the provisions of the Act that sale cannot be brought within the net of taxation and it is for the revenue to search the first seller and levy tax on the first sale. It is not for the assessee, who is the subsequent seller, to show that the first sale has been taxed. Once it is found that the assessee’s sale is a subsequent sale and there has been a first sale in respect of the same goods earlier in the State, then it is for the authorities to proceed to levy that transaction of first sale, and the onus cannot be thrown on the assessee to show that the first sale has suffered tax. The onus on the subsequent seller is only to point out that there has been a first sale and the onus is not on him to show that the first sale has, in fact, suffered tax. This is the view this court has taken in two earlier decisions reported in Govindan & Co. v. State of Tamil Nadu [1975] 35 STC 50 and Deputy Commissioner (C.T.) v. Vijayalakshmi Mills Ltd. [1977] 40 STC 463. Thus, the contention advanced by the learned Government Pleader in this case that the onus is on the assessee to show that the first sale has suffered tax cannot legally be sustained.”
In State of Tamil Nadu v. J.C. Electricals [1984] 57 STC 16 (Mad.) and State of Tamil Nadu v. Devendra Electricals [1984] 57 STC 17 [App.] (Mad.), the Division Bench has applied the ratio in [1975] 35 STC 50 (Mad.) (Govindan & Co. v. State of Tamil Nadu). In [1984] 57 STC 137 (Mad.) (State of Tamil Nadu v. C. K. Gajapathy and Co.) which, on facts, is nearer to the facts of the present case, the learned Judges, following the decision in [1975] 35 STC 50 (Mad.) (Govindan & Co. v. State of Tamil Nadu) and [1983] 52 STC 124 (Mad.) (State of Tamil Nadu v. Chamundeswari Enterprises) have held as follows :
“………. The only contention urged by the Revenue is that even though the purchases are from a local dealer, the local dealer’s registration certificate having been cancelled even before the date of purchase, the sales could not be taxed, and therefore, the sales by the assessee should be taxed as first sales. The Tribunal considering the contention of the Revenue, held that the purchases by the assessee being from a local dealer, and the sales by the local dealer being taxable sales, the question whether he is a registered dealer or not is immaterial. In this view, the Tribunal held that the disputed turnover represents the assessee’s second sales and they are entitled to be exempted as second sales. That decision of the Tribunal has been challenged before us on the ground that the local dealer who sold the goods to the assessee had no valid registration certificate, his registration certificate having been cancelled earlier to the date of his purchases but notified later on 31st December 1980, in the Commercial Taxes Bulletin, and that since the goods had been purchased by the assessee at a time when his vendor had no valid registration certificate, the assessee’s sales should be taken as first sales. We do not see how the Revenue could put forward such a contention. If the assessee is able to show that there has been merely a taxable sale and its sale was only a second sale, it is entitled to claim exemption of its sales as second sales. In this case, Messrs. Premier Steel Distributors are admittedly dealers in stainless steel-waters. Even assuming as contended by the Revenue that they did not have a valid registration certificate, their sales are admittedly taxable. It is not the case of the Revenue that all sales effected by unregistered dealers are not liable to be taxed under the Act. As a matter of fact, if that were to be the position, all registered dealers would like to have their registration cancelled for the purpose of escaping from tax. Therefore, we are not in a position to accept the contention of the learned Government Pleader that merely because Messrs. Premier Steel Distributors were not registered dealers at the time when they sold the goods to the assessee, their sales are not taxable sales. It is not the case of the Revenue that Messrs. Premier Steel Distributors are not dealers and the sales effected by them were only casual and the sales have not been effected in their capacity as registered dealers. Once Messrs. Premier Steel Distributors are found to be dealers engaged in the manufacture or purchase or in the business of purchase and sale of stainless steel vessels, all sales effected by them are taxable sales. It has been held by the Court in Govindan & Co. v. State of Tamil Nadu [1975] 35 STC 50 and State of Tamil Nadu v. Chamundeswari Enterprises [1983] 52 STC 124 that if there is a prior sale in the State, the subsequent sales cannot be taken to be exigible for tax under the Act as second sales.”
In [1985] 59 STC 144 (Mad.) (State of Tamil Nadu v. Raichael Chacko) again, the ratio laid down on this issue is to the following effect :
“The substantial question before us is whether the Tribunal is right in holding that the sales to the assessee being second sales are not taxable in the assessee’s hands. In this case, the Tribunal has specifically found that the said two persons, Thompson and Jacob, were registered dealers on the books of the Sales Tax Department and their registration certificate Nos. were R.C. 521021 and R.C. 521145 respectively. They have registered themselves as dealers in rubber before the Rubber Board and their Rubber Board licences and registration certificates were also in force. The sale bills issued by the said two persons to the assessee contained Rubber Board licence number, registration certificate number, quantity, rate and the amount and also a certificate to the effect that the goods have already suffered tax in this State at the stage of the first sale. Before the Tribunal, the Revenue did not deny the fact that the two dealers, Thompson and Jacob, were in existence and they were registered dealers and the only contention of the Revenue was that the said dealers have purchased rubber from unknown sources. The Tribunal felt that the fact that these two dealers have purchased rubber from unknown sources is not quite relevant, for, they have certified that the goods have suffered tax at the first sale and the sale to the assessee was a second sale. It is no doubt true that the Revenue want to label them as bill traders, but on the materials on record which have been referred to above, the Tribunal held that the two persons, Thompson and Jacob, have been shown to be the dealers from whom the assessee has purchased rubber and the said two dealers are the first purchasers of rubber. We are of the view that the Tribunal has come to the right conclusion in this case. So long as the assessee’s purchases are second purchases from a person or persons who were then registered dealers, the assessee cannot be made liable to tax under section 3(2) of the Act. Once there has been an earlier purchase inside the State, it is for the Revenue to proceed against the first purchaser and merely because the first purchaser has not paid the tax, they cannot proceed against the second purchaser when the statute admittedly exempts the second sales from tax.”
In State of Tamil Nadu v. Duraisamy Chettiar & Brothers [1986] 61 STC 360 (Mad.) the contention of the Revenue that since the sellers though registered have not paid tax on their sale and so the assessee cannot have the benefit of second sales with regard to the said turnover, was not accepted, and the learned Judges applied the principles laid down in Govindan & Co. v. State of Tamil Nadu [1975] 35 STC 50 (Mad.) and State of Tamil Nadu v. Chamundeswari Enterprises [1983] 52 STC 124 (Mad.).
10. On going through the decisions reported in M. S. Viswanathan & Co. v. State of Tamil Nadu [1990] 76 STC 221 (Mad.) and State of Tamil Nadu v. Abdul Muthaliff [1991] 82 STC 405 (Mad.) supra; (1989) 31 STL 77 (Mad.), we find that they are not quite apposite for the present purpose.
11. From a perusal of the various judgments referred to above and the ratios laid down therein, it can be safely taken that if an assessee establishes that a particular turnover represents second sales of goods taxable at the point of first sale and the first sale was by a dealer liable to pay tax, then the Revenue cannot deny the exemption on the second sales merely on the ground that the registration certificate of the first seller was cancelled during the assessment year in question or immediately before the purchase by the assessee, namely, the second seller. We must, however, add that the assessee (second seller) must establish that the first sale was a taxable sale, and whether the tax had been paid by the first seller or not is not the concern of the assessee (second seller). We would like to add that the Revenue cannot take advantage of the fact of cancellation of the registration certificate of the first seller either on his application or otherwise, without further investigating as to whether the bills issued by such dealers were read or bogus bills. In the event of the Revenue establishing that the bills produced by the assessee (second seller) are bogus and were not really issued by the first seller, then the assessee cannot claim exemption on the alleged second sales. In that situation, the assessee’s sale will be the first sale.
12. Bearing these principles in mind, let us now look into the reasons based on which the Board of Revenue interfered with the order of the Appellate Assistant Commissioner granting exemption. In respect of sales by Mohideen Traders and Manickam Enterprises, the Board of Revenue, while negativing the exemption, observed as follows :
“……. Mohideen Traders was no doubt a registered dealer on the file of the Deputy Commercial Tax Officer, Vadapalani. However, the business was found to have been closed during 1973-74 and they were not engaged in doing the business in iron and steel. Similarly, Manickam Enterprises though a registered dealer with the Joint Commercial Tax Officer, Nungambakkam, had closed their business on 9-11-1973. The bills produced at the time of hearing were subsequent to this. When they have closed the business, the alleged sales to the assessee could not have taken place. It is true that the assessee filed some bills in support of the purchase from these two dealers. But in the light of the fact that the business itself did not function, it cannot be said that there was a genuine transaction for sale and purchase. Even according to the decision of the High Court in Govindan & Co. v. State of Tamil Nadu [1975] 35 STC 50, in order to claim exemption as second sale, the assessee should prove that there was an earlier sale within the State and that the tax was really payable by their seller. When the alleged sellers were not doing any business during this period, it cannot be said that the assessee had proved that there was a taxable sale to claim exemption, as held by the High Court in this decision. The Appellate Assistant Commissioner was not correct in deleting the turnover of Rs. 1,06,361.”
The above findings rendered by the Board of Revenue are all on assumptions and presumptions. The Revenue has not investigated the matter in full to give a definite finding that the bills issued by Mohideen Traders and Manickam Enterprises were not genuine, after examining those dealers. We are of the view that in the light of the ratios laid down in various cases, the appellant has established that the sales by Mohideen Traders and Manickam Enterprises are first sales exigible to tax. To hold otherwise, the Revenue must show, after investigation, that the bills issued by them were not genuine or they had not done any business at all. As pointed out earlier, the findings given by the Board of Revenue are merely on assumptions and presumptions, and therefore, those findings cannot be accepted. In this case, on facts, the two dealers closed their business during the assessment year. Therefore, it cannot be said that after ceasing to be registered dealers, their sales are not taxable sales.
13. For all the reasons stated above, we allow the appeal and set aside the order of the Board of Revenue. However, there will be no order as to costs.
14. Appeal allowed.