IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 122 of 2006()
1. STATE OF KERALA, REPRESENTED BY
... Petitioner
Vs
1. M/S. M.J.PHARMACEUTICALS LTD.,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent :SRI.A.KUMAR
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :29/10/2009
O R D E R
C.N. RAMACHANDRAN NAIR &
V.K.MOHANAN, JJ.
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STRV. No.122 of 2006
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Dated, the 29th day of October, 2009
JUDGMENT
Ramachandran Nair, J.
The revision is filed by the State challenging the order
of the Sale Tax Appellate Tribunal holding that the
assessment made by making estimated addition of gross
profit is not tenable.
2. We have heard the learned Government Pleader
for the petitioner and Sri A.Kumar, the counsel appearing
for the respondent.
3. The respondent-assessee is a Pharmaceutical
company engaged in manufacture of various types of
medicines. In the normal course, products are sold to
distributors who in turn sell the same to retail dealers
from whom the products reach the customers. However,
in this case the assessing officer noticed that the medicines
sold by respondent-assessee reached another company by
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name M/s. Sun Pharmaceuticals Ltd who after purchase
from the respondent sold the same to distributors at a gross
profit of 73%, whereas, the gross profit reported by the
respondent was only 2.71%. The assessing officer made the
assessment by estimating gross profit at 50% which was
reduced in first appeal to 25%. On second appeal, both
by the respondent and by department, the Tribunal found that
respondent as well as M/s. Sun Pharmaceuticals are
independent legal entities, and so much so, there cannot be
any addition of gross profit. This Revision is filed by the State
against the rejection of it’s appeal filed to restore the
assessment. Even though the counsel for the respondent
submitted that another revision filed by the State against
the common order of the Tribunal was dismissed by this
Court on account of delay, we do not think the
maintainability of this Revision is affected on account of the
dismissal of the other Revision case which in our opinion was
not necessary. This is because the Tribunal has decided only
one issue in the two appeals. State appeal was for restoring
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assessment and revision is filed in time against the
dismissal order of the Tribunal. Therefore there was no
necessity for the State to have filed a separate Revision
against the order of the Tribunal allowing assessee’s appeal
because the order of the Tribunal is only one which is common
for both appeals. Therefore, the objection on maintainability
is not tenable and we proceed to consider the case on merit.
4. The Government Pleader rightly pointed out that
the Tribunal’s finding is erroneous because separate legal
existence of the respondent-assessee and Sun
Pharmaceuticals is not the relevant criteria to decide whether
tax evasion was practiced by both the companies.
Govt.Pleader has furnished the website information published
by Sun Pharmaceuticals which shows that the respondent
company’s majority stakes was taken over by Sun
Pharmaceuticals in the year 1996 and, in fact, in the year
2002-03, the respondent merged with Sun Pharmaceuticals
to which the entire medicines were sold in 1999. In fact,
when the purchaser company virtually owns the seller
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company, the right course was to treat the sales by Sun
Pharmaceuticals as the genuine first sales in the State.
However, in this case it is seen that none of the authorities
bothered to collect information pertaining to relationship
between the companies. If enquiry was conducted, it would
have been revealed that the seller is nothing but a shadow
of the purchaser company, and so much so, the sale at low
value by respondent to the holding company is only to
evade tax. The rejection of accounts of the seller is
perfectly in order because the sales to Sun Pharmaceuticals
was not genuine. However, since facts were not considered
by any of the authorities including the Tribunal, we set aside
the order of the Tribunal and that of the lower authorities and
remand the matter to the assessing Officer for reconsideration
and assessment after taking into account the relationship of
the purchaser company namely Sun Pharmaceuticals with
the respondent company during 1999-2000, the relevant year
to which the assessment relates. However, since the
respondent is merged with Sun Pharmaceuticals, it is enough
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for the officer to issue notice to the Sun Pharmaceuticals ,
the successor company, and proceed with the assessment.
For the sake of finality, it is open to the Sun Pharmaceuticals
to accept the original assessment with 50% addition of
gross profit, and if they agree, the original assessment will
be restored and the matter to be settled by officer or otherwise
the officer will conduct enquiry as to whether there is physical
transfer of possession of goods or whether it is only a
namesake sale between two companies and sale by Sun
Pharmaceutical to the distributors is the real first sale for the
purpose of making assessment. The S.T.Revision is allowed
as above.
C.N.RAMACHANDRAN NAIR
JUDGE
V.K.MOHANAN,
JUDGE
kvm/-
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V.K.MOHANAN, J.
O.P.No.
JUDGMENT
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Dated:..