IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 176 of 2008()
1. M/S.S.V.A. STEEL RE-ROLLING MILLS
... Petitioner
Vs
1. THE STATE OF KERALA,
... Respondent
For Petitioner :SRI.S.EASWARAN
For Respondent : No Appearance
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice A.K.BASHEER
Dated :01/07/2008
O R D E R
H.L.DATTU, C.J. & A.K.BASHEER, J.
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S.T.Rev.No.176 of 2008
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Dated, this the Ist day of July, 2008
O R D E R
H.L.Dattu, C.J.
Sri.Muhammed Rafiq, learned senior Government Pleader
is directed to take notice for the respondent.
2. Though the matter is listed for admission today, by
consent of the learned counsel for the parties to the lis, the matter is
taken for final hearing.
3. The assessee is a dealer registered both under the
provisions of the Kerala General Sales Tax Act (“KGST Act” for short)
and Central Sales Tax Act (“CST Act” for short) and is engaged in
production and sales of M.S.Ingots. For the assessment year 2003-2004,
the assessee had filed its annual returns, conceding a particular total and
taxable turnover. The returns so filed by the assessee is not accepted by
the assessing authority on the ground that the returns are defective.
Accordingly, after rejecting the annual returns filed, had issued
pre-assessment notice to the petitioner proposing to reject the returns and
proceed to complete the best judgment assessment. In the
S.T.Rev.No.176/2008 -2-
pre-assessment notice, the assessing authority had pointed out the
following defects in the return filed by the assessee. They are as under:
“The Intelligence Squad No.II have imposed a sum of
Rs.5,905/- as penalty u/s 29A (4) of the Act for the offence
of transporting excess quantity of M.S.Ingots. The
quantity under transport was 16900 Kgs as against 11950
Kgs declared. Difference 4920 Kgs and percentage of
suppression 41%.
2). The Intelligence Squad No.IV have imposed a sum of
Rs.15110/- as Penalty u/s 29A (4) for the offence of
transporting goods with defective records.
3). Analysis of the Electricity consumption during the
years 2001-02, 2002-03 and 2003-04 record the
following:
2001-2002 1088MT
2002-03
upto 31-12-02 1296MT
1-1-03 to 31-3-03 1541MT
2003-2004 1772MT
There is no reason whatsoever for the
increase in the consumption. On an analysis of the
defects point out supra, it can be seen that large quantity
of M.S.Scrap have been melted and M.S.Ingots produced
and sold unaccounted. The possibility of transporting
excess quantity as transported on 17-9-03 cannot be ruled
out in vehicle No.TN 38P 2004: which is used for
transporting M.S.Ingots on almost all days. A combined
reading of excessive power consumption and transport of
excess quantity of products leads to the conclusion thatS.T.Rev.No.176/2008 -3-
the consumption reported is not genuine.”
4. After receipt of the pre-assessment notice, the assessee
had filed its reply. After considering the reply so filed, the assessing
authority has proceeded to complete the best judgment assessment.
5. The assessee had questioned the correctness or
otherwise of the best judgment assessment so passed by the assessing
authority before the first appellate authority in S.T.A.No.3405 of 2006.
The first appellate authority by his order dated 2-11-2007, has modified
the orders of assessment passed by the assessing authority to a limited
extent.
6. Not being satisfied with the order so passed by the first
appellate authority, the assessee was before the Tribunal in T.A.No.316
of 2007. Before the Tribunal, the primary contention of the assessee
was that the assessing authority was not justified in relying up on merely
the consumption of electricity for the previous three years to arrive the
conclusion that there is suppression of production and suppression of
sales by the assessee. The Tribunal has not accepted the arguments
advanced by the assessee’s representative. Accordingly has rejected the
S.T.Rev.No.176/2008 -4-
appeal and thereby has confirmed the orders passed by the first appellate
authority.
7. The assessee has framed the following questions of law
for our consideration and decision. They are as under:
1). Whether the quantity of production of the petitioner
can be determined on the basis of consumption of
electricity?
2). Whether the sales tax can be imposed on the petitioner
based on the production of materials?
3). Whether the turnover can be estimated based on the
consumption of electrical energy?
4). Whether the sales tax authorities are justified in
rejecting the books of account of the Revision Petitioner
based on the consumption of electrical energy?
5). Without any scientific method whether the sales tax
authority can assess the production of materials based on
consumption of electrical energy?”
8. Sri.S.Easwaran, the learned counsel appearing for the
revision petitioner would submit that the reasoning of the Tribunal is
contrary to the dicta laid down by this Court in the case of St.Teresa’s
Oil Mills v. State of Kerala (25 STC 497) and therefore, submits that the
orders passed by the Tribunal requires re-consideration by this Court.
S.T.Rev.No.176/2008 -5-
9. Per contra, Sri.Muhammed Rafiq, the learned counsel
appearing for the Revenue has brought to our notice the observations
made by the Apex Court in the case of Melton India Vs.
Commissioner, Trade Tax {2007} 5 VST 613 (SC). In the said
decision at paragraphs 9 and 10 the Court has observed as under:
“9. In this connection we may refer to the electricity consumption and
production in the appellant’s factory for the three assessment years
in question, which are as follows:
——————————————————————————
Assessment year Production Electricity Consumed
——————————————————————————
2000-01 402 MT 5,13,596
2001-02 268 MT 6,38,164
2002-03 314 MT 6,68,736
——————————————————————————
10. A perusal of the above figures shows that while the
electricity consumption has clearly been going up, the production
has gone down from 402 M.T. to 314 M.T. Ordinarily, when
electricity consumption goes up, a reasonable inference can be
drawn that the production will also have gone up. If the electricity
consumption is going up but the production is seen to be going
down, a reasonable inference can, prima facie, be drawn that there
was suppression of production and consequently suppression of
sales in order to avoid sales tax.”
10. In the instant case, the assessing authority had rejected
the returns and books of accounts of the assessee for three reasons. Firstly,
that the Intelligence Squad No.II had imposed a penalty of Rs.5,905/- under
S.T.Rev.No.176/2008 -6-
Section 29 A(4) of the Act for the offence of transporting excess quantity of
M.S.Ingots. Secondly, the Intelligence Squad No.IV had imposed a penalty of
Rs.15,110/- under Section 29A(4) of the Act for the offence of transporting
goods with defective records and lastly, the analysis of the electricity
consumption during the years 2001-02, 2002-03 and 2003-04 would clearly
show that there is excess consumption of electricity but lesser production of
finished products.
11. The Tribunal while disposing of the appeal is of the view
that if there is excess consumption of electricity but less production of
finished products, that could be one of the reasons for going for best
judgment assessment. This view, at the first blush appears to be contrary to
the decision of this Court. But, in view of what has been observed by the
Apex Court in the case of Melton India Vs. Commissioner, Trade Tax
{2007} 5 VST 613 (SC), the view expressed by the Tribunal appears to
be the correct view and therefore, no exception can be taken to the
orders passed by the Tribunal.
12. All the authorities under the Act have consistently
held that there is suppression of production and suppression of sale of
finished products, namely, M.S.Ingots. Therefore, they have come to the
conclusion that the assessing authority was justified in going for best
judgment assessment. Therefore, in our opinion, the Tribunal has not
S.T.Rev.No.176/2008 -7-
committed any error of law which would call for our interference in
exercise of the powers under Section 41 of the KGST Act. Consequently,
while affirming the orders passed by the Tribunal, we reject the revision
petition.
13. I.A.No.1267 of 2008 is closed.
Ordered accordingly.
(H.L.DATTU)
CHIEF JUSTICE
(A.K.BASHEER)
JUDGE
MS/dk