HALEEMA ZUBAIR, TROPICAL TRADERS ~- v. STATE OF KERALA

p. 352 Copy page pinpoint

A (Civil Appeal No. 6707 of 2008)

B NOVEMBER ·19, 2008

y

burden of proof by producing documents - High Court erred in considering the same - Hence, matter remitted to the Assessing Authority.

F Appellant-assessee was proprietress of two concerns. The concern TP Traders is a dealer in ceramic i tiles and concern Mis. PF Company renders professional services to various exporters of inspection and certification of quality of items sought to be exported. TP Traders disclosed the total turnover of business for G payment of sales tax. The Assessing Authority included the receipt of commission by Mis. PF Company in the I· taxable turnover for purpose of payment of sales tax and passed assessment order. The receipt of commission

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 353 KERALA

1.3. The sine qua non or the condition precedent for passing of an order of assessment is transaction of sale. G Professional service rendered does not constitute sale. Such a professional service rendered by a person attracts service tax, which is a different nature of tax. [Para 14) [359-F] Bharat Sanchar Nigam Ltd. and Anr. v. Union of India H

p. 354 Copy page pinpoint

A and Ors. 2006 (3) SCC 1, referred to. +--- 1.4. Section 12 of the Act places t~e burden on the assessee. The said provision would-be attracted subject to the condition that first; a transaction of sale has·_ taken place; secondly that one ot the parties thereto is a dealer. B A provision relating to. "reverse burden",· must be construed having·regard to the nature. of the statute; as ., the general law is that the burden of proof would be on the State. [Paras 16 and 17] [360-F; 361-B] ·

c Cooperative Company Ltd. v. Commissioner of Trade Tax, U.P. 2007 (4) SCC 480, referred to.

1.5. The business activities relating to transaction of Mis. PF Company unless otherwise proved cannot bring the appellant within the purview of definition of 'dealer'. D If she was not a dealer, the professional fees earned by her would not be exigible to payment of sales tax; only because the appellant happens to be the proprietress of -\ Mis. TP Traders also. [Paras 19 and 20] [363-E, F]

E 1.6. Both the assessing officer as also the High Court had noticed not only the payment of income-tax during the relevant assessment years but also the certificates issued by Marine Products Export Development Authority and other documents. The High Court did not F take into consideration the contention of the appellant. ,.,- that .by prod·uction of such· documents the burden of proof, if any, has been discharged by her. Furthermore· for attracting Section 12 of the Act the foundational facts ' must be established ..High Court committed· a serious. G. error in so far as it failed to draw a distinction between the assessment under income tax and assessment ·under sales 'tax. Whereas i'ncome tax is levied OIJ income under .,. #> r" 1': .• • • ""' ' ' •• • ~ ' I- the Income· Ta>c' Act irrespective· of the sources from· which such an income had been derived, sales tax is levied on.ly on the quantum of sales and,. t~erefore, H

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 355 KERALA

element of transaction of sale is pre-requisite for levy of A sales tax. Thus, the impugned judgment cannot be sustained and is set aside. The matter is remitted to the assessing authority to consider the matter afresh on the basis of the materials placed by the appellant. [Paras 21, 22, 24 and 25] [363-G-H; 364-A-C; 365-C-D] B

Girdhari Lal Nannelal v. The Sales Tax Commissioner; M.P. 1996 (3) SCC 701, referred to. Case Law Reference: 2006 (3) sec 1 Referred to. Para 14 c 2001 (4) sec 480 Referred to. Para 16 1996 (3) sec 101 Referred to. Para 23 CIVIL APPELLATE JURISDICTION : Civil Appeal No. D 6707 of 2008.

From the final Judgment and Order dated 4.8.2006 of the . High Court of Kerala at Ernakulam in ST Revision No. 74 of 2004 & RP No. 274 of 2007. E

Puneet Bali, Hittan Nehra, Vibhav Jain and S.S. Jauhar for the Appellant.

P. V. Dinesh for the Respondent. F i The Judgment of the Court was delivered by

S.8. SINHA, J. 1. Leave granted.

2. Appellant, Haleema Zubair, is an assessee under the Kerala General Sales Tax Act, 1963 (for short 'the Act'). She G is said to be the proprietress of two concerns, - one known as Mis. Tropical Traders and another .Mis. Poseidon Food Company.

3. The said Topical Traders is a dealer in ceramic tiles. H

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A The business of Mis. Poseidon Food Company was to render ~-- services to various exporters as rega·rds inspection and certification of quality of the items sought to be exported. The total turnover for ·the purpose of payment of sa·1es tax was disclosed ·on the basis of the business carried out in the name B of Mis. Tropical Traders. Whereas the taxable turnover was shown ~s 28,20,474.97, an addition of Rs.45,80, 168.09 thereto was niade oy the Assessing Authority assessing a_ sum of Rs.3,58,87,960.97 by way of total turnover. The order of assessment proceeded on the basis that receipt shown as c commission amounting to Rs.45,80, 168.09 from M/s. Poseidon Food Company is not supported and proved by any - documentary evidence. Appellant contended that the services so rendered is not a 'sale' and thus, the said order of ( • assessment is wholly illegal arid without jurisdiction. -o 4. An appeal was preferred thereagainst. Before the I appellate authority the appellant produced income-tax returns, orders of assessments passed by the income-tax officer, orders 1 placed by the exporters and the certificates granted by Marine Products Export Development Authority (MPEDA), Cochin. E

5. By reason of an order dated 24th October, 2000 the first appellate authority upon noticing that the assessee had ~ ~ produced copies of the certificates issued by the MPEDA, t Cochin and copies of letters issued by various parties requesting the appellant to inspect the goods to be exported, F ,.., h~ld that the professional services rendered to the exporters "\a involving skill and knowledge did not constitute any 'transfer of property'. It was held that the levy of tax· on the receipt of r- commission for the sum of Rs.45,80, 168.09 was not in order. The appellate authority for the purpose of assessment of tax ,I G r reduced the additional income which was added by the taxing . I

authority in the taxable turnover from 5 % to 2% %. i-

6. Aggrieved by and dissatisfied therewith both the parties preferred appeals before the Sales Tax Appellate H Tribunal in terms of Section 12 of the Act.

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 357 KERALA [S.B. SINHA, J.] _.-.;,

7. By ah order dated 20th February, 2003, the Tribunal A held as under :-

"We are afraid that the first appellate authority has not correctly understood the legal position involved. The observation of the first appellate authority that the sale for B valuable consideration alone is exigible to tax does not '1 appear to be correct. As per Section 5(1 )(iii) of the KGST Act the consideration received in the case of transfer right to use any goods for any purpose is exigible to tax. We also notice that by a strange reasoning the first appellate authority shifted the burden of proof regarding the taxability c of the disputed receipt to the assessing authority, contrary to the provisions of Section 12 of the KGST Act, as per which the burden of proving that any transaction of a dealer is not liable to tax shall lie on the dealer. We do not think that the assessee was able to discharge this burden of proof as enjoined under Section 12 of the KGST Act. From -t the available materials on record the first appellate authority was therefore, not justified in deleting the receipt of Rs.45,80, 168/- from the turnover of the assessee. It follows that the order of the assessing authority in this regard as has also to be restored thereby allowing the State appeal to that extent."

8. Revision petition filed thereagainst by the appellant has been dismissed by the High Court by its order dated 4th F ' -..,> August, 2006, stating :- ( ' "Even though Section does not provide a presumption that such unexplained amount represents sales turn over, we _j have no doubt in our mind that the Assessing Officer is free to consider what exactly is the nature of receipt. If it is a G ~ net credit in the form of an income, it may even be possible ... for the officer to take it as income gross up the turn over (sic) as representing unaccounted sales and assess the same. In this case, the officer has taken the amount as -I unaccounted sales, which is probably the minimum H

358 SUPREME COURT REPORTS [2008] 16 S.C.R. r' A damage that could be caused to the petitioner by virtue of Section _1.2 of the Act. lri. other words·,-cwe ·uphold this addition as a necessary consequence of the petitioner's failure t6 explain the re'ceipt.in this acco.unt.''1 ' ·~: . ' ~ ·_. ..-- • ·•. """ , r·1r-~r ~· ·1 ~-~~··-: . I t' t ..i*

B. 9.. A. review application filed. thereagainst· has· also been dis.mi.ssed_,byian order.. d.ated 221)d March, 2007'.: : · ' - '• • ', '..... • ' ~· ' ., ' ~ \ " .iot. •

·· 10. 'Mr. B~ll, learned counsel appearing on behalf of the appellant urged·: ·, ·~ · · ~· · " f', • ' '· • : t. • ·' ·

c . (i) The learned Tribunal· as also the High Court committed a serious error in so far as they failed to '• take into consideration that the appellant having f ' ,1- f.:'" · < ., I ": .. {""" • f I ' I ' !, 1 ·~ '-; t • ."\ ~~ ~ . r produced documents to ·show that.two sister con'cerns of the appellant had'been carrying o'Ut two ,, I

o.· different bu.si~esses, the income derived by one ( c9ul<;ll1·q~..ha:-:~ b~~I1c~dd,~d1-t9Jh~eA~le~. tur.noy:er, ~l!~g~gh~,h~·?.us,i~~~~ of,~ti1~i9tn,yr;~~foes. not ?ccasion r any sale. · · -}. 1 .a:\••rlt"sti-:-t'~- it~P' tifpri~ ·~ !1.-'7: -tri ,n~t.~~· tw· 2:'v ·.(ii) .. Although.burden . of,proof1in terms.ofSection"'.12,of E fh.e)\'7;t is.on .the as~essee bLlth.aving:reg_a,rd io .the l)iiii ,. a.uthentic documents p~oduced by.the ~ppellant, the .same must be .held to have' been discharged. I 1; r'. !i - \,,_. .·c-·1 ;r .,, ~r. t.r1.,....t 'J. Qj'\lt :.~·, ,,r·~~ l )

(iii) fhe orders oftheJearned Tribunal,as well- as the ) t , ·-' · ... , I· •• • , ' F. .. - . . r• • Hig~ Col;l~.ar~.mC!n,ifestly erroneous in s.o far as t~ey failed . . to; take. ~ . into consideration - the :distinction ·. -. . _, . . ' Q- between an order of assessment under the Income Tax Act and the one.under the Sales Tax Act. •i' ·'' G . . 1-1nfy,1.r:. pinesh, !e~rned cour:isel appea,ring on;behalf of.the r . ·respondent,. however, would draw.our.attention to the averments I · made . jn.ttie review.application.which is to .t~e following effect: "' ' - . . •f • ..- • ~ . . . : . ,., , ' : . • 11 9: lh this connection, the petitioner is also producing a list bf' pers6h~/export~rs/imp,orters .'troni whom commission H .~as r~c~iveq du!lng the perigd from ~1.4..1988 to 31.. 3.1988

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 359 KERALA [S.B. SINHA, J.]

aggregating to Rs.45,80, 168.09. The above document A ~-'• .., conclusively supported the petitioner's case that the sum of Rs.45,80, 168.09 is not liable to be assessed to Sales Tax. The petitioner was unable to bring the above documents and evidence before this Hon'ble Court at the time of hearing of the Sales Tax Revision due to reasons 8 ~ beyond control. The dismissal of Sales Tax Revision would result in great hardship and prejudice and unbearable ...., financial burden for the petitioner."

to submit that the said documents do not appear to have been filed before the asse~sing authority and, thus, admittedly the c appellant could not discharge the burden of proof cast upon her in terms of Section 12 of the Act.

12Copy pinpoint12. The Act indisputably is a taxing statute. The jurisdiction of an assessing authority, therefore, is confined to assess tax on taxable turnover. Its primary duty is to ascertain as to whether the figures furnished by'the assessee are correct or not.

13Copy pinpoint13. Assessment of sales tax must be on sale of goods. There is no bar in law for the same assessee to carry out different businesses. If the contention of the appellant is correct, the business carried out by her of ceramic tiles involving transactions of sales and purchase has no connection with the professional services rendered by her to the exporters.

14Copy pinpoint14. The sine qua non or the condition precedent for F >-. --...> passing of an order of assessment is transaction of sale. Professional service rendered does not constitute sale. Such a professional service rendered by a person attracts service tax, which is a different nature of tax, as has been held in Bharat Sancher Nigam Ltd. and another v. Union of India and others, G [ (2006) 3 sec 1 J, stati.ng :- ~ ..) "84. As we have said Article 366(29-A) has no doubt served to extend the meaning of the word "sale" to the . extent stated but no further. We cannot presume that the H

360 SUPREME COURT REPORTS [2008] 16 S.C.R.

A constitutional amendment was loosely drawn and must · proceed on the basis that the param~ters of "sale" were <;:arefully defined. But having said that, it is sufficient for the pLJrposes of this {udg-ment to find, as we 'do, that a telephone service is nothing but a service. There is no B sales element apart from the obvious one relating to the handset, if any. That and any other acce.ssory supplied by -I- the service provider in our opinion remain to be taxed r' \

under the State sales tax laws. We have given the reasons earlier why we have reached this conclusion.". ' i

15Copy pinpoint15. It is· true that in terms of Section 12 of the. Act th~ burden is on the assessee. The said provision reads thus :-

"12. Burden of proof. - (1) The burden of proving that any transaction of dealer is not liable to tax under this Act shall D lie on such dealer. (2) Th~ burden of proving that the dealer has not received ~:,\>t;fairJmarket-:price on any transaction shall lie on such --., r,"~, ·tdeciler, .:::i:->a.:~~'kcl. s1 i.:.! . . , :"i ;(1;; ?i tni)·.;iqof.: 0n: !o r~c·1J;1:...• 1:'00 ~ir·t .. '- E .- ,; :,(3).Tbe.burden. of provingJhe genuinenes.s o.f the transport ~· :;··.o'f oocis 11 Js'in°'ffi.e 'aobu'roent~·-.· re~~Hb.ie.a Jrf~ection 2.e. 0

'ifL 1l1•1 V~••Jl,'~•c;fi11·.:.ogli'. r.1:>._: ~··-it-ll~·'l''.! B'!tO ;::o<:-11•·;:'.' .' C"\..':J_l.,<I•~.'. shall .he on such dealer.. . . Gl::iJJU._j.A~ J l l . 1:: ':::;>I•'(• 'r.~·s:)nt-. i?':::\.J1•:':82 lb 1.J1~~::ffJ1'~ . .• , r I..-- . ~ ~ >

G "16. In absence of any stipulatibH~made:in--tR€c'bntra~Foi t ~

.saJ~ fp[ th~rp,yrp_p~e. qf.l~~Y- ~f115c~Je~}~.~ ~v?tr~rv~!~~· the -'}_ "- .RevenueAuthor.rt1e$ .;..r -·. ~~!• ~::. must arrive V'~i\.'\Ji :.jf ;:J at a fmd11:1g_asJowhether }.\!" •, ,·' JJ. ;i1 ; 1 ·.1~_,.1· :.~ 1i;1.~ 1 ! •'")\/ ~•-i,~

· :,fH~f~:-.~.~~.~~~n, .aJly ~rtiP 11,E?~,;9R~S!''?i?~Pt!r':3,~§f~fo.~W~en of proof wherefor would be on the Revenue: Cons1derat1on H

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 361 KERALA [S.S. SINHA, J.] · ,·}

of (sic - for) a part of goods may be held to be a condition A precedent for constituting a sale, but therefore each case must be judged on its own facts."

17Copy pinpoint17. Section 12 of the Act, however, places the burden on the assessee. The said provision would be attracted subject 8 to the condition that first, a transaction of sale has taken place; secondly that one of the parties thereto is a dealer.

18Copy pinpoint18. A dealer has been defined in Section 2.(viii) to mean-

"(viii) "dealer" means any person who tarries on the c business of buying, selling, supplying or distributing goods, executing works contract, transferring the'right to use any goods or supplying by way of or as part of ~my service, any goods directly or otherwise, whether' for cash or for deferred payment, or for commission remuneration or other 1 o valuable consideration and includes: •

(a) xxx xxx xxx ' ~,' ).

(b) a casual trader; E (c) a commission agent, a broker or a delcredere agent or an auctioneer or any other mercantile agent, by whatever name called, who carried on the business of buying, selling, supplying or distributing goods [executing works contract, transferring right to use any goods :~r supf>Jyjng by way of or as part of any service, any gq<jds]. ?r:i~ behalf of any principal; .., :.. '" ' ' 4 ·-

-. ·. ' ri , 'r \'.• r · . (d) a non-resident dealer or an agent of 'a ·non-resident 1 dealer, or a local branch of- a ·firm or.c·ompany of association of body of persons ;iv~e~~.~r i~~9,rpo~ated or not situated outside the State; , • ' ;- ' · ... L~ (--.., ·1 s ,- '1 Ir ..; I'~ I \' ·: ~~ ~ ~ '

(e) a person who, whether-in the course of business or not, sells; , •:, ·. j· ',. H ''

362 SUPREME COURT REPORTS [2008] 16 S.C.R.

A :,~:~ . -~~ (i), -~~9~.~_Pt~9ucec(:bY_ hif11 by rp_anufa~~u_re, . ;• , agriculture, • _...J . ._ _.. ' •.; ... horticulture I_...,.-...~;_,......;-;_; ..,\.... 1.._. l or otherwise; ...,·,'.~.... or ... · "''°"! • <N 'f<tl •

1 ""'i.., :(ii}'ttees which'grov/sporitaneously·and which are <.;;

• agreed to be sev~red before sale or un_der the r"' , .

B ~·- . - contracf sale;. '',- ... .__ ._. ', ... . . " .. I of -}~ ~ ~ :'.," -;' ' _ j t • -

,(f) a. perspn who whether in the ·course of business or not: ~ 1 .... i • 4 "" v ~, ..,, ,:, - o." ... I

1 ,. ' • ', JI '(f) 'transfers any goods, including c.ontrolled goods whether in pur~?nce of a contrac:;t or not, for cash- c or -· deferred pay'ment or other' valuable '.!. consideration; \.Ii. ' '\, -

(2) transfers property in goods (whether as goods l or in some other form) involved in. the execution of 1a works contract· :·, ' '' ' ' ' I. D (3) delivers .any goods. on hire-purchase or any system of payment by instalments; ~

(4) transfers the right to use any goods for any E purpose (whether or not for a specified period) for .cash;. deferred .payment. or other valuat:>le consideration; . . ..

(5) supplies, by way.of or as part of any service or in any other manner whatsoever, goods, being.food F . or ~ny:other articles.for human consumption or any . drink "(whether or, not intoxicating), where .such supply or service is.for cash, deferred payment or other valuable consideration);

G Explanation.-(1) A society (including a cooperative society, club or firm or an association or body of persons, whether incorporated or not) which whether or not in the course of business, buys, sells, supplies or distributes goods from to its members for cash or·fOr,deferred or payment, or for commission, retriuneration or other

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 363 KERALA [S.B. SINHA, J.] ~ '- valuable consideration, shall be deemed to be a dealer for the.purposes of this Act;

Explanation.-(2} The Central Government or a State Government,. which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or B ...... otherwise, for cash or for deferred payment, or for 1 commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act.

(g) a bank or a financing institution which, whether c in the course of its business or not, sells any gold or other valuable article pledged with it to secure any loan, for the realization of such loan amount;

Explanation 1.-Bank for the purposes of this clause D includes a Nationalised Bank or a Scheduled Bank or a

• Co-operative Bank;

Explanation II. - Financing Institution means a financing institution other than a bank." E

19Copy pinpoint19. The business activities relating to transaction of M/s. Poseidon Food Company unless otherwise proved cannot bring the appella~t within the purview of definition of 'dealer'.

- -,.J 20. If she was not a dealer, the professional fees earned by her would not be exigible to payment of sales tax; only because the appellant happens to be the proprietress of M/s. F

Tropical Traders also.

21Copy pinpoint21. Both the assessing officer as also the High Court had noticed not only the payment of income-tax during the relevant G ;1- ~ assessment years but also the certificates issued by MPEDA, Cochin and other documents.

The High Court did not take into consideration the contention of the appellant that by production of such H

364 SUPREME COURT REPORTS [2008] 16 S.C.R.

A documents the burden of proof, if any, has been discharged by her.

Furthermore for attracting Section 12 of the Act the foundational facts must be established.

22Copy pinpoint22. The High Court furthermore committed a serious error in so far as it failed to draw a distinction between the assessment un9er income tax and assessment under sales tax . . Whereas income tax is levied on income under the Income Tax Act irrespective of the sources from yvhich such an income had C been derived, sales tax is levied only on the quantum of sales and, therefore, element of tr~nsaction of sale is pre-requisite for levy of sales tax.

23Copy pinpoint23. This aspect of the matter has been considered by this 0 Court in Girdhari Lal Nannelal V. The Sales Tax Commissioner, M.P. [ (1996) 3 SCC 701 ] wherein it was held:-

"7. The approach which may be permissible for imposing liability for payment of income-tax in respect of the unexplained acquisition of money may not hold good in sales tax cases. For the purpose of income-tax it may in appropriate cases be permissible to treat unexplained acquisition of money by the assessee to be the assessee's income from undisclosed sources and assess him as such. As against that, for the purpose of levy of sales tax it would be necessary not only to show that the source of money has not been explained but also to show the existence of some material to indicate that the acquisition of money by the assessee has resulted from transactions liable to sales tax and not from other sources. G Further, whereas in a case like the present a credit entry in respect of Rs. 10,000 stands in the name of the wife of the partner, no pre~umption arises that the said amount represents the income of the firm and not of the partner or l1is wife. The fact that neither the assessee-firm nor its partner or his wife adduced satisfactory material to show

HALEEMA ZUBAIR, TROPICAL TRADERS v. STATE OF 365 KERALA [S.B. SINHA, J.]

the source of that money would not, in the absence of anything more, lead to the inference that the said sum represents the income of the firm accruing from undisclosed sale transactions. It was, in our opinion, necessary to produce more material in order to connect the amount of Rs. 10,000 with the income of the assessee- B firm as a result of sales. In the absence of such material, the mere absence of explanation regarding the source of Rs. 10,000 would not justify the conclusion that the sum in dispute represents profits of the firm derived from undisclosed sales. " c

24Copy pinpoint24. For the reasons aforementioned the impugned judgment cannot be sustained which is set aside accordingly.

25Copy pinpoint25. The appeal is allowed. The matter is remitted to the assessing authority to consider the matter afresh on the basis D, of the materials placed by the appellant, namely - income tax returns, orders of assessment, certificates issued by MPEDA, .;. Cochin etc. The other documents filed by the appellant before the revisional authority may also be taken into consideration. The State, if so advised, may also file additional documents. E, No costs.

N.J. Appeal allowed.