AMIT BAJAJ ADVOCATE

The Madras High Court in an important judgement delivered in case of M/S Sastha Enterprises Vs. Appellate Authority, Commissioner(CT) II (FAC) [VSTI 2011 MAD B-165] has held that selling dealers cannot be held for higher tax liability and consequential penal action for false declaration of the documents produced on the side of Buyer. In this case the seller was held liable in reopened assessment case, to pay tax by rejecting in transit sales on the ground that the C form obtained from the purchaser was found to be not genuine as the same was not issued by the concerned Assessing Authority.

Hon’ble High Court in this case held that unless and otherwise it is, based on concrete material, found out that the transaction is not true or the petitioner-seller is the party to the act of fraud said to be committed by the purchaser, the question of disallowing the exemption already given to the petitioner for the transaction actually effected between the parties, does not at all arise.

Brief Facts of the case: The petitioner has for the assessment years 2001-02, 2003-04 effected transit sales to the tune of Rs. 5,10,80,073 and Rs. 1,83,21,354 respectively. Thereafter, he filed the necessary returns along with E1 and C forms having respectively obtained from the original seller and the purchaser. The assessing officer in the original assessment order allowed the exemption to the turnover in respect of transit sales. However, the same AO reopened the assessment proceedings, whereby exemption granted in respect of transit sales disallowed against the original assessment order.

 Both the assessing authority and the appellate authority in their orders, disallowed the exemption mainly on the ground that the C form obtained from the purchaser and produced by the petititoner was on subsequent verification found to be not genuine as the same was not issued by the concerned assessing authority and had treated the turn over in respect of transit sales as turn over escaping assessment and brought the total amount of turn over with the tax liability and the said orders of assessing authority and appellate authority brought under judicial review before the High Court in the two writ petitions.

Held: The petitioner has only submitted the document as it is given to him by the purchaser. On the basis of the documents produced from the seller as well as the purchaser, the petitioner was granted concession in the original assessment order. However, the same concession is disallowed because of the act of fraud said to be committed by the purchaser in respect of, which the petitioner has no control once the transaction is over. Unless and otherwise, it is based on concrete material, found out that the transaction is not true or the petitioner is party to the act of fraud said to be committed by the purchaser, the question of disallowing the exemption already given to the petitioner for the transaction actually effected between the parties, does not at all arise.

The seller dealers cannot be held for higher tax liability and consequential penal action for the false declaration of the documents produced on the side of the buyer and it is for the revenue to take action against the purchaser dealer in accordance with law under the provisions of Act and the exemption cannot be disallowed. As a matter of fact, the learned Single Judge has in the batch of writ petitions set aside not only the re-assessment orders, but also the demand for additional tax as well as penalty, without any relief being asked for to that effect. The impugned assessment orders are set aside mainly on the ground that it is for the revenue to proceed against the purchaser dealer for any controversion of law for giving wrong declaration in the manner known to law and no penal action can be warranted against the seller dealer.

Full Judgement can be downloaded herebelow: