IN THE HIGH COURT OF KERALA AT ERNAKULAM ST.Rev..No. 306 of 2008() 1. M/S. GROUP PHARMACEUTICALS LTD., ... Petitioner Vs 1. STATE OF KERALA, REPRESENTED BY ITS ... Respondent For Petitioner :SMT.S.K.DEVI For Respondent : No Appearance The Hon'ble the Chief Justice MR.H.L.DATTU The Hon'ble MR. Justice A.K.BASHEER Dated :18/11/2008 O R D E R H.L.Dattu,C.J. & A.K.Basheer,J. ---------------------------------------------- S.T. Rev.No.306 of 2008 ----------------------------------------------- Dated, this the 18th November, 2008 ORDER
(2) The assessee is a Public Limited Company, incorporated under the provisions of the Companies Act, having its Head Office at Mumbai and Branch Office at Kochi.
(3) The relevant assessment year is 2001-2002.
(4) The Head Office, by way of branch transfers, despatches goods (medicines) to the assessee, which is a Branch Office. The Branch Office effects sales, both intra and inter-State sales.
(5) The assessee had filed its annual returns for the assessment year 2001-2002 and, in that, had conceded the total and taxable turnover in a sum of Rs.2,19,47,709.22.
(6) The assessing authority, after verification of the books of accounts, has rejected the returns filed by the assessee for the following reasons:
"1. Verification of the accounts revealed that goods are sold at a loss. No explanation has been offered for that. Cost of goods available for sale is Rs.2,56,30,385.17 (Opening stock + stock receipt (-) closing stock). Sale value accounted is only Rs.2,40,58,590.79. Even the stock transfer to outside the State S.T.Rev.306 of 2008. - 2 -
amounting to Rs.9,25,659.33 were also taken, then also there is loss. Hence sales turnover will be estimated by adding gross profit 10% to the purchase cost.
2. As no details of value of replaced stick given, it will be treated as sales turnover and will be assessed to tax.
3. Though reduced rate of 4% claimed on a turnover of Rs.2,55,272.94 declaration produced only to the tune of Rs.48,993.60. Balance turnover will be assessed @ 8% (Rs.2,06,279.34) and interest @ 81% till September - 2005 will be levied on the differential rate of tax.
4. Out of the total stock transfer of Rs.9,25,659.33, 'F' declaration form produced only to the tune of Rs.7,14,010.32. As no other details to prove the physical move of goods proved, entire stock transfer will be assessed to tax.
III. It was therefore proposed to reject the return and accounts as incorrect and incomplete and to finalise the assessment to the best of judgment as shown below:
"Sales turnover estimated as discussed above (2,56,30,385.17 + 10% G.P.) Rs.2,81,93,423.68 Value of goods replaced Rs. 5,72,840.17 Stock transfer to outside the State Rs. 9,25,659.33
Total turnover proposed to be fixed Rs.2,96,91,923.18 Less sales return proved and discount allowed Rs. 2,05,691.02 ---------------------- Taxable turnover proposed to be fixed Rs.2,94,86,232.16 Rounded to Rs.2,94,86.230.00"
(7) Accordingly, had issued a pre-assessment notice, directing the petitioner to file his objections, if any, to the proposal made in the S.T.Rev.306 of 2008. - 3 -
(8) The assessee has filed its objections to the proposal made in the pre-assessment notice..
(9) The assessing authority, after considering the objections so filed by the assessee, has proceeded to quantify the tax liability, on the ground, that, the assessee, in the returns filed, has shown that the goods received by him is sold at loss. The assessing authority has also taken into consideration the cost of the goods and the sale value accounted by the assessee in the returns filed. He has also taken into consideration the inter-State sales effected by the assessee, which again shows a loss. The conclusion reached by the assessing authority after considering the objections filed by the dealer is as under:-
"I have gone through the objection in detail and considered as merits. The authorised representative was personally heard. All the facts stated by the assessee in respect of stock transfer receipt, its sale value fixed in respect of sale etc. are accepted. But the crucial question how can the goods be sold below the actual cost is not answered. The only meritorious contention in this respect put forward by the assessee is that, they allow discount and hence the difference in cost of goods sold and the sale value, but it has to be proved by sufficient evidence. That is not done. It is true and accepted that the sale value is fixed by Head Office and branch has got no role over it. But what about the cost of goods which stock transferred from outside the State. For this value 'F' declaration has been issued from this state. How can then the goods be sold at a lower price? Of course the assessee is at S.T.Rev.306 of 2008. - 4 -
liberty to fix the sale price. That should be done based on certain principles. Moreover so many assessees in this office are disclosing profit who are also receiving goods on stock transfer basis. Hence, I find no merit in the contentions raised and hence dismissed".
(10) Keeping in view, that, a prudent businessman would not be effecting sales of stocks received by him at a price less than the price indicated by the Head Office, had made an addition of 10% to the cost of the goods by way of profit and has quantified the tax liability.
(11) This order of the assessing authority was called in question before the first appellate authority, who, in turn, has modified the order by directing the assessing authority to add only 5% towards the gross profit to the cost of the goods and issue an appropriate demand notice. The conclusions reached by the authority for modification of the best judgment assessment is as under:-
"With the finding that the turnover conceded by the appellant resulted loss of business, the assessing authority has fixed the turnover by adding 10% gross profit to the value of the goods sold to arrive the said turnover. According to the appellant the sale value was fixed by the Head Office and trade discount was also allowed being trade practice and the same is specifically mentioned in the sale invoice. The sale invoice issued by the appellant has been produced before me for verification. In the sale bills the discount allowed to the traders/purchasers has been specifically mentioned. Therefore the sales turnover arrived by the assessing authority at 10% S.T.Rev.306 of 2008. - 5 -
gross profit is no doubt excessive in this case. All the same time the loss of business cannot be accepted assessment even considering the fact that trade discount has been allowed by the appellant. The assessing authority will thus refix the sales turnover by a gross profit of 5% as the sale value has been fixed by the Head Office and a considerable amount has been allowed as trade discount in order to attract the traders. The assessing authority will refix the turnover accordingly".
(12) The orders so passed by the first appellate authority was questioned by the assessee before the Tribunal. The Tribunal has rejected the appeal filed by the assessee and has sustained the orders passed by the first appellate authority. It is this order which is called in question by the assessee before this Court in a petition filed under Section 41 of the KGST Act.
(13) The assessee has framed the following questions of law for our consideration and decision. They are as under:
(i) Whether the Tribunal is right in upholding the assessment which was completed by adding gross profit to the transfer value of stock received from head office/branches treating the transfer price as cost price?
(ii) Whether the Tribunal is right in holding that the sales turnover is liable to be estimated when stocks are sold at a price below the stock transfer value show in F form declaration?
(iii) Is the Tribunal erred in disregarding the explanation that the transfer price is fixed by the head office of the petitioner considering all the expenses discounts, replacements and profit?
(iv) Is the Tribunal erred in disregarding the statutory obligations on the petitioner on fixing the transfer value?"
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(14) At the time of hearing of the revision petition for admission, Sri.Santhosh P.Abraham, learned counsel appearing for the petitioner, would submit, that, the assessing authority was not justified in taking into consideration the cost value of the goods and thereafter adding 10% gross profit to the cost price while quantifying the tax liability.
(15) In our view, the submission of the learned counsel has no merit whatsoever. Admittedly, the petitioner's Head Office is at Mumbai and it is that Head Office that supplies goods to the Branch Office at Kochi. The value of the goods is fixed by the Head Office. It is not expected of the Branch Office effecting sales of stocks received by it at a price less than what is indicated by the Head Office. Keeping that aspect of the matter in view, the first appellate authority was fully justified in sustaining the orders passed by the assessing authority, with a minor modification.
(16) Sri.Santhosh P.Abraham, learned counsel appearing for the assessee, would bring to our notice the decision of a Bench of this Court in the case of M/s.Metro Appliances Ltd. v. State of Kerala - S.T.Rev.No.134 of 2005, disposed of on 20th December, 2006. Having gone through the aforesaid order, on which reliance was placed by the learned counsel appearing for the petitioner, we are of the opinion, that, the facts and circumstances stated by the learned Judges in that decision are neither similar nor nearer to the facts in the case on hand. In that view of the matter, we are of the opinion, that, the decision, on which reliance was placed by the learned counsel appearing for the S.T.Rev.306 of 2008. - 7 -
petitioner, has no bearing at all to the facts in the instant case.
(17) In the above view of the matter, the revision petition requires to be rejected and it is rejected and the questions of law framed by the assessee are answered against the assessee and in favour of the Revenue.
H.L.Dattu Chief Justice A.K.Basheer Judge vku/dk