Case Law Details

Case Name : State Of Karnataka Vs Deccan Mining Syndicate Pvt. Ltd. (Karnataka High Court)
Appeal Number : S. T. R. P. NO. 420 OF 2017
Date of Judgement/Order : 26/02/2021
Related Assessment Year :

State Of Karnataka Vs Deccan Mining Syndicate Pvt. Ltd. (Karnataka High Court)

The prescribed authority in order dated 31.03.2016 accepted the books of accounts in entirety, which was produced by the respondent. The prescribed authority before passing the order dated 31.03.2016 has not conducted any independent enquiry and has not noted any other material which had been brought on record. It has merely relied upon the order passed by the Excise Authority as well as CBI report, which has already been quashed in the proceeding initiated by respondent. From perusal of the order passed by the prescribed authority and the First Appellate Authority, it is clear that both the authorities have recorded a finding that transit / handling loss is inevitable while transportation of iron ore fines and lumps. It is well settled legal proposition that an order passed by an authority under one enactment cannot be basis for levying tax under another enactment specially when event and point of levy are different under those enactments.

The point of levy of excise duty is removal of goods whereas, point of levy under the Act is on sale. Therefore, an order passed by the Excise Authority cannot lead to the conclusion that there was a sale leviable to tax under the Act. It is pertinent to note that transit / handling loss was claimed by the respondent approximately at the rate of 5% for a period of five years, which according to the finding recorded by the authorities under the Act at the rate of 1% per year was reasonable. Therefore, we do not find any ground to interfere with the order passed by the tribunal.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

This revision petition has been filed under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ‘the Act’ for short) against the order dated 21.04.2017 passed by the Karnataka Appellate Tribunal (hereinafter referred to as ‘the Tribunal’ for short). The tax period in this revision pertains to the Financial years 2006-07 to 2010-11. The revision petition was admitted by a Bench of this Court vide order dated 17.09.2019 on the following substantial questions of law:

(i) Whether the Tribunal was right in passing the impugned order and setting aside the orders of the first appellate authority and the assessing authority?

(ii) Whether the Tribunal was right in holding that the transit/handling losses of iron ore claimed by the Respondent, amounting to
5% of its total export clearances, it within reasonable limits, despite there being no evidence submitted by the respondent to show the actual transit/handling losses?

(iii) Whether the Tribunal was right in setting aside the orders of the first appellate authority and the assessing authority, insofar
as they restricted the claim of transit/handling losses or iron ore to 0.92% and 1% of the Respondent’s total export clearances, respectively, based on the average transit/handling losses of iron ore claimed by leading mining companies such NMDC Ltd.,and MSPL Ltd.?

2. Facts leading to filing of this appeal briefly stated are that respondent is a 100% export orientedunit engaged in production and export of iron ore fines and lumps. The respondent is engaged in the activity of export from October 2006. During the tax period 2010- 11, the respondent effected export as well as domestic sales. The respondent filed its return declaring and paying taxes on its domestic sales and claimed exemption in respect of export sales. The export of iron ore was being made by the respondent from ports located at Goa, Katinada, Chennai, Vishakapatnam,Belakeri and Krishnapatna. The iron ore was transported by rail to the aforesaid ports for onward export since,2006 and it was eminent that transportation of iron ore from mines to railway yard and from railway yard to the ports and eventually loading to the ships led to transit /handing loss.

3. During the month of September / October 2010 the respondent carried out a verification of physical stock at the railways yards and the ports and arrived at a shortage of 61,513.30/- metric tonnes at the railway yards and 159,171.68 metric tonnes to theports aggregating to total shortage of 2,20,685 metric tonnes. The respondent in its books of accounts therefore, reduced the aforesaid shortage from its closing stock. The prescribed authority issued a proposition notice dated 22.12.2015 proposing to treat the aforesaid transit / handing loss as suppressed taxable turnover on the basis of Central Bureau ofInvestigation (hereinafter referred to as ‘the CBI’ for short) report and the order passed by Central Excise and Customs (hereinafter referred to as ‘the ExciseAuthority’ for short) treating the aforesaid shortage of iron ore as amounting to clandestine removal of goods.

4. The respondent filed a reply in which it was pointed out that the charges framed by the CBI were quashed and it had filed the appeal against the order passed by the Excise Authority. The respondent also contended that despite effort he cannot treat the transit / handling loss as suppress turnover merely on the basisof CBI report of order passed by the Excise Authority without any material with regard to the suppressed turnover being sold by the respondent. It was further pointed out that transit / handling loss was suffered by the respondent over a period of five years and the same cannot be attributed to the tax period 2010-11. It was submitted that in any event the transit / handling loss is on account of exports which are otherwise exempt from levy of tax and therefore there cannot be any escapement of turnover. It was also pointed out in the reply that transit / handling loss in transportation of iron ore is quite common and in fact, mining agencies like NMDC and MSPL have also reported transit / handling loss of 1% every year and respondent transit / handling loss of approximately 4.5% over a period of five years was quite reasonable.

5.The prescribed authority passed an order on 31.03.2016 confirming the proposal. However, it accepted the fact that shortage can occur to an extent of 1% on account of transit / handling loss in transportation of iron ore and reduced the demand to that extent. The respondent thereupon filed an appeal under Section 62 of the Act before the First Appellate Authority. The first Appellate Authority however, by an
order dated 22.10.2016 inter alia held that transit /handling loss is inevitable and loss claimed by the respondent was quite reasonable and the prescribed authority ought not to have relied on the CBI report and the order passed by the Excise Authority. However, despite aforesaid finding the First Appellate Authority upheld the addition of turnover for the tax period 2010- 11 after making a provision for transit / handling loss at 0.92% instead of 1%, which was allowed by the prescribed authority and deleted the addition of turnover in respect of four entire years. Thus, the appeal was partly allowed by the First Appellate Authority. The State Government has not assailed the validity of the order passed by the First Appellate Authority to the extent ithas granted the relief to the respondent. The respondent preferred an appeal before the tribunal. The tribunal by an order dated 24.04.2007 held that the claim of the respondent for transit / handling loss in respect of export sales which are otherwise exempt from income has not been challenged by the appellants herein. The tribunal allowed the appeal filed by the respondent. In the aforesaid factual background, the petitioners have filed this petition.

6. Learned counsel for the petitioners submitted that the tribunal has recorded contradictory findings and has set aside the concurrent findings of fact. It is further submitted that impugned order of the tribunal is erroneous on law as well as facts and suffers from the vice of non application of mind. It is also pointed out that in the absence of any claim of transit / handling losses for the years 2006-07 to 2009-10, the first Appellate Authority and the tribunal has erred in observing that the Assessing Authority ought to have restricted itself solely to transit / handling losses pertaining to year 2010-11 and not to earlier financial years. It is further submitted that the tribunal erred in holding that respondent’s claim of 5% of total export sales towards transit / handling losses is reasonable and it is pointed out that the respondent has not adduced any evidence in order to support such an exorbitant claim towards transit / handling loss.

7. On the other hand, learned counsel for the respondent submitted that the prescribed authority in its order dated 31.03.2016 has accepted the books of accounts produced by the respondent in its entirety. However, merely on the basis of a CBI report and the order passed by the excise authority, it has made addition of transit / handling loss as suppressed turnover in the absence of any material that respondent has effected sales in respect of suppressed turnover and has suppressed the same. It is further pointed out that prescribed authority as well as the first Appellate Authority admitted that transit / handling loss was inevitable in the nature of business carried on by the respondent and in the absence of any material that respondent had effected sales and had suppressed the same no addition of suppressed turnover could have been made. It is further submitted that mere shortage of closing stock on account of various factors does not lead to the conclusion that respondent had effected sales which are liable to tax under the Act and the levy under the Act is on sales therefore, the burden is on the revenue to prove that respondent had effected sales and had suppressed the same. It is also submitted that the order passed by the excise authority cannot be made a ground to hold that there was a sale leviable to tax under the Act. It is also pointed out that order passed by the Excise Authority has been challenged before the tribunal and the appeal before the CESTAT is pending. In support of aforesaid submissions, reliance has been placed on decisions in GIRDHARI LAL NANNELAL VS. THE SALES TAX COMMISSIONER, M.P. (1976) 3 SCC 701, ‘G.M.PATEL VS. THE STATE OF KARNATAKA’, (1987) 65 STC 56, STATE OF TAMIL NADU VS. TATA OIL MILLS CO. LTD’, (1994) 94 STC 218, ‘FUTURE CERAMICS PVT LTD. AND ANOTHER VS. STATE OF GUJARAT AND OTHERS’, (2013) 62 VST 488, ‘MAHABIR PRASAD JAGDISH PRASAD VS. COMMISSIONER OF SALES TAX, U.P., (1971) STC 337.

8. We have considered the submissions made by learned counsel for the parties and have perused the record. The prescribed authority in order dated 31.03.2016 accepted the books of accounts in entirety, which was produced by the respondent. The prescribed authority before passing the order dated 31.03.2016 has not conducted any independent enquiry and has not noted any other material which had been brought on record. It has merely relied upon the order passed by the Excise Authority as well as CBI report, which has already been quashed in the proceeding initiated by respondent. From perusal of the order passed by the prescribed authority and the First Appellate Authority, it is clear that both the authorities have recorded a finding that transit / handling loss is inevitable while transportation of iron ore fines and lumps. It is well settled legal proposition that an order passed by an authority under one enactment cannot be basis for levying tax under another enactment specially when event and point of levy are different under those enactments. [See: MIS GIRDHARI LAL NANNELAL VS. THE SALE TAX COMMISSIONER M.P., (1976) 3 SCC 701, iG.M.PATEL VS. THE STATE OF KARNATAKAi, 1984 SCC ONLINE KAR 417].

9. The point of levy of excise duty is removal of goods whereas, point of levy under the Act is on sale. Therefore, an order passed by the Excise Authority cannot lead to the conclusion that there was a sale leviable to tax under the Act. It is pertinent to note that transit / handling loss was claimed by the respondent approximately at the rate of 5% for a period of five years, which according to the finding recorded by the authorities under the Act at the rate of 1% per year was reasonable. Therefore, we do not find any ground to interfere with the order passed by the tribunal.

For the aforementioned reasons, the substantial questions of law are answered against the petitioner and in favour of the respondent. In the result, we do not find any merit in this petition, the same fails and is hereby
dismissed.

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