REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. _6707  OF 2008 (Arising out of SLP © No. 9606 of 2007)

Haleema Zubair, Tropical Traders …. Appellant

Versus

State of Kerala …. Respondent

J U D G M E N T

S.B. 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 is said to be the proprietress

of two concerns, - one known as M/s. Tropical Traders and another .M/s.

Poseidon Food Company.   

1

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

M/s. Poseidon Food Company was to render services to various exporters as

regards  inspection  and certification  of  quality  of  the  items sought  to  be

exported. The total turnover for the purpose of payment of sales tax was

disclosed  on  the  basis  of  the  business  carried  out  in  the  name  of  M/s.

Tropical  Traders.   Whereas  the  taxable  turnover  was  shown  as

28,20,474.97,  an  addition  of  Rs.45,80,168.09  thereto  was  made  by  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 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 and without jurisdiction..  

4. An appeal was preferred thereagainst.  Before the appellate authority

the appellant produced income-tax returns, orders of assessments passed by

the income-tax officer, orders placed by the exporters and the certificates

granted  by  Marine  Products  Export  Development  Authority  (MPEDA),

Cochin.   

2

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, Cochin and copies of letters issued by

various parties requesting the appellant to inspect the goods to be exported,

held that the professional services rendered to the exporters involving skill

and knowledge did not constitute any ‘transfer of property’.  It was held that

the levy of tax on the receipt of commission for the sum of Rs.45,80,168.09

was not in order. The appellate authority for the purpose of assessment of

tax reduced the additional income which was added by the taxing authority

in the taxable turnover from 5 % to 2 ½ %.   

6. Aggrieved  by  and  dissatisfied  therewith  both  the  parties  preferred

appeals before the Sales Tax Appellate Tribunal in terms of Section 12 of

the Act.   

7. By an order dated 20th February, 2003, the Tribunal 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  valuable  consideration alone  is  exigible  to  tax  does  not  appear  to  be

3

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  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 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 August, 2006,stating :-

“Even  though  Section  does  not  provide  a  presumption that such unexplained amount represents sales turn over, we 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 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  unaccounted  sales,  which  is  probably  the minimum damage that could be caused to the petitioner by virtue of Section 12 of the Act.  In other words, we

4

uphold this addition as a necessary consequence of the petitioner’s failure to explain the receipt in this account.”

9. A review application filed thereagainst has also been dismissed by an

order dated  22nd March, 2007.

10. Mr. Bali, learned counsel appearing on behalf of the appellant urged :

(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  produced  documents  to  show  that  two  sister

concerns  of  the  appellant  had  been  carrying  out  two  different

businesses, the income derived by one could not have been added to

the  sales  turnover,  although  the  business  of  the  other  does  not

occasion any sale.   

(ii) Although burden of proof in terms of Section 12 of the Act is on the

assessee but having regard to the authentic documents produced by

the appellant, the same must be held to have been discharged.   

(iii) The  orders  of  the  learned  Tribunal  as  well  as  the  High  Court  are

manifestly erroneous in so far as they failed to take into consideration

5

the distinction between  an order of assessment under the Income Tax

Act and the one under the Sales Tax Act.   

11. Mr. Dinesh, learned counsel appearing on behalf of the respondent,

however,  would draw our attention  to  the  averments  made in  the review

application which is to the following effect :

“9. In this connection, the petitioner is also producing a  list  of  persons/exporters/importers  from  whom commission  was  received  during  the  period  from 1.4.1988  to  31.3.1988  aggregating  to  Rs.45,80,168.09. The  above  document  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 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  assessing  authority  and,  thus,  admittedly  the  appellant  could  not

discharge the burden of proof cast upon her in terms of Section 12 of the

Act.  

6

12. 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.   

13. 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.   

14. The sine qua non or the condition precedent for 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

Sanchar Nigam Ltd. and another  v.  Union of India and others,  [ (2006) 3

SCC 1 ], stating :-

“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 constitutional amendment was loosely drawn and must proceed on the basis

7

that  the  parameters  of  “sale”  were  carefully defined.  But  having said that,  it  is  sufficient  for the purposes of this  judgment  to find,  as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the handset,  if any. That and any other accessory supplied by the service provider in our  opinion  remain  to  be  taxed  under  the  State sales tax laws. We have given the reasons earlier why we have reached this conclusion.”

15. It is true that in terms of Section 12 of the Act the 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  lie  on  such dealer.  

(2) The burden of proving that the dealer has not received fair market price on any transaction shall lie on such dealer.

(3) The burden of proving the genuineness of the  transport  of  goods  using  the  documents prescribed  in  section  29,  shall  lie  on  such dealer.”

16. 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 as has been held by this Court in Cooperative

8

Company Ltd.  V. Commissioner of Trade Tax, U.P. [ (2007) 4 SCC 480 ],

in the following terms :-

“16. In absence  of  any stipulation  made in  the contract of sale for the purpose of levy of sales tax or otherwise, the Revenue Authorities must arrive at  a  finding  as  to  whether  there  had  been  any implied  condition  of  transfer,  burden  of  proof wherefor would be on the Revenue.  Consideration of (sic – for) a part of goods may be held to be a condition  precedent  for  constituting  a  sale,  but therefore  each  case  must  be  judged  on  its  own facts.”

17. Section 12 of the Act,  however, places the 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 of the parties thereto is

a dealer.   

18. A dealer has been defined in Section 2(viii) to mean –  

“(viii)   "dealer”  means any person who carries on  the  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 any service, any goods directly or  otherwise,  whether  for  cash or for  deferred  payment,  or  for  commission

9

remuneration or other valuable consideration and includes:

(a) xxx xxx xxx

(b) a casual trader;

(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 or supplying by way of or as part  of  any service,  any goods] on behalf of any principal;

(d) a  non-resident  dealer  or  an  agent  of  a  non- resident  dealer,  or  a  local  branch  of  a  firm  or company  of  association  of  body  of  persons whether  incorporated  or  not  situated  outside  the State;

(e) a  person  who,  whether  in  the  course  of business or not, sells;

(i) goods produced by him by manufacture, agriculture, horticulture or otherwise; or

(ii)  trees  which  grow  spontaneously  and which are agreed to be severed before sale or under the contract of sale;

(f) a person who whether in the course of business or not:

10

(1) transfers any goods, including controlled goods whether in pursuance of a contract or not,  for cash or  deferred payment or other valuable consideration;

(2) transfers property in goods (whether as goods  or  in  some other  form) involved  in the execution of a works contract;

(3) delivers  any goods on hire-purchase or any system of payment by instalments;

(4) transfers the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(5)  supplies,  by  way of  or  as  part  of  any service or in any other manner whatsoever, goods, being food or any 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);

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 or to its members for cash or for deferred payment, or for  commission,  remuneration  or  other  valuable consideration, shall be deemed to be a dealer for the purposes of this Act;

11

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  otherwise,  for  cash  or  for deferred  payment,  or  for  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 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  I.-Bank  for  the  purposes  of  this clause  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.”

19. The business activities relating to transaction of M/s. Poseidon Food

Company unless  otherwise  proved  cannot  bring  the  appellant  within  the

purview of definition of ‘dealer’.  

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. Tropical Traders also.   

12

21. 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 MPEDA, Cochin and other documents.   

The High Court did not take into consideration the contention of the

appellant that by production 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.   

22. The High Court furthermore committed a serious error in so far as it

failed to draw a distinction between the assessment under income tax and

assessment under sales tax.  Whereas income tax is levied on income under

the Income Tax Act irrespective of the sources from which such an income

had been  derived,  sales  tax  is  levied  only  on  the  quantum of  sales  and,

therefore, element of transaction of sale is pre-requisite for levy of sales tax.

23. This  aspect  of  the  matter  has  been  considered  by  this  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

13

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. 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  presumption  arises  that  the  said amount represents the income of the firm and not of the partner or his wife. The fact that neither the assessee-firm nor its  partner  or his wife adduced satisfactory  material  to  show  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-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. “

24. For  the  reasons  aforementioned  the  impugned  judgment  cannot  be

sustained which is set aside accordingly.   

14

25. The  appeal  is  allowed.   The  matter  is  remitted  to  the  assessing

authority to consider the matter afresh on the basis of the materials placed

by  the  appellant,  namely  –  income  tax  returns,  orders  of  assessment,

certificates issued by MPEDA, Cochin etc. The other doucments filed by the

appellant  before  the  revisional  authority  may  also  be  taken  into

consideration.  The State, if so advised, may also file additional documents.

No costs.  

……………………….J.                 ( S.B. SINHA )

……………………….J.             ( CYRIAC JOSEPH )

New Delhi November 19, 2008

15