GROUNDS OF APPEAL:

1. The Appellant submits that the impugned order of re-assessment under Section
39(1), Levy of penalty under Section 72(2) and levy of interest under Section 36 of
the Act, is without jurisdiction, without authority of law and arbitrary and as such the
impugned order is not sustainable either on facts or law.

2. It is submitted that the respondent at paragraph 01, of page 02 of the order has
stated That the inspection of my business premises under Section 52 of the Act and
reassessment under Section 39(1) of the Act; was undertaken by him in pursuance
the assignment No.11 (Order No. ADCOM (I& C)/CR- 37/07-08 dated 06.8.2008,
issued by the joint Commissioner of Commercial Taxes (Investigation), Bangalore.
Whereas, inspection of business premises of a dealer under Section 52(1) of the
Act, can be undertaken by only that authority under the Act, who is authorized by
the Commissioner of Commercial Taxes, Karnataka and not any authority sub-
ordinate to him and in the instant case of the appellant since the inspection of the
business premises was undertake non the basis of assignment issued by the in
charge Joint Commissioner of Commercial Taxes (Investigation) Bangalore, the
inspection of the business premises of the appellant under taken by the respondent
was without jurisdiction. Reliance is placed in this regard on the decision in the case
of Kolte Patil Developers Limited, Bangalore v/s State of Karnataka and Another,
reported in 2007(63) kar. L. J. 01(HC). Besides, the appellant submits that as
evident from the provisions of Section 39(1) of the Act, read with Rule46 of the
Rules ade there under that it is only the Commissioner of Commercial Taxes,
Karnataka, alone can authorize the officers under the Act to take up re-assessment
under Section 9(1) of the Act; and no such powers are vested with the Joint
Commissioner of Commercial Taxes (Investigation). Hence, the impugned orders
of re-assessment passed under Section 39(1) of the Act as well as the impugned
orders of levy of penalty under Section 72(2) and interest under Section 36 of the
Act; based on the impugned order of re-assessment are without jurisdiction. Since
the issue of jurisdiction goes to the very root of the impugned orders, the
respondent has passed the impugned orders without jurisdiction and as such they
are not sustainable in law. The appellant places Reliance in this regard on the
decisions in the cases of S.BGurbaksh Singh v/s Union of India, (1976) 37 STC
 425(SC) and Commissioner of Sales Tax, Uttar Pradesh v/s Sarjoo Prasad Ram
Kumar, (1976) 37 STC 533(SC).

3. The appellant submits that it is evident form the language employed in Section
39(1) of the Act, that it is only where an officer authorized under Rule 46 of the
Rules by the Commissioner of Commercial Taxes, Karnataka, has reasons to
believe based on the information available on assessment records that any return
furnished which is deemed as assessed or any assessment issued under Section
38 of the Act, understates the correct liability of the dealer, orders of re-assessment
under Section 39(1) can be passed and in not other cases. Whereas, as is evident
form paragraph 01 of page 02 of the impugned order that besides the fact that the
respondent has not been authorized by the Commissioner to pass the impugned
orders but by the Joint Commissioner (Investigation), simultaneously authorization
was given to the respondent take up inspection under Section 52 and re-
assessment under Section 39(1) of the Act, by the Joint Commissioner of
Commercial Taxes (Investigation), to gather information regarding under stating or
under assessment of tax liability if, any and to proceed with reassessment. As such,
the said fact establishes that when authorization was issued Joint Commissioner of
Commercial Taxes (Investigation) to take up re-assessment under Section 39(1),
there was no material on assessment records based on which either the
respondent or the joint Commissioner could believe there was any escapement of
tax liability or under statement of tax liability. Hence, the authorization issued in this
regard by the Joint Commissioner was without application of mind and the without
there being any reason to believe there was under assessment
/under statement of tax liability.

4. The Appellant without prejudice to the aforesaid submissions submits further that
the Impugned orders have been passed mainly on the bases of the affidavits stated
to have been furnished by the aforesaid twelve dealer registered under the Act; to
the Authorities under he Act; to the effect that they have not effected any sale of
goods to the appellant but only have issued tax invoices to the Appellant. Whereas,
in-spite of the fact that the Appellant had made specific request to the respondent to
the effect that she shall be provided an opportunity to cross examine the aforesaid
dealers (Paragraph 01 of Page 09 of the impugned order); the respondent did not
provided any opportunity to the Appellant to cross examine the proprietors of the
 aforesaid twelve business concerns from whom we have effected purchase of
goods and from whom the authorities / the respondent claims to have obtained
affidavits. Besides, the copies of the affidavits have not been furnished by the
respondent to the Appellant. Consequently there is violation of principles of natural
justice in passing the impugned orders by the respondent and as such the
impugned orders are not sustainable in law. The Appellant places reliance in this
regard on the law settled in the case of State of Kerala v/s K.T.Shaduli Yusuff,
(1977) 39 STC 478(SC); Al-Ameen Trading Company v/s Commercial Tax Officer,
Mangalore, 1990 Kar. L.J. 11 (Tri-Supp) (Kar); A.Narayan Setty v/s State of
Karnataka, (1985) 58 STC 81 (Kar).

5. The Appellant submits that the respondent has erred in placing reliance on the
affidavit Stated to be given by the aforesaid dealers and denying the benefit of input
tax deduction To the Appellant, event thought the Appellant is in possession of
copies of valid and genuine “Tax-Invoices” issued by the aforesaid twelve
registered dealers at the time of purchase of goods by he Appellant. An affidavit is
not a conclusive evidence in this matter to establish as to whether the aforesaid
dealers have effected sale of goods or otherwise, as it cannot replace the
requirement of hard documentary evidences. It is obvious from the facts that the
aforesaid dealers although have been granted registration by the empowered
authorities under the Act they have not made over or paid to the Government the
amount of “input tax” collected by them form the Appellant and therefore, if, they do
not deny the transactions of sale of goods to the Appellant, they would be liable to
pay tax, penalty under Section 70 and 72(2) and interest under Section 36 of the
Act. Hence, it is only to avoid payment of tax, penalty and interest the he said
dealers have resorted to denial of purchases by furnishing the affidavits. The Law
laid down in the case of Tawakkal Tanning Company v/s The State of Tamil Nadu,
(1983) 54 STC 113(Mad), is relevant in this regard. Besides; the aforesaid twelve
dealers form whom the Appellant has effected purchase of taxable goods by paying
sales consideration “input tax” are genuine registered dealers under the Act and
have admitted the fact that they have issued “Tax-Invoices” to the Appellant. In the
said circumstances it is inconceivable that all the twelve dealers without realizing
the consequences of indulging in bill trading/Tax-Invoices, especially the stringent
penal and prosecution proceedings under the Act, could have issued only “Tax-
Invoices” to the Appellant without affecting physical delivery of goods. Hence, the
 only reason for denial of transaction of sale of goods is could be to avoid tax
liability, penalties both under Section 79 and 72(2) and interest under Section 36 of
the Act.

6. In the aforesaid facts of the matter, the Appellant is submitting here with a sworn
counter affidavit to the effect that she has affected purchase of taxable goods from
the aforesaid twelve registered dealers under the Act and it has paid the full amount
of sales consideration and input tax and has taken physical delivery of goods from
them. Accordingly, if, the aforesaid twelve dealers affidavits can be relied upon in
this regard, the Appellants affidavit should also be relied upon and given due
weightage.

7. The Appellant submits that it is not in dispute that in the case of all the aforesaid
twelve dealers: registrations under the Act have been granted by the authorities
empowered under the Act, after due verification of all the particulars furnished in the
application in FORM VAT-1; after conducting necessary inquiry and after due
satisfaction that the dealers are carrying on business and are genuine. Hence, the
contention of the respondent at this point in time that the said dealers are not rich
enough to carry on business and they could not have carried on business of sale of
taxable goods to the Appellant is sustainable in law. To carry on business it is not
necessary that a person should have substantial means or money. Business is
generally carried on mutual trust and on credit. Consequently, the aforesaid dealers
could have purchased the goods on credit and sold on cash or they might have
been financed by some one to carry on business. It is also pertinent to note that the
aforesaid dealers have not come voluntarily before the authorities under the Act
and furnished the affidavits. It is only when the investigation was taken up by the
authorities they have furnished the affidavits, which is obviously to avoid huge
amount of tax liability, penalties and interest under the Act, which obviously much
more than the margin of profit that might have been earned by them. Hence, the
bad economic condition of the aforesaid dealer in on way establishes that they have
not affected sale of taxable goods to the Appellant.

8. The Appellant submits that the entire purchase consideration including the input tax
in respect of purchase of taxable goods for the aforesaid dealers, have been paid
by the Appellant by “crossed cheques” favoring the said dealers and they have
 encased the said “cross cheques” through their Bankers. As such merely because
they have withdrawn the amount in cash soon after realization of cheques, it does
not prove that they have paid back the amount to us or for that matter that they
have not effected the sale of taxable goods to us. The withdrawal of money soon
after realization of cheques may be for the reasons that on detection of evasion of
tax by them by the authorities under the Act, the Authorities may attach their Bank
Accounts to recover tax and penalty or it may be that the said dealers would have
effected purchases without tax invoices/purchase bills and made payments to the
selling dealers in cash.

9. It is also pertinent to submit that the respondent in paragraph 09 in Pages 15 of the

impugned order has recorded a finding to the effect that the investigation taken up
by the authorities has also reveled that all the aforesaid dealers have lent their
names by giving their photographs, residential and business addresses etc; to
facilitate Mr.Gautham Jain and Mr.Praveen Jain to obtain registration under the Act
and the Tax-Invoices, delivery Notes etc; were got printed by them in the name of
the aforesaid dealers. If, that is what obviously proves is that the trading activity of
buying and selling of taxable goods was carried on by Mr.Gautham Jain and Mr.
Praveen Jain, in the name of the aforesaid dealers with the intention to evade the
Payment of tax under the Act but it does not prove that there was no sale and
physical delivery of taxable goods to the Appellant. It is likely the day to trading
business in the name of the aforesaid dealers was carried on by Mr.Gautham Jain
and Mr.Praveen Jain and that money was with drawn from the Banks soon after
realization of cheques, since the goods sold were their goods and not that of
aforesaid dealers. Further, considering the stringent scrutiny methods followed by
the Banks, how could the aforesaid dealer / persons managed to open accounts in
their name. Whatever may be the reasons for not accounting and declaring of
transactions of sale of taxable goods effected by of the aforesaid dealers, the
reasons stated by the respondent in the impugned order do not establish that we
have not affected purchase of taxable goods from the aforesaid registered dealers.

10. The Appellant submits further, that the yet another reason given by the respondent
for denying the deduction of “input tax” to the Appellant is given in page 03 of the
impugned order. It is stated there in that the investigation taken up by the
department has revealed that on verification of the Books of Accounts and
 Documents maintained by the Appellant it was found by him that the aforesaid
twelve dealers from whom the appellant has effected purchases are “Benami”, who
have not paid taxes shown to have been collected in the tax-invoices. At the same
time in the last paragraph of page 03 of the impugned order he has stated that the
dealers are suspected to be “Benami”. The said fact it self establishes that the
respondent is not sure as to whether the transactions of sale of goods by the said
dealers to the Appellant are “Benami” or otherwise. Besides, the expression
“Benami” has not been defined or assigned any meaning under the Act. In the case
of Bhrigraashram Missir v/s Surendra Nath Mitra, AIR 1962 Pat 204 at Page 207, it
is held thus:

“The word “Benami” is a Persian compound word consisting of (i) “Be” which means
without and (ii) “Nami” which means “name”. It literally means “without a name”, that
is nameless or fictitious, and is used to denote transaction which is really done by a
person without using his own name (i.e.Banami), but in the name of another”.

11. Whereas, in the instant case the Appellant has affected purchase of goods in her
own name and not in the name of another person or a fictitious person, as such it
cannot be said that the purchases affected by the Appellant are “Besnami”, per se.
Besides, in “Benami” transaction pf purchase / sale of goods, there is transfer
coupled with delivery of goods from the seller to the buyer. Consequently, if, the
aforesaid twelve registered dealers under the Act have lent their names to some
other dealers and effected sale of goods to the Appellant; such transactions may
constitute “Benami” transactions of sale of goods, which obviously considering the
material available on record is not within the knowledge of the appellant and for
such acts of omission and commission by the aforesaid twelve dealers, the
Appellant cannot denied the benefit of deduction of “input tax” paid by her to the
said dealer and she cannot be penalized. There is material evidence on record to
show that the “Benami” transactions of sale of taxable goods affected by the
aforesaid twelve dealers were well within the knowledge of the Appellant or there
was any collusion between the Appellant and the said dealers in that regard.

12. The Appellant also submits that all the aforesaid twelve dealers are genuine
existing dealers to whom the empowered authorities have granted registration
under Section 22 of the Act, by following the due process of law and procedure and
 after subjective satisfaction that they are not fictitious. Hence, denial of the benefit
of input tax deduction inspite of the fact that the appellant has established that it
has effected purchase of taxable goods form them, has paid he input tax there on
and is in possession of originals of Tax-Invoices by them is arbitrary and illegal. The
appellant places reliance in this regard on the decision in the case of State of
Orissa v/s Santhosh kumar and company, (1983) 54 STC 322 at 324 (Orissa).

13. In so far as the other reasons given in the impugned orders by the respondent for
rejecting the claim of “input tax” deduction of the Appellant is concerned, such as
that the Appellant has not maintained inward and outward register, stock register
regarding movement of goods, details of vehicles in which goods details of vehicles
in which goods received in not maintained, there were no godowns to store the
goods, the books of accounts do not disclose the expenditure incurred etc; for
holding that the Appellant had not effected purchase of taxable goods from the
aforesaid twelve dealers and denying of input tax deduction is not sustainable in
law or facts. First of all there is no mandatory requirement under section 31 of the
Act and the Rules made here under to maintain such records and information and
there is no provisions either under Section 10(3) read with Section 11, 12, 14, 17,
18, & 19 of the Act or the Rules made here under that a dealer will not be eligible to
claim input tax deduction in case of failure to maintain such records and
information. The conjoint provisions of sub-sections (3) and (4) of Section 10 of the
Act, shows that if, a dealer registered under the Act is in possession of a “original of
Tax-Invoices”, he can claim input tax deduction subject to restrictions specified in
Sections 11(a), 12, 14, 17, 18 and 19 of the Act. It is not in dispute that the
Appellant is in possession of “originals of Tax Invoices” issued by the aforesaid
twelve dealers registered under the Act, in respect of the purchase of taxable goods
effected from them it is on the strength of such documents the Appellant has
claimed the “input tax deduction”. It is settled law that suspicion however strong,
cannot take the place of positive material and assessment which is not based on
judicial and legal consideration but based on mere suspicion is not sustainable in
law. (Mahabir Prasad Jagadish Prasad v/s Commissioner of Sales Tax, (1971) 27
STC 337 (ALL); Tara chand Hari Ram v/s Sales Tax Tribunal, (1972) 30 STC 342
(P&H). Hence, since the impugned orders of Re-assessment have been passed by
the on mere assumptions, presumption and suspicion, the same are not
sustainable.
14. In so far as the impugned order of levy of penalty under Section 72(2) of the Act at
20% for the tax periods from November, 2005 to March, 2006 and at 10% for the
tax periods from April, 2006 to June, 2008, except September, 2006, is concerned,
since the levy is in relation to the additional tax liability created as per the impugned
orders of re-assessment and as the impugned order of re-assessment and as the
impugned order of re-assessment and levy of additional tax itself are not
sustainable either on facts or law, the impugned orders of penalty are also not
sustainable. Besides, the provisions of Section 39(1) of the Act as they existed prior
to 1.4.2006 did not provide for such a levy and therefore for the tax periods of
November, 2005 to March, 2006 of Rs.11, 613; is without authority of law. It is
relevant here to submit that as evident from the language used in Section 39(1) (a)
of the Act, the expression “shall” is not incorporated therein and therefore, the levy
of penalty under Section 72(2) in re-assessment proceedings is not mandatory.
Further, it is only where a dealer overstates in the return the input tax deduction by
more than 5%; the penalty under Section 72(2) of the Act can be levied. Since the
Appellant has not overstated deduction of “input tax” in the returns filed in Form
VAT 100 but the additional liability to pay tax has arisen as a result of illegal and
arbitrary orders of re-assessment, the levy of penalty under Section 72(2) of the
Act, vide the Act, vides the impugned orders of penalty is not sustainable.

15. With regard to levy of interest the Appellant submits that as is evident from records
that the Appellant has not remitted any admitted “Net tax” liability; admitted in the
returns for filed for the tax periods of November, 2005 to June, 2008, belatedly even
by a day. The interest under Section 36 of the Act is attracted only where the
admitted tax liability admitted in the return is not discharged well within the time
specified in Section 35(1) of the Act read with Rule 38(1) of the Rules. The law
settled in this regard by the Constitution Bench of the Hon’ble Supreme Court of
India in the case of J.K. Synthetics Ltd. v/s Commercial Tax Officer, (1994)94 STC
422(SC), is relevant in this regard. In the said decision law is settled to the effect
that liability to pay interest arises only where the tax liability admitted in the return
by the dealer voluntarily is not paid by the dealer well within the specified time
under the Act and not where assessed tax or the basis of a return which ought to
have been filed but which has not been filed. The decision rendered by a three
member Bench of the Hon’ble Supreme Court of India in the case of Mauthi Wire
Industries (P) Ltd. v/s Sales Tax Officer, I Circle, Mattencherry, (2001) 122 STC
 410(SC); wherein the aforesaid principle of law has been reiterated is also relevant
in this regard. Consequently, the Appellant submits that since she has remitted the
entire amount of net tax liability admitted in the return along with the return well
within the time specified under Section 35(1) of the Act and Rule 38(1) of the Act,
following the law settled in the aforesaid cases, which is binding in nature under a
Article 141 of the Constitution of India, the levy of interest for the tax periods
mentioned above vide the impugned order is erroneous, arbitrary and illegal.

16. In the aforesaid facts and well settled principles of law, the Appellant submits the
followings prayer to this Appellate Authority.

PRAYER

1. The Appellant prays that in the interest of justice and equity the impugned orders of
re-assessment passed under Section 39(1) of the Act, the impugned order of
penalty passed under Section 72(2) of the Act and the impugned order of interest
passed under Section 36 of the Act, may please be quashed.

2. The Appellant also prays that the respondent may please be directed to issue
revised notice of demand.

BANGALORE
23.5.2009. APPELLANT