H.S. Barkath Ali Khan, J. -
(1.) THESE two appeals are filed under the provisions of the Karnataka Sales Tax Act, 1957 ('KST Act' for short). They are directed against the common appeal order dated 8 -1 -2008 passed by the Joint Commissioner of Commercial Taxes (Appeals), Mysore Division, Mysore (hereinafter referred to as the 'First Appellate Authority or in short as the 'FAA') in file Nos. KST.AP. 103 and 104/06 -07, wherein the first appeals filed by the appellant against the assessment orders dated 9 -1 -2007 passed under the KST Act by the Assistant Commissioner of Commercial Taxes (Transition), Mandya (hereinafter referred to as the 'Assessing Authority' or in short as the 'AA') and also against the penalty orders concurrently passed therewith for the financial years 2002 -2003 and 2003 -2004, have been dismissed. These appeals having been admitted were notified to both the parties. Since the appellant is common and further since the issues of facts and of law involved in these appeals are common, the same are clubbed, heard together and are disposed of by this common order.
(2.) THE facts of these cases in brief are as follows:
The appellant, an individual, obtained the mining rights of extracting sand from the Cauvery river bed in an extent of 60 acres in Survey Nos. 6, 7, 8, 35 and 34 of Maralahalli Village in Malavalli Taluk for a period of one year from 12 -3 -2003. Such rights were procured from the Mines and Geology Department of the Government of Karnataka on payment of a bid amount of Rs. 3,25,000/ - by way of royalty. The appellant in turn sold such rights piece -meal to different truck drivers on receipt of a royalty amount of Rs. 200/ - per truck load. On receipt of such royalty amount from the truck drivers, the appellant issued a serially numbered printed receipt mentioning the truck number and the date of extraction of sand therein. Such receipts were authenticated by the Mines and Geology Department, Mandya, by affixing their official seal on each such receipt. Such authenticated cash receipts serves as a permit for the concerned truck driver to transport one load of sand from the said place of extraction to the concerned place where he unloads the sand from the truck.
The appellant did not obtain any registration certificate under the KST Act and did not file any returns of turnover during the tenure of his licence/right to extract sand which was from 12 -3 -2003 to 11 -3 -2004. The first notice to the appellant from the Commercial Tax Department calling upon him to obtain registration certificate and to file returns and to pay taxes was issued by the Joint Commissioner of Commercial Taxes (Intelligence), Mysore, on 22 -7 -2006 which is more than two years after the appellant's lease/licence period had come to an end. The appellant's contention herein is that he did not extract any sand from the river bed and did not sell such sand. That he only transferred his right of extraction of sand to different truck drivers on different dates by collecting a royalty amount of Rs. 200/ - and permitted such truck drivers to engage labourers (in the area licensed to the appellant by the Mines and Geology Department) at the driver's cost and risk to extract the sand from the middle portion of the river (at a distance of not less than 200 feet from the river bank) and to transport per receipt one truck load of sand into the lorry.
The AA did not agree with the appellant's version and assessed him to tax by treating the appellant as having extracted, transported and sold the sand in other towns by estimating and fixing the appellant's turnovers for March 2003 in the financial year 2002 -2003 and for the remaining lease period in the financial year 2003 -04 at Rs. 18,00,000/ - and Rs. 1,78,20,000/ - respectively and levied tax of Rs. 1,44,000.00 and Rs. 14,49,360.00 respectively and penalty at 50% of such tax levies on such basis in the impugned assessment and penalty orders which were passed by setting the appellant ex parte. Aggrieved by such levies of tax and penalty for such periods, the appellant filed first appeals before the FAA who has dismissed such appeals in the common appeal order impugned herein.
Aggrieved by the said common order of the FAA the appellant has come up in these 2nd appeals on the following grounds which include the additional grounds urged at the time of hearing of these appeals.
That the AA erred in holding that the appellant has extracted sand from the area of the Cauvery river bed and transported the same to towns and sold such sand. That there is no documentary evidence to support such inference of the AA.
That the appellant submits that the trade relating to sand quarrying is entirely misunderstood by the Assessing Authority and the First Appellate Authority.
That the Government of Karnataka has awarded the sand quarrying rights to the appellant in Survey Nos. 6, 7, 8, 35 and 34 of Maralahalli Village for one full year in respect of sixty acres of Cauvery river bed for a royalty of Rs. 3,25,000.00 only because the Government is satisfied that only that much is the value at the point of extraction of the entire quantity of sand that can be extracted from the assigned area during the period of one year. That the real value realiseable by the appellant who is the leaseholder can be just a little more than that (in other words, there can be some gross profit accruing to the appellant from such transactions).
That the appellant was permitted by the Government to extract sand from the central part of the river at a distance of 200 feet from the river bank. That extracting sand from below water surface and transporting the same to the place where the trucks can be parked involves heavy labour charges. That these charges were incurred by truck drivers (to whom receipts collecting Rs. 200.00 for each lorry load of sand was issued by the appellant) and not by the appellant.
That the value addition to such sand extracted from the said river bed takes place as follows:
That lorries cannot reach upto the river bed. They have to be parked at some distance from the river side. That the sand has to be manually extracted from the river bed and transported manually into the lorries. That this involves substantial labour charges to be paid by the extractor of sand who in the case of appellant is the driver of the vehicle concerned to whom receipt acknowledging receipt of royalty of Rs. 200.00 is issued by the appellant.
That from Maralahalli Village to the city or town where the use of sand takes place, the sand transportation charges get added up. That the transporter's profits also add upto the cost of sand.
That thus the sand which costs Rs. 200/ - at the centre of the river bed will cost about Rs. 1,000/ - when loaded in the truck at Maralahalli Village and the same sand will cost Rs. 2,000/ - to 2,200/ - per lorry load when unloaded in the towns after traversing a long distance from Maralahalli Village.
That the appellant had only acquired the right to extract sand at the river bed on payment of royalty. That such right is an immovable property right which is called profit a prendre. It is such right which is transferred piece -meal for each truck load for a consideration of Rs. 200.00 per truck load to lorry drivers. That merely because the appellant has the right to extract sand from the river bed, it does not follow that the appellant has no right to transfer such extraction right truck -load -wise to others. That the aforesaid right is not non -transferable in that manner. That the appellant's right of extraction of sand from the river bed, constitute immovable property which is outside the ambit of sales tax as per the law laid down by the Hon'ble Supreme Court in State of Orissa and Others v. Titaghur Paper Mills Company Limited and Another ( : 1950 -2004) 4 SCST 4525 : AIR 1985 SC 213 : (1985) 60 STC 213 (SC) : 1985 Supp. SCC 280.
That the appellant has only dealt with that immovable property right and did not purchase or sell sand. He has also not extracted the sand. That right of extraction of sand is transferred to the lorry drivers by collecting Rs. 200.00 per load of sand. That the liability to sales tax can arise only on purchase or sale of sand. That the appellant did not extract/purchase or sell sand. That, therefore, there is no liability to sales tax at all in this case.
That the appellant is not a dealer in any goods. That there was no legal requirement for the appellant to get himself registered under the KST Act, 1957. That the provisions of the KST Act do not apply to the appellant. That there was no legal requirement requiring the appellant to keep a record of the lorry drivers who got the sand extracted under permission from the appellant after paying Rs. 200/ - per load to the appellant. That truck registration numbers of the lorries concerned are recorded in the printed receipts issued by the appellant. That for the first time a notice from the sales tax authorities was received by the appellant in July 2006 more than two years after the close of the lease period for extraction of sand. That the appellant cannot be penalised for not being able to give full details of past transactions relating to the persons who extracted sand from the river bed by taking the appellant's permission after paying Rs. 200.00 per load of sand to the appellant.
That when the appellant has denied the fact of extraction/purchase/sale of sand the burden of proof shifts entirely to the tax authorities as per the law laid down by the Hon'ble High Court of Karnataka in the case of Muthuvalli L. Hajee Ahamed Hussain Sahib and Company v. State of Mysore : 1964 Kar. L.J. (Tri. Supp.) 28 (HC) (DB) : (1964) 15 STC 57 (Mys.) (DB) to prove the alleged fact for sale of sand. That those authorities have failed to discharge that burden of proof in the impugned assessment orders/penalty orders. That therefore, such orders are not sustainable in law or on facts. That the lower authorities have raised presumptions which are not authorised in the KST Act, 1957. The assessment based on such presumptions is not sustainable as per the law laid down in the following judgments. - -
(1) Keveyam and Company v. G.S. Baghel, Additional Assistant Commissioner of Sales Tax and Others : (2000) 119 STC 123 (MP);
(2) State of West Bengal and Others v. Mohd. Khalil and Another : 2001 (50) Kar. L.J. 304 (SC) : (1950 -2004) 3 SCST 2619 : (2000) 4 SCC 594 : (2000) 119 STC 61 (SC);
(3) Commissioner of Sales Tax v. Shukla Transport Branch, (1992) 84 STC 308 (All.);
(4) Haleema Zubair, Tropical Traders v. State of Kerala : 2007 (66) Kar. L.J. 273 (SC) : (2008) 16 SCC 504 : (2009) 19 VST 142 (SC);
(5) Swastik Roadways and Another v. Commercial Tax Officer, Burhanpur and Others : (1996) 103 STC 106 (MP) (DB);
(6) P.C. Ittymathew and Sons v. Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam, Kerala : 2001 (50) Kar. L.J. 340 (SC) : (1950 -2004) 5 SCST 5481 : (2001) 121 STC 1 (SC) : (2000) 9 SCC 318.
That evidence of illicit extraction of sand by unauthorised persons from the river bed area assigned to the appellant exists on the appeal records. That, therefore, there is no valid reason to presume that the appellant has extracted 8,100 lorry loads of sand (which is the maximum potential quantity of the area leased to the appellant by the Government of Karnataka) during 2003 -04. That likewise, there is no valid reason to presume that the appellant has extracted 900 lorry loads of sand worth Rs. 18 lakhs during the period from 12 -3 -2003 to 31 -3 -2003.
That every printed serially numbered receipt issued by the appellant to the truck drivers towards Rs. 200/ - collected for grant of permission to extract each truck load of sand is authenticated by the Mines and Geology Department by affixing their office seal on each receipt. That such receipt serves as a permit for transporting one truck load of sand (on the date of issue of such receipt) from the place of extraction at Maralahalli Village to the nearby towns like Malavalli or Mandya where such sand is used by the purchasers for construction work. That for the entire lease period from 12 -3 -2003 to 11 -3 -2004 the appellant has issued only 4,595 receipts (each for a value of Rs. 200/ -) and the total royalty amount realised by the appellant is only Rs. 9,19,000/ - which is nearly thrice as much as the royalty paid to Government by the appellant to acquire the right to extract sand for one year from 60 acres of the river bed.
That the appellant also places reliance on the judgment of the Hon'ble High Court of Karnataka in the case of Muninagaiah v. State of Karnataka and Others : 1997 (42) Kar. L.J. 129 (HC). That the impugned assessment orders and penalty orders passed by the AA in these cases are entirely arbitrary, illegal, opposed to fact and contrary to the law of the land for which reason such orders deserve to be quashed in the interest of justice and equity.
That for the aforesaid reasons, the appellant prays that the impugned orders of the lower authorities may be quashed and these appeals may be allowed in the interest of justice and equity.
(3.) SRI O.N. Lingaiah, the learned Sales Tax Practitioner, appeared for the appellant and reiterated the aforesaid grounds and requested that these appeals may be allowed in the interest of justice and equity.;