The assessing authority must substantiate disallowance claims with evidence beyond mere assumptions, particularly regarding transactions post-inspection.

ORDER :

(Order of the Court was made by Dr.ANITA SUMANTH,J.)

In this Writ Petition, the State challenges an order of the Tamil Nadu Sales Tax Appellate Tribunal (in short 'STAT'/'Tribunal') dated 29.05.2003 made in C.T.A.No.157 of 1998 relating to the period 1995-96 (in short 'period in question').

2. The petitioner is a dealer under the provisions of the Tamil General Sales Tax Act, 1959 (in short 'TNGST Act'). It had effected sales on monoblock pumps for the period in question. Exemption was claimed under the provisions of the Central Sales Tax Act, 1956 (in short 'CST Act') as branch transfer.

3. The issue was taken up by the assessing authority and pre-assessment notices were issued. We are concerned with the proposal for rejection of the claim of branch transfer on the ground that the petitioner had engaged in interstate sales of goods that were camouflaged as branch/stock transfer to its branches at Bangalore, Trichur and Indore.

4. In the assessment dated 16.06.1997, the officer takes note of the findings of the inspection team that had inspected the premises on 19.09.1995. Various materials have been found that were part of the D7 records, leading the assessing authority to ultimately conclude by order dated 16.06.1997 that the entirety of the turnover relating to the Bangalore, Trichur and Indore branches of a sum of Rs.4,81,93,863/- (Rs.4.81 crores approx.) was liable to be disallowed and brought to tax at the rate of 11.45%.

5. A careful perusal of the order of assessment reveals that though the entirety of the turnover relating to the aforesaid three branches has been made, the D7 records contain materials relating to transactions upto 13.09.1995 alone, as the inspection was conducted on 19.09.1995. However, the proposal under the pre-assessment notice was for disallowance of the claim qua the entire turnover claimed as branch transfer.

6. Though the replies filed by the petitioner before the assessing authority are not before us, the assessment order does not contain any observation or findings of the assessing officer relating to the material produced by the assessee in regard to branch transfers, for the period post 19.09.1995. There is also no allegation that such material was sought but not provided. In fact, the entirety of the assessment only touches upon the material found in the course of inspection and does not traverse beyond 19.09.1995, being the date of inspection.

7. We have posed a specific query to the learned Government Advocate as to whether the records reveal that there was any examination of the transactions for the period post 19.09.1995 and he would fairly submit that there was no notice/proposal/letter from the assessing authority specifically calling for records from the assessee in relation to the period post 19.09.1995.

8. Thus, we are faced with a position where while the exemption claimed has been disallowed for the entirety of the turnover of the assessee for the period in question, the material on the basis of which that disallowance has been effected is restricted upto 19.09.1995 alone.

9. As against the disallowance made under order dated 16.06.1997, a first appeal was filed before the Appellate Assistant Commissioner. The officer delves into the issue in detail, again referring to D7 records only. We do not find in this order as well, any material to show or any observations to indicate to us that the assessee was called upon to furnish material for any period post 19.09.1995. There is no adverse finding to the effect that materials sought for were not produced by the assessee.

10. After a detailed examination of the records, the Appellate Assistant Commissioner partly sustains the claim of branch transfer, on the basis of the records recovered upto the period of inspection. Thus, the disallowance of a sum of Rs.4.81 crores stood reduced to Rs.1,90,27,304/- (Rs.1.90 crores approx.).

11. The transactions in relation to Bangalore had been accepted in entirety by the Appellate Assistant Commission