1988 (2) TMI 430 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to assessment orders assessing sales tax on rubber purchase turnover under section 5A(1)(c) of the Kerala General Sales Tax Act, validity of rubber cess inclusion in taxable turnover, violation of principles of natural justice in assessment process.

Analysis:
The petitioners, a public limited company engaged in manufacturing rubber products, challenged assessment orders assessing sales tax on rubber purchase turnover under section 5A(1)(c) of the Kerala General Sales Tax Act for the years 1976-80. The petitioners argued that the inclusion of rubber cess in the taxable turnover was unconstitutional and arbitrary. The assessing authority contended that rubber cess formed part of the purchase turnover and the estimate was not arbitrary as the petitioner was given a pre-assessment notice proposing the estimate.

The court noted that the assessment was actually under section 5, not 5A(1)(c), for rubber excluding synthetic rubber. Referring to a previous decision, the court upheld that rubber cess paid formed part of the purchase turnover. The petitioners' objection to the arbitrary estimate of rubber cess paid and violation of natural justice principles was considered. The court found that the assessment orders were passed before the petitioner had the opportunity to furnish details of rubber cess paid, rendering the orders unsustainable due to their arbitrary nature and violation of natural justice.

The government pleader argued that alternative remedies under the Act precluded quashing the assessment orders. However, citing legal precedents, the court held that orders void for violation of natural justice cannot be validated by appellate or revisional orders. The court emphasized that breach of natural justice is akin to lack of jurisdiction. Given the violation of natural justice, the court quashed the assessment orders and directed the assessing authority to pass fresh orders within three months, allowing the petitioner to prove the actual amount of rubber cess paid.

In conclusion, the court allowed the petition, quashing the assessment orders related to rubber cess inclusion in the taxable turnover. The court emphasized the importance of natural justice in tax assessments and directed the assessing authority to reevaluate the assessment considering the petitioner's submissions within a specified timeframe.