1993 (9) TMI 320 - AT - VAT and Sales Tax

Issues Involved:
1. Propriety of assessing entry tax based on approximate saleable value.
2. Allegations of arbitrary and ill-motivated valuation by assessing authorities.
3. Validity of Rule 12(2) of the Taxes on Entry of Goods into Calcutta Metropolitan Area Rules, 1970.
4. Compliance with principles of natural justice in tax assessment.
5. Constitutionality of Sections 6, 11, 14, and 15 of the Act and Rule 12(2) of the Rules.
6. Right to a pre-decisional hearing.

Issue-wise Detailed Analysis:

1. Propriety of Assessing Entry Tax Based on Approximate Saleable Value:
The applicants challenged the propriety of assessing entry tax based on the approximate saleable value of goods in the Calcutta metropolitan area. They alleged that the assessing authorities arbitrarily ignored the declared value and documents certified by original sellers, including government agencies, and instead fixed values two to five times higher without assigning reasons. The Tribunal noted that the assessment based on approximate saleable value was supported by Rule 12(2) of the Rules and upheld by the Supreme Court in H.M.M. Ltd. v. Director of Entry Tax, West Bengal.

2. Allegations of Arbitrary and Ill-Motivated Valuation by Assessing Authorities:
The applicants claimed that higher authorities issued secret commands to fix arbitrary values to enrich state coffers. They argued that the authorities did not provide reasons for disregarding declared values, nor did they issue show cause notices or allow effective appeals. The respondents countered that Rule 12(2) was valid and necessary due to under-valuation by dealers, supported by market bulletins for accurate valuation. The Tribunal found that the assessment procedure under Rule 12(2) was valid, provided it followed the principles of natural justice.

3. Validity of Rule 12(2) of the Taxes on Entry of Goods into Calcutta Metropolitan Area Rules, 1970:
The applicants contended that Rule 12(2) was ultra vires the Act and unconstitutional. They argued that entry tax should be based on the cost price at the point of entry, not the saleable value within the metropolitan area. The Tribunal, referencing the Supreme Court's decision in H.M.M. Ltd., held that Rule 12(2) was within the legislative competence under Entry 52 of List II in the Seventh Schedule of the Constitution. The rule was deemed necessary to prevent under-valuation and loss of revenue.

4. Compliance with Principles of Natural Justice in Tax Assessment:
The applicants argued that the assessment process violated principles of natural justice, as it did not provide for notices or reasons for valuation changes. The Tribunal emphasized the necessity of following principles of natural justice, including issuing notices, allowing representations, and providing personal hearings before making assessments under Rule 12(2). The Tribunal directed that assessing officers must pass reasoned orders after giving dealers a reasonable opportunity to be heard.

5. Constitutionality of Sections 6, 11, 14, and 15 of the Act and Rule 12(2) of the Rules:
The applicants sought declarations that these sections and Rule 12(2) were unconstitutional. However, the Tribunal found no arguments advanced against the constitutionality of Sections 6, 11, 14, and 15. The Tribunal upheld the validity of Rule 12(2), stating that it did not result in arbitrary action and was consistent with the legislative intent and constitutional provisions.

6. Right to a Pre-Decisional Hearing:
The Tribunal acknowledged the importance of pre-decisional hearings in tax assessments. It noted that while the Act and Rules did not explicitly provide for such hearings, the principles of natural justice necessitated them. The Tribunal directed that assessing officers must provide reasonable opportunities for dealers to be heard before determining the approximate saleable value under Rule 12(2).

Conclusion:
The Tribunal declared that assessing officers must observe principles of natural justice and provide reasonable opportunities for dealers to be heard before determining the approximate saleable value of goods under Rule 12(2). The application was allowed in part, with directions for compliance with natural justice principles, but other prayers, including declarations of unconstitutionality, were rejected. No costs were awarded.

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