1995 (9) TMI 338 - HC - VAT and Sales Tax

Summary

Issues:
Violation of principles of natural justice in issuance of demand and show cause notices for penalty.

Detailed Analysis:

1. Background and Petitioner's Contentions:
The petitioner, a cooperative society, challenged demand notices for turnover tax for the assessment years 1991-92 and 1992-93. The petitioner argued that the tax returns were filed and taxes remitted, including turnover tax under the Kerala General Sales Tax Act. The petitioner contended that the immediate issuance of demand notices without completing the assessment process violated natural justice principles and cited a previous court decision supporting this stance.

2. Nature of Notices and Legal Arguments:
The notices issued were demand notices for payment of turnover tax and show cause notices under section 45A of the Act. The petitioner argued that proceeding directly with demand notices was premature and against natural justice principles. The petitioner emphasized that the penalty and show cause notices were interdependent, and any flaw in the demand notices would affect the sustainability of the proposed penalties.

3. Legal Precedents and Assessment Process:
The judgment referred to a previous case, Cochin Tea Syndicate's case, which highlighted the importance of admission of tax liability before issuing demand notices. It emphasized that assessment must be completed before demanding any amount not admitted by the assessee. The court clarified that only after completing the assessment process could the department proceed with demands and penalties based on the assessed amount.

4. Court's Decision and Conclusion:
Based on the legal principles established in the Cochin Tea Syndicate's case, the court held that the demand and show cause notices were unsustainable due to the violation of natural justice principles and premature issuance. Consequently, the court quashed and set aside the demand and show cause notices, allowing the tax authority to proceed with assessment following due process. The court directed the authority to consider the demands based on the assessment outcome before issuing any show cause notice. No costs were awarded in the matter.

In conclusion, the court's judgment favored the petitioner by setting aside the demand and show cause notices, emphasizing the importance of completing the assessment process and ensuring adherence to natural justice principles before imposing tax liabilities and penalties.