2007 (11) TMI 558 - HC - VAT and Sales Tax

Reassessment proceeding under section 12(8) of the Orissa Sales Tax Act 1947 challenged - Non-communication of reason for reopening of the assessment in writing to the petitioner - Held that - As discussed the petitioner had rightly treated the royalty paid to the Government for procurement of tamarind from the leased out area as purchase turnover of the tamarind for the purpose of payment of tax under the Act. the reason for reopening of the assessment has been indicated to the petitioner by the STO and only on that basis it has filed the present writ petition. It makes no difference even if the reason is not indicated in writing but communicated to the dealer on its appearance before the assessing officer. Hence the petitioner s challenge to the notice issued under section 12(8) of the Act on the ground of noncommunication of the reason for re-opening in writing fails. But the writ petition is allowed on the grounds discussed and the notice purported to have been issued under section 12(8) of the Act vide annexure 1 is quashed. There shall be no order as to costs.

Summary

Issues Involved:
1. Conformity of the A.G. Audit Report with previous High Court judgments.
2. Non-communication of reasons for reopening the assessment in writing.

Issue-wise Analysis:

1. Conformity of the A.G. Audit Report with Previous High Court Judgments:

The petitioner challenged the initiation of reassessment proceedings under section 12(8) of the Orissa Sales Tax Act, 1947, for the years 1995-96 and 1996-97 on the grounds that the A.G. Audit Report, which formed the basis of the proceedings, was not in conformity with the judgments in P. R. Tata & Co. v. Sales Tax Officer [1971] 27 STC 176 and State of Orissa v. Iqbal Bros. [1990] 79 STC 337. The Full Bench of the Orissa High Court reviewed these judgments and found that they were rendered on different factual backgrounds, thus there was no conflict between them. The matter was remitted back to the Division Bench for disposal of the writ petition.

The petitioner, a partnership firm engaged in rice milling and tamarind processing, had entered into agreements with the Government of Orissa for the procurement of tamarind on payment of royalty. The petitioner disclosed the royalty paid as the turnover of purchase for tax purposes. The Sales Tax Officer (STO) later reopened the case based on the A.G.'s audit report, which included expenses like collection and transportation charges in the purchase price for tax levy. The petitioner contended that such expenses should not form part of the purchase price, relying on the judgments in P.R. Tata's case and State of Orissa v. Iqbal Bros.

In P.R. Tata's case, it was held that collection, transport, and crushing charges incurred by the petitioner were not part of the purchase price. Similarly, in State of Orissa v. Iqbal Bros., it was confirmed that the dealer was to pay tax based on the royalty amount paid to the Forest Department, not on additional expenses.

2. Non-communication of Reasons for Reopening the Assessment in Writing:

The petitioner argued that the non-communication of reasons for reopening the assessment in writing was arbitrary and vitiated the proceedings. The court noted that the law requires the assessing officer to record reasons before initiating proceedings under section 12(8) of the Act and to communicate these reasons to the dealer. The STO had orally communicated the reason for reopening the assessment, which was based on the A.G. audit party's objection regarding the non-inclusion of procurement expenses in the purchase turnover. The court held that even though the reasons were not communicated in writing, the petitioner was informed of them during the proceedings, thus the challenge on this ground failed.

Conclusion:

The court concluded that the royalty paid by the petitioner to the Government of Orissa constituted the purchase price under section 2(ee) of the Act. The reopening of assessment to include additional expenses was not sustainable based on the precedents set in P.R. Tata's case and State of Orissa v. Iqbal Bros. Consequently, the notice issued under section 12(8) of the Act was quashed, and the writ petition was allowed on these grounds. The petitioner's challenge on the ground of non-communication of reasons in writing was dismissed. The court did not impose any costs.