2008 (10) TMI 619 - HC - VAT and Sales Tax

Whether the Deputy Commissioner of Sales Tax has jurisdiction under section 35(2A) of the Kerala General Sales Tax Act, hereinafter called the KGST Act , to order reopening and revision of a best judgment assessment based on the subsequent information that pursuant to raid by Income-tax Department the assessee conceded unaccounted sales and business income based on which revised income-tax assessment was concluded by orders of the Settlement Commission? Held that - In order to bar jurisdiction of the Deputy Commissioner under section 35(2)(b) read with section 35(2A), the basis for revision adopted by him should be exactly the same decided in appeal and not anything in relation to it. In other words, if the point raised by him was not the issue decided in appeal, the Deputy Commissioner is free to invoke jurisdiction. Once accounts are rejected, the assessing officer is free to assume that the business is viable and profitable. Thereafter he should estimate the income which can keep the business going with reasonable profit and then project turnover based on it. We feel if this principle is followed, subsequent revision of assessment and controversy of this nature could be avoided. We therefore dismiss STRV No. 133 of 2006 filed by the assessee upholding the order of the Tribunal and restoring that of the Deputy Commissioner and allow STRV No. 480 of 2004 by quashing the order of the Tribunal and restoring that of the Deputy Commissioner issued under section 35(1) of the KGST Act.

Summary

Issues Involved:
1. Jurisdiction of the Deputy Commissioner under section 35(2A) of the Kerala General Sales Tax Act (KGST Act) to reopen and revise a best judgment assessment.
2. Whether the Deputy Commissioner is barred from exercising jurisdiction under section 35(2)(b) read with section 35(2A) if the issue was subject-matter of appeal.
3. Whether the order of assessment is prejudicial to the interest of Revenue.
4. The validity of the Tribunal's conflicting judgments.

Detailed Analysis:

1. Jurisdiction of the Deputy Commissioner under section 35(2A) of the KGST Act:
The primary question was whether the Deputy Commissioner of Sales Tax had the jurisdiction to reopen and revise a best judgment assessment based on subsequent information obtained from the Income-tax Department, which indicated that the assessee had conceded unaccounted sales and business income. The court clarified that section 35(2A) of the KGST Act allows the Deputy Commissioner to pass an order on any point not decided in an appeal or revision within one year from the date of such appeal or revision order or within four years from the original order, whichever is later. The Deputy Commissioner acted on specific information from the Income-tax Settlement Commission, where the assessee admitted to unaccounted sales and additional income from the jewellery business.

2. Whether the Deputy Commissioner is barred from exercising jurisdiction under section 35(2)(b) read with section 35(2A):
The court examined whether the Deputy Commissioner was barred from revising the assessment because the issue of estimation and addition to turnover was previously appealed. The court concluded that the Deputy Commissioner is not barred if the new information was not considered in the original assessment or appeal. The original assessment was based on stock variation and doubts about the genuineness of accounts, whereas the new revision was based on the assessee's admission of unaccounted sales before the Income-tax authorities. Therefore, the Deputy Commissioner had jurisdiction to revise the assessment under section 35(2A) as the new information was not part of the original appeal.

3. Whether the order of assessment is prejudicial to the interest of Revenue:
The court addressed whether the assessment order was prejudicial to the interest of Revenue, which is a prerequisite for the Deputy Commissioner to invoke revision powers under section 35(1). The court referred to the Supreme Court's decisions in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax and Master Cables Pvt. Ltd. v. State of Kerala, which held that an order leading to loss of tax is prejudicial to the Revenue. The court emphasized that any assessment resulting in a loss of tax is prejudicial and warrants revision under section 35(1) of the KGST Act. The court noted that the Deputy Commissioner's revision was justified as it prevented substantial tax evasion by the assessee.

4. The validity of the Tribunal's conflicting judgments:
The court reviewed the conflicting judgments of the Sales Tax Appellate Tribunal. One Tribunal bench canceled the addition to the turnover, while another upheld the Deputy Commissioner's revision based on new information. The court upheld the Deputy Commissioner's order, stating that the Tribunal's decision favoring the assessee was based on a previous court decision that did not consider contrary views. The court dismissed the assessee's revision petition (STRV No. 133 of 2006) and allowed the State's revision petition (STRV No. 480 of 2004), thereby quashing the Tribunal's order and restoring the Deputy Commissioner's order under section 35(1) of the KGST Act.

Conclusion:
The court concluded that the Deputy Commissioner had the jurisdiction to revise the assessment based on new information not considered in the original appeal. The assessment order was deemed prejudicial to the Revenue, justifying the revision. The court upheld the Deputy Commissioner's order and dismissed the conflicting Tribunal judgments favoring the assessee. The court emphasized the need for realistic examination of accounts by assessing officers to prevent tax evasion and subsequent revisions.