2017 (4) TMI 1300 - HC - VAT and Sales Tax

Validity of assessment order - reassessment of tax - KVAT Act - principles of Natural Justice - Held that - the Assessing Officer is of the firm o pinion that merely by giving an opportunity of hearing, the principles of natural justice have been complied with. However, such a notion is highly misplaced. Merely giving an opportunity of hearing, but by withholding material documentary evidence, which is read against the assessee by the department, the principles of natural justice are not complied with. Since the petitioner s right under principles of natural justice have been violated, the impugned order dated 27.02.2017 is unsustainable in the eyes of law. Therefore, the said assessment orders are hereby set aside. Petition allowed.

Summary

Issues involved:
Challenge to legality of assessment order under KVAT Act, violation of principles of natural justice, contradictory reasoning in assessment order.

Analysis:

1. Challenge to Legality of Assessment Order:
The petitioner, a registered dealer under the Karnataka Value Added Tax Act, challenged the reassessment of tax liability for the period April 2012 to March 2013. The Assistant Commissioner revised the tax rate from 5.5% to 14.5% based on an inspection report classifying the product as taxable at the higher rate. The petitioner contended that the Assessing Officer's reasoning in the order was self-contradictory. The petitioner requested a copy of the inspection report, but it was not provided before the assessment order was passed. The court held that the failure to provide the inspection report violated the principles of natural justice. The assessment order was set aside, and the case was remanded for a fresh assessment with the directive to provide all relevant documentary evidence to the assessee.

2. Violation of Principles of Natural Justice:
The court emphasized that the right to a substantive opportunity of hearing includes access to documentary evidence that may be used against the assessee. Denying the petitioner a copy of the inspection report before passing the assessment order amounted to a violation of natural justice principles. The court ruled that withholding material evidence and then using it against the assessee without providing access to it does not fulfill the requirements of natural justice. Therefore, the assessment order was deemed unsustainable and set aside.

3. Contradictory Reasoning in Assessment Order:
The Assessing Officer's claim that the opinion was formed independently of the inspection report was found to be contradictory. The court highlighted that the inspection report was the basis for revising the tax rate, and the failure to provide a copy of it to the petitioner undermined the principles of natural justice. The court concluded that the Assessing Officer's understanding of natural justice principles was flawed, as providing a mere opportunity of oral hearing without access to crucial documentary evidence does not meet the standards of natural justice. Therefore, the assessment order was invalidated, and the case was remanded for a fair assessment process within a specified timeframe.

In summary, the judgment addressed the issues of legality of assessment order under the KVAT Act, violation of natural justice principles, and contradictory reasoning in the assessment order. The court emphasized the importance of providing access to documentary evidence to the assessee and ruled in favor of the petitioner, setting aside the assessment orders and remanding the case for a fresh assessment with proper adherence to natural justice principles.