2014 (9) TMI 591 - HC - VAT and Sales Tax

Difference in stock - Violation of principle of natural justice - Held that - Circular No.8/13 dated 18.7.2014 prescribes certain time schedule and as rightly pointed out by the learned counsel for the petitioner, though the surprise inspection was done on 27.6.2013 and the statement was recorded on 2.7.2013, the notice dated 29.5.2014 issued by the respondent reached the hands of the petitioner only on 1.6.2014 and the petitioner has also submitted its response on 11.6.2014. Since Circular No.8/13, dated 18.7.2013, having been issued, the subordinate officials of the Commissioner of Commercial Taxes, Chepauk, Chennai-5, are expected to adhere to the time schedule given in the Circular, but in the case on hand, they have failed to do so. That apart, at the time of making the surprise inspection on 2.7.2013, the officials had collected a sum of ₹ 72,438/- and a perusal of the ICICI Bank statement, Arni Branch, would disclose that the said cheque bearing No.19099 was encashed by the Commercial Tax Officer, on 18.7.2013, and though in the impugned proceedings the collection of tax has been referred to, the amount has not been mentioned and it was also not adjusted while arriving at the proposed taxable turnover. Therefore, this Court is of the considered view, in the light of the infirmities, that the impugned order is liable to be set aside and the matter is once again be remanded to the respondent for fresh adjudication, in accordance with law - Decided in favour of assessee.

Summary

Issues:
1. Timeliness of issuing notice and conducting inspection
2. Violation of principles of natural justice
3. Prohibition on collecting amounts during inspection
4. Adherence to circulars and time schedules
5. Adjustment of collected tax amount in the order

Analysis:
1. The petitioner, engaged in the trading of ceramic tiles, faced a surprise inspection by Enforcement Wing Officials on 27.6.2013, which led to the discovery of a stock difference. Subsequently, the petitioner was issued a notice demanding tax and penalty, with the order being passed on 16.6.2014, allegedly without proper adherence to the principles of natural justice. The petitioner contended that the notice was issued beyond the prescribed time limit as per Circular No.8/13, dated 18.7.2013, which sets specific timeframes for audit and inspection-related actions.

2. The petitioner argued that Circular No.7/14 mandates a reasonable opportunity of personal hearing before passing any revision order, which was not provided in this case. The lack of a proper opportunity for a hearing was highlighted as a violation of procedural fairness and natural justice, forming a substantial ground for challenging the impugned order dated 16.6.2014.

3. Another contention raised was the unauthorized collection of amounts during the surprise inspection, which the petitioner claimed was impermissible. The petitioner pointed out that the respondent failed to adjust the tax amount collected during the inspection in the final order, indicating a procedural irregularity that needed rectification.

4. The Court noted the significance of Circular No.8/13 and observed a failure on the part of the tax officials to adhere to the prescribed time schedule outlined in the circular. The Court emphasized the importance of following such guidelines to ensure procedural regularity and fairness in tax-related proceedings. Additionally, the Court highlighted the necessity of proper documentation and adjustment of collected amounts in the final determination of taxable turnover.

5. Ultimately, the Court partially allowed the writ petition, setting aside the impugned order and remanding the matter to the respondent for fresh adjudication. The petitioner was granted the opportunity to submit another representation within a specified period, with directions for the respondent to consider all submissions and pass orders in accordance with the law. The Court's decision aimed to rectify the procedural lapses and ensure a fair and lawful resolution of the tax dispute.