2014 (11) TMI 878 - HC - VAT and Sales Tax

Settlement of arrears of tax - TNVAT / TNGST - Deferral scheme of sales tax - Cancellation of scheme and demand of tax for the entire period - option of settlement of case - Held that - we have seen as to how the Settlement Act works and now the issue to be considered is as to whether the petitioners applications were dealt with as per the procedure contemplated under the Act. Before proceeding further, it has to be pointed out that the applications filed by the petitioners were kept pending for two years and there is no reason assigned in the counter affidavit for such a long delay and the delay remains unexplained. The issue to be decided at the first instance is whether these applications were verified as per the provisions of Section 6(1). It is only thereafter the question of considering the further amount payable would arise under Section 6(2). This again is a procedural infirmity, which goes to the root of the matter. In a case, where the designated authority is not in possession of the relevant record, obviously he has to direct the petitioner/applicant to produce the records. In such circumstances, an opportunity of personal hearing is inevitable and in fact the disputed question of facts can very well be thrashed out if the assessee is called upon by the designated authority to state as to how they computed the amount based on their books of accounts or records. Therefore, though the statute does not prohibit an opportunity of personal hearing while considering the application under Section 6(1), going by the scheme of the Act, there is no error on the part of the designated authority to afford an opportunity of personal hearing so as to ensure fairness and transparency in procedure and also to satisfy the cardinal rule, Audi alteram partem. In view of the above procedural defects, the impugned orders passed by the designated authority rejecting the petitioner s applications are liable to be set aside with a direction to the designated authority to re-consider the entire matter in terms of the scheme of the Act.

Issues Involved:
1. Cancellation of the deferral agreement and demand for lump-sum payment.
2. Rejection of applications under the Tamil Nadu Sales Tax (Settlement of Arrears) Act, 2011.
3. Procedural flaws in the assessment and settlement process.
4. Levy of interest on the tax arrears.

Issue-Wise Detailed Analysis:

1. Cancellation of the Deferral Agreement and Demand for Lump-Sum Payment:
The petitioners, a limited company and a registered dealer under the Tamil Nadu General Sales Tax Act and the Tamil Nadu Value Added Tax Act, opted for the IFST scheme, availing deferral of sales tax for nine years up to a ceiling of Rs. 420.62 lakhs. A show-cause notice was issued by the Assistant Commissioner (CT), Karur, proposing to cancel the deferral agreement. Despite the petitioners' explanation, the deferral agreement was canceled, demanding the entire deferred tax in one lump sum. The petitioners filed a writ petition challenging this action.

2. Rejection of Applications under the Tamil Nadu Sales Tax (Settlement of Arrears) Act, 2011:
The petitioners submitted applications under the Settlement Act for one-time settlement of arrears. These applications were rejected by the first respondent on grounds such as incorrect calculation of payable amounts and the special committee's orders remanding the assessment matters to the assessing officer. The petitioners argued that the first respondent's rejection was erroneous, ignoring the scope of Section 7 of the Settlement Act and the mutually exclusive nature of its clauses.

3. Procedural Flaws in the Assessment and Settlement Process:
The court identified significant procedural flaws in how the petitioners' applications were handled. The designated authority failed to verify the correctness of the particulars furnished in the applications with reference to all relevant records, as required under Section 6(1) of the Settlement Act. The authority did not issue notices to the petitioners to produce books of accounts and relevant records, resulting in an erroneous calculation of the amount payable. The court emphasized the necessity of following the procedural requirements to ensure fairness and transparency.

4. Levy of Interest on the Tax Arrears:
The petitioners contended that interest could only be levied after the completion of the assessment. The court referred to the Supreme Court's decision in E.I.D Parry (I) Ltd. v. Asst. Commr. of C.T., which distinguished between automatic interest levy on admitted tax liabilities and interest based on best judgment assessment. The court directed the first respondent to consider this legal principle while reassessing the applications.

Conclusion:
The court set aside the impugned orders rejecting the petitioners' applications under the Settlement Act and directed the designated authority to reconsider the matter, ensuring compliance with the procedural requirements of the Act. The court also directed that the impugned assessment orders be kept in abeyance until fresh orders are passed. The court emphasized the importance of affording the petitioners an opportunity for a personal hearing and the production of relevant records to verify the correctness of the particulars furnished in their applications. The judgment ensures that the petitioners' applications are reassessed in a fair and transparent manner, adhering to the statutory provisions of the Settlement Act.

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