2015 (4) TMI 529 - HC - VAT and Sales Tax

Reopening of assessment - Whether the Assessing Officer is justified in insisting production of books of account before supplying certified copies of the seized documents and reason for reopening the assessment. - Held that - petitioner did not produce its regular books of account at the time of inspection in its premises on 20.05.2011. It may be relevant to mention here that Section 61(2) of the OVAT Act requires the dealer to keep all its books of account in its place of business. Thereafter, the Inspecting Officer also allowed sufficient time to the petitioner for production of the books of account for the purpose of examination of the same with reference to the seized documents and for this purpose fixed the date to 18.06.2011 and 15.07.2011 on which dates the dealer-petitioner did not produce the same. - So far as supply of reason for reopening of assessment is concerned, it may be noted here that vide notice dated 28.03.2012 in Form VAT-307 issued under Sub-rule (1) of Rule 50 for initiating reassessment proceeding, the petitioner was intimated that it appeared to the Assessing Officer that its whole/a part of turnover of sales/purchases for the tax period 01.04.2008 to 20.05.2011 has (i) escaped assessment, (ii) has been under assessed. Needless to say that the petitioner is entitled to be intimated the detailed reason as to why it appeared to the Assessing Office that its turnover of sales/purchases for the aforesaid tax period has escaped assessment and/or has been under assessed. Such detailed reason is nothing but the contents of the seized documents which were seized in course of inspection. - The same reason is applicable as to why before production of the regular books of account the detailed reason for initiating reassessment proceeding cannot be supplied to the dealer petitioner. It needs to be noted that production of the books of account is not dependent on the receipt of copies of seized documents and/or knowing of reasons for reopening the assessment. The regular books of account are required to be maintained statutorily and to be in custody of the petitioner. The Assessing Officer had issued notice for production of the regular books of account in the custody of the petitioner. Issuance of copies and supply of reasons are wholly unconnected with production of the regular books of account. As noted there is ample scope for manipulation. It was open to the petitioner to contend that all transactions noted in seized documents are entered in the regular the books of account. - Assessing Officer is justified in insisting upon the production of the books of account before supplying certified copy of the seized documents and reason for reopening the assessment and the action of petitioner-dealer in not producing the books of account pursuant to the statutory notice and subsequent intimation on the plea that the same would be produced after receipt of copies of the seized documents is contrary to law and mala fide. Whether reasonable opportunity of hearing has been afforded to the petitioner and thereby principle of natural justice has been complied with before utilizing the incriminating materials seized from its business premises against the petitioner and Assessing Officer is justified in passing the impugned order ex parte. - Held that - When a proceeding under Section 43 of the OVAT Act is initiated on the basis of a report submitted by any agency, the assessee is entitled to be heard at two stages, i.e., (i) in course of inspection of the business premises till submission of the report by the inspecting officer, (ii) after commencement of the re-assessment proceeding by issuance of notice for assessment of tax on escaped turnover till order under Section 43 of the OVAT Act is passed. - inspecting team found ten sets of written documents indicating materials received and dispatched and stock etc. Since the Asst. General Manager (Commercial) of the Company, on the date of visit did not produce the regular books of account and failed to explain the contents of the said documents, the Inspecting Officer seized those documents, in exercise of power under Section 73(6) of the OVAT Act and the dealer was issued with a notice in Form VAT 401 requiring it to produce the books of account. It may be relevant to mention here that Section 61(2) of the OVAT Act provides that every registered dealer shall keep, at his place of business as recorded in the certificate of registration, all accounts, registers and documents maintained in the course of business provided that if any such dealer has established branch offices of the business at different places of the State other than the principal place of his business, the relevant accounts, registers and documents in respect of each such branch shall be kept by him at the concerned branch. Notice for assessment of tax on escaped turnover in Form VAT 307 was issued to the petitioner on 28.03.2012 through process server fixing the date to 10.05.2012. Pursuant to the said letter, the petitioner filed a time petition and the case was adjourned and posted to 06.06.2012. Since the petitioner did not turn up on the date fixed, one more intimation was issued to the petitioner. On 18.07.2012, the petitioner again moved a time petition. Thereafter, two more intimations were issued to the petitioner. On those dates, the dealer did not produce the books of account. However, in response to notice dated 11.10.2012, the petitioner filed a petition to intimate him the reasons of reopening the case. On 27.06.2013, another intimation was issued to the dealer fixing the date to 16.07.2013. On that date, the dealer failed to appear before the Assessing Officer to produce the books of account. Thereafter, the impugned ex parte assessment order was passed. - Thus, it may be seen that though several opportunities were given by the Assessing Officer for hearing, the petitioner-dealer did not produce the books of account on some plea or other, which is not legally sustainable and/or contrary to law. - that reasonable opportunity of hearing has been afforded to the petitioner and thereby principle of natural justice has been duly complied with before passing the impugned assessment order and the Assessing Officer is fully justified in passing the said order ex parte. Whether any basis/reason has been assigned for determination of the escaped turnover and levy of tax thereon in the impugned assessment order and the Assessing Officer is justified in accepting the allegations raised in the report - Held that - Assessing Officer has given the basis/reasons in support of determination of the escaped turnover and tax due thereon. - petitioner failed to explain 10 sets of documents found by the inspecting team in its place of business. After the inspection, though opportunities were afforded to the petitioner to produce the books of account for verification, the dealer did not produce the books of account. Further, the petitioner-dealer also failed to produce the books of account before the Assessing Officer though several opportunities were afforded to it. In the assessment order, the Assessing Officer has reproduced various allegations/ conclusions of the Investigating Officer against the petitioner and calculation of the amount of tax alleged to have been evaded by the petitioner during the tax period. Perusal of the assessment order reveals that the amount of tax alleged to have been evaded is based on the transaction of sales and purchases noted in the seized documents and physical stock found on the date of inspection. - it cannot be said that the Assessing Officer without assigning any reason has passed the impugned order of assessment in violation of Rule 50(4) of the OVAT Rules and principles of natural justice has not been duly complied with and the Assessing Officer has committed any wrong in accepting the allegations raised in the report of the Investigation Officer. Whether in the facts and in the circumstances of the case, it would be appropriate/legally permissible to set aside the ex parte assessment order and direct the Assessing Officer to return the seized documents of the petitioner and after granting an opportunity of hearing to the petitioner and examining the regular books of account with reference to the seized documents to redo the assessment and by that no prejudice will be caused to the interest of the State. - Held that - There are certain cases where if ex parte orders are set aside to give an opportunity of hearing to the aggrieved parties that may amount to granting a boon to such parties, as they would be able to achieve their unholy purpose and in that case the very purpose of passing ex parte order is frustrated. The obvious reason for putting forward such a pre-condition is that the petitioner wanted to know the contents of seized documents before production of regular books of account so that he could be able to manipulate/prepare its regular books of account, in line with contents of the seized document. Despite a number of opportunities being allowed to produce the regular books of account, the dealer-petitioner did not produce the same and thereby the Assessing Officer was compelled to pass the assessment order ex parte disclosing the contents of the seized documents in the assessment order. If the said ex parte order is set aside and the dealer would be given an opportunity to produce its regular books of account before the Assessing Officer, the dealer could easily incorporate in its regular books of account the entries recorded in seized documents and thereafter produce the manipulated/ prepared books of account. In that event, the very purpose of conducting surprise visit to the place of business of a dealer to find out as to whether all the business transactions are recorded in regular books of account and tax due thereon has been paid shall be frustrated and a dealer who was indulged in clandestine business will be benefited due to setting aside of an ex parte order to give him a further opportunity, to produce his regular books of account for the purpose of examining those with reference to seized documents. Serious prejudice shall be caused to the interest of the State, if after disclosure of the entries made in the seized documents in the ex parte assessment order, the said order will be set aside and an opportunity would thereafter be given to the petitioner-dealer to produce its regular books of account for the purpose of examination of the said accounts with reference to the seized documents. - Decided against assessee.

Summary

Issues Involved:
1. Justification of the Assessing Officer in insisting on the production of books of account before supplying certified copies of seized documents and reasons for reopening the assessment.
2. Whether reasonable opportunity of hearing was afforded to the petitioner, complying with the principles of natural justice before passing the impugned order.
3. Justification of the Assessing Officer in passing the impugned order ex parte.
4. Whether the Assessing Officer assigned a basis/reason for determining the escaped turnover and tax due.
5. Justification of the Assessing Officer in accepting the allegations raised in the report without any rebuttal from the dealer.
6. Appropriateness of setting aside the ex parte assessment order and directing the Assessing Officer to return the seized documents and redo the assessment.
7. Granting liberty to the petitioner to prefer an appeal if the writ petition fails on merit.

Issue-wise Detailed Analysis:

1. Justification of the Assessing Officer in insisting on the production of books of account before supplying certified copies of seized documents and reasons for reopening the assessment:
The court held that the Assessing Officer was justified in insisting on the production of books of account before supplying certified copies of the seized documents and reasons for reopening the assessment. The petitioner's refusal to produce the books of account without first receiving the seized documents and reasons was contrary to law and deemed mala fide. The court referenced the case of *Lakhiram Jain and Sons* to support the necessity of producing books of account prior to issuing certified copies to prevent manipulation.

2. Whether reasonable opportunity of hearing was afforded to the petitioner, complying with the principles of natural justice before passing the impugned order:
The court found that reasonable opportunity of hearing was afforded to the petitioner. The petitioner was given multiple opportunities to produce the books of account but failed to do so. The court concluded that the principles of natural justice were complied with, and the Assessing Officer was justified in passing the impugned order ex parte.

3. Justification of the Assessing Officer in passing the impugned order ex parte:
The court held that the Assessing Officer was justified in passing the impugned order ex parte due to the petitioner's repeated failure to produce the books of account despite several opportunities. The petitioner's non-cooperation compelled the Assessing Officer to proceed ex parte.

4. Whether the Assessing Officer assigned a basis/reason for determining the escaped turnover and tax due:
The court determined that the Assessing Officer had assigned reasons for determining the escaped turnover and tax due. The assessment order was based on the seized documents and the petitioner's failure to produce the books of account for verification. The court referenced the case of *CIT Vs. K.Y.Pilliah and Sons* to affirm that the Assessing Officer's reliance on the Inspecting Officer's report was justified.

5. Justification of the Assessing Officer in accepting the allegations raised in the report without any rebuttal from the dealer:
The court found that the Assessing Officer was justified in accepting the allegations raised in the report due to the petitioner's failure to rebut the same despite several opportunities. The assessment was based on the seized documents and the physical stock found during the inspection.

6. Appropriateness of setting aside the ex parte assessment order and directing the Assessing Officer to return the seized documents and redo the assessment:
The court held that setting aside the ex parte assessment order would cause serious prejudice to the interest of the State. The petitioner's non-cooperation and potential for manipulating the books of account justified the ex parte order. The court emphasized that not all ex parte orders need to be set aside for further hearing.

7. Granting liberty to the petitioner to prefer an appeal if the writ petition fails on merit:
The court dismissed the petitioner's plea for liberty to prefer an appeal if the writ petition fails on merit. The court reasoned that it would be futile to relegate the petitioner to the appellate authority after the High Court had already decided the case on merit.

Conclusion:
The writ petition was dismissed, with the court upholding the actions and decisions of the Assessing Officer as justified and in accordance with legal principles and statutory requirements.