2015 (10) TMI 777 - HC - VAT and Sales Tax

Denial of input tax credit - Imposition of penalty - Held that - Assessment order has been passed ex parte by the Assessing Authority, Jalandhar- II, holding total tax liability of the petitioner-firm to the tune of ₹ 1,41,29,588/-. The stand of the petitioner-firm is that no notice was ever served to it, before passing the impugned order. Mr. Roshan Lal Sharma, its alleged Accountant was never employed by it and, therefore, it does not lie in the mouth of the respondent-department that the petitioner-firm was represented by him before the department on one date. The petitioner has averred that it has in its possession, all the original tax invoices, which can be produced on demand. Thus, in the fitness of the things and in the interest of justice, it would be appropriate that the petitioner should be afforded an opportunity to put forward its case, before the relevant Assessing Authority along with documentary proof, if any, in its possession so as to enable the Authority to pass an appropriate and legal order - Matter remanded back - Decided in favour of assessee.

Issues:
1. Quashing of assessment order under Article 226 of the Constitution of India.
2. Allegations of non-receipt of notices and misrepresentation by alleged Accountant.
3. Disallowance of Input Tax Credit (ITC) and imposition of penalty.
4. Ex parte assessment order without serving notice and violation of principles of natural justice.
5. Legal validity and justification of assessment order by the State.

Analysis:

1. The petitioner, a partnership firm, sought the quashing of the assessment order dated 31.03.2015 passed by the Assessing Authority under Article 226 of the Constitution of India. The petitioner contended that the assessment order was passed without serving any notice, and it was seeking relief through the issuance of a writ in the nature of certiorari.

2. The petitioner alleged that it never received any notice regarding the assessment proceedings, and the presence of an individual claiming to be its Accountant was wrongly marked by the Assessing Authority. The petitioner asserted that the alleged Accountant was never an employee and had no connection with the firm. The petitioner argued that it was not afforded the opportunity to present its case and provide necessary documents.

3. The assessment order disallowed Input Tax Credit (ITC) on the grounds of non-production of account books and original VAT invoices. Additionally, some ITC was rejected based on purchases from a cancelled dealer, leading to the creation of a substantial demand including penalty and interest. The petitioner contended that it possessed all original tax invoices, and payments were made through banking channels, questioning the basis for rejecting ITC.

4. The High Court observed that the assessment order was passed ex parte without serving any notice to the petitioner, thereby violating principles of natural justice. The Court noted discrepancies in the assessment, such as rejecting ITC on purchases significantly higher than the total purchases made by the petitioner. It was emphasized that the petitioner should be given the opportunity to present its case and provide documentary evidence.

5. The State, in response, defended the legality and validity of the assessment order, alleging that the petitioner was evading tax liability. The State claimed that a notice was served, and the alleged Accountant appeared before the Assessing Authority seeking time for explanation. However, subsequent non-appearance by the petitioner led to the ex parte assessment order.

In conclusion, the High Court allowed the writ petition, setting aside the assessment order and referring the matter back to the Assessing Authority for a fresh order after affording the petitioner an opportunity to be heard. The petitioner was directed to appear before the Authority on a specified date, with a warning that non-appearance could result in an ex parte proceeding. This judgment emphasized the importance of following due process and granting parties the opportunity to present their case in tax assessment matters.

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