2021 (4) TMI 1282 - HC - VAT and Sales Tax

Validity of pre-revision notices issued by the respondent - it is alleged that Assessing Officer failed to take note of the specific direction issued by the Commissioner of Commercial Taxes in Circular dated 04.11.2013 as to how the operation of Section 19(20) of the Act should be adopted - vires of Section 19(20) of TNVAT Act - HELD THAT - The substantial portion of the contention advanced by the appellants were accepted and found favour with the learned Writ Court. However ultimately the learned Writ Court sustained the objection raised by the learned Additional Government Pleader and directed the assessee to submit their objections after the Assessing Officer issued a supplemental show cause notice. The correctness of this direction is called in question. In the instant case the pre-revision notices were triggered on account of the inspection conducted by the Enforcement Wing. As pointed out by the learned Writ Court this can be at best cause of action to reopen the assessment by invoking power under Section 27 of the Act but while issuing pre-revision notices assessee cannot straightaway make a proposal for ad-hoc reversal of the input tax credit when the appellant assessee would state that they have got sufficient records to prove that no such reversal can be done much less ad-hoc reversal on input tax credit. Therefore the appropriate procedure that should have been followed by the respondent Assessing Officer on receipt of the proposal by the enforcement wing is to issue a notice to the assessee to produce all records to examine as to whether there has been any huge accumulation of input tax credit on account of lesser sale price than purchase price. This required to be mandatorily done by the Assessing Officer in the light of the Circular dated 04.11.2013. The circular instructions cannot bind the assessee but it binds the Assessing Officer who is the subordinate authority in the hierarchy of authority in the Commercial Tax Department. Therefore the pre-revision notices straightaway proposing the ad-hoc reversal is not sustainable in law. The pre-revision notices are set aside and these matters are remanded to the respondent. The respondent is directed to issue a show cause notice to the appellant directing them to produce all their books of accounts and other records to examine them in the light of the direction issued in the Circular dated 04.11.2013 and ascertain as to whether there is any accumulation of input tax credit on account of lesser sale price than the purchase price - Appeal allowed by way of remand.

Summary

Issues:
Challenge to pre-revision notices under the Tamil Nadu Value Added Tax Act, 2006 for Assessment Years 2011-12 to 2014-15.

Analysis:
The appellant challenged the pre-revision notices issued by the respondent, arguing that the Assessing Officer failed to consider the specific directions in Circulars dated 04.11.2013 and 30.11.2009. The appellant emphasized the need to follow the Circular instructions dated 04.11.2013, as per previous court decisions. The appellant contended that ad-hoc reversal of input tax credit without proper examination is unjustified, as demonstrated with evidence that sale prices were generally higher than purchase prices. The department insisted on submitting objections rather than addressing the appellant's concerns directly.

The High Court found that the appellant's contentions were valid, but upheld the direction for the appellant to submit objections after a supplemental show cause notice. The court clarified that the proposal by the Enforcement Wing is not binding on the Assessing Officer, who must assess based on records and returns. The court criticized the pre-revision notices for proposing ad-hoc reversals without proper examination, emphasizing the need for the Assessing Officer to follow due process and examine records before making decisions based on Circular instructions.

As a result, the Writ Appeals were allowed, setting aside the orders and pre-revision notices. The matters were remanded to the respondent, directing the Assessing Officer to issue a show cause notice to the appellant to produce records for examination in line with Circular instructions. The Assessing Officer must form a prima facie opinion, allow the appellant to submit objections, conduct a personal hearing, and complete the assessment based on proper examination of records within four weeks from the judgment date. The Appeals were allowed with these directions, and no costs were awarded.