2016 (8) TMI 827 - HC - VAT and Sales Tax

Best judgement assessment KVAT opportunity to revise the return to correct mistake Held that - Under Section 22 of the KVAT Act, where the assessing officer finds a return to be defective, then an opportunity is to be given to the dealer to file a fresh return curing the defects and only thereafter is the assessing officer expected to go ahead with a proposal for completion of assessment on best judgment basis, if the need arises. Circular No.27/2015, which is produced as Ext.P6 in the writ petition, the Commissioner of Commercial Taxes has also brought it to the notice of the assessing officers that they must comply with the procedural requirement under Section 22, 23 and 24 read with Rules 34, 35 and 38 of the KVAT Rules, while completing an assessment in relation to an assessee and before proceeding with the proposal for completing the assessment on best judgment basis - requirements of Sections 22, 23 and 24 to be complied with petition disposed off decided in favor of petitioner.

Issues:
1. Issuance of Ext.P4 notice under Section 25(1) of the Kerala Value Added Tax Act for best judgment assessment without allowing the petitioner to revise returns.
2. Alleged failure to follow the procedure under Sections 20 to 25 of the KVAT Act by the assessing officer.
3. Interpretation of the statutory provisions regarding assessment on best judgment basis.
4. Compliance with Circular No.27/2015 by the assessing officers.

Analysis:

1. The petitioner challenged the issuance of Ext.P4 notice proposing a best judgment assessment for the assessment year 2014-15 without being given an opportunity to correct mistakes in the filed returns. The court noted that Sections 20 to 25 of the KVAT Act outline the procedure for assessment. The court emphasized that under Section 22, if a return is found defective, the dealer must be allowed to file a fresh return before proceeding with a best judgment assessment. Referring to a previous judgment, the court highlighted that an assessment on best judgment basis should only be considered when all attempts to finalize an assessment based on available material fail. The court directed the assessing officer to comply with the statutory requirements before proceeding with the best judgment assessment.

2. The court observed that the assessing officer did not follow the prescribed procedure under the KVAT Act while completing the assessment for the petitioner. The court referred to a specific judgment outlining the steps to be followed before resorting to a best judgment assessment. It emphasized the importance of giving the dealer an opportunity to rectify any defects in the filed returns before initiating a best judgment assessment. The court directed the assessing officer to allow the petitioner to revise the returns for the relevant months before proceeding with the assessment.

3. The court discussed the statutory provisions related to assessment on best judgment basis, emphasizing the need for revenue authorities to issue a notice to the dealer intimating the rejection of returns and providing an opportunity to file fresh returns or produce necessary documents. The court highlighted the importance of granting a reasonable and meaningful opportunity to the dealer to show cause against a proposed best judgment assessment. It criticized the practice of issuing composite notices for fresh returns/documents and the hearing, emphasizing the need for a fair and non-arbitrary procedure in completing assessments.

4. The court noted Circular No.27/2015, which directs assessing officers to comply with procedural requirements under Sections 22, 23, and 24 of the KVAT Act before proceeding with a best judgment assessment. Since the assessing officer in this case had not followed these requirements, the court directed compliance with the circular before further action on the Ext.P4 notice issued to the petitioner. The court disposed of the writ petition with this direction to ensure procedural compliance in the assessment process.

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