2016 (10) TMI 560 - HC - VAT and Sales Tax

Principles of natural justice - levy of penalty u/s 12(3)(b) and 10(3)(1) of the Act - determination of total and taxable turnover for the relevant year - inspection of the business premises by the officials of the Enforcement Wing - while denying the allegations made in the pre-revision notice dated 16.11.2004, as defamatory and mala fide, the petitioner requested copies of the records, which were relied upon in the notice, agreeing to pay cost and further requested for an opportunity to enable them to file their objections to the proposal - Held that - the decision in the case of Kalra Glue Factory Versus Sales Tax Tribunal And Others 1987 (3) TMI 110 - SUPREME Court relied upon. If the respondent, for any valid reason, was of the view that the statements and records need not have been furnished, he could have rejected the request by passing a separate order and that could not have been done at the time of completing the assessment and passing the impugned order. Thus, the inherent defect, which has crept in the order, affects its very validity. The violation of the principles of natural justice is writ large on the face of the impugned order, which is sufficient to hold that the same is not sustainable. Petition allowed - matter remitted back to the respondent with a direction to consider the request of the petitioner for furnishing of statements and records and an opportunity of cross examination and thereafter proceed in accordance with law - decided in favor of petitioner.

Issues Involved:
1. Violation of principles of natural justice.
2. Denial of second sale exemption.
3. Retrospective cancellation of registration.
4. Reliance on third-party statements.
5. Levy of penalty.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order was passed without providing a reasonable opportunity, which is against the principles of natural justice and fair play. The petitioner requested copies of the records and statements relied upon in the notice and an opportunity to cross-examine the third parties whose records were used. The court noted that the respondent did not accede to these requests, which resulted in a violation of natural justice. The court emphasized that when statements from third parties are the sole basis for revision of assessment, such material is adverse to the interest of the dealer, and the dealer must be given an opportunity to cross-examine those third parties.

2. Denial of Second Sale Exemption:
The petitioner claimed that the respondent committed a serious error in disallowing the entire second sale exemption. The petitioner had effected purchases from various dealers, including M/s. Rashtriya Ispat Nigam Limited and other re-rolling mills, which were not disputed by the respondent. The court noted that the petitioner had provided details of first and subsequent purchases from registered dealers and argued that only those dealers who failed to prove the sufferance of local tax on their purchases should be assessed to tax, not the petitioner.

3. Retrospective Cancellation of Registration:
The petitioner contended that the retrospective cancellation of registration of the selling dealers does not affect the rights of the purchasing dealer for deduction when the registration was in force at the time of purchase. The court referred to the decision in the case of Jinsasen Distributors Vs. CTO, which confirmed that retrospective cancellation does not impact transactions done prior to such cancellation.

4. Reliance on Third-Party Statements:
The respondent relied on statements from Mr. Mahendrakumar Jain and others, who admitted to issuing sale invoices without handling any goods. The petitioner argued that these statements were recorded behind their back, and they were not given an opportunity to cross-examine these individuals. The court held that the respondent should have provided copies of these statements and allowed for cross-examination to test their efficacy and admissibility.

5. Levy of Penalty:
The petitioner objected to the levy of penalty under Sections 12(3)(b) and 10(3)(1) of the Tamil Nadu General Sales Tax Act, 1959, arguing that the turnover sought to be assessed was culled out from the books of accounts. The court noted that the petitioner had produced all necessary records during inspection and that the mere recording of self-serving statements by third parties could not be the basis for rejecting the claim for exemption and imposing penalties.

Conclusion:
The court allowed the writ petition, set aside the impugned order, and remitted the matter back to the respondent. The respondent was directed to consider the petitioner's request for furnishing statements and records, provide an opportunity for cross-examination, and proceed in accordance with the law. The court emphasized the importance of adhering to the principles of natural justice and fair play in the assessment process.

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