2017 (5) TMI 543 - HC - VAT and Sales Tax

Jurisdiction - power under Section-43 of the OVAT Act - suppression/escapement of fact present or not? - validity of reassessment proceedings - it is alleged that petitioner is selling ROM at a low price instead of selling CLO is an unusual thing as ordinarily mine owner sells CLO after processing of ROM spending a miniscule amount in order to achieve real market value - petitioner claims that the entire reassessment proceeding has been initiated on account of mere change of opinion and thus the same is clearly without jurisdiction - Held that - it is not disputed that the notice under Annexure-7 was issued on the basis of information contained in tax evasion report under Annexure-9. The said tax evasion report does not dispute sale of ROM to JSPL . It also does not say that the petitioner has/had suppressed the quantum of sale/turnover or has received any undisclosed amount. It has simply proceeded on the basis of an assumption that business module of selling ROM at a low price instead of selling CLO is an unusual thing as ordinarily mine owner sells CLO after processing of ROM spending a miniscule amount in order to achieve real market value. In this context, law is well settled that the Taxing Authorities do not have the power to dictate as to what business module or method should be adopted by a businessman. It is upto him to manage his business affair according to his wisdom. The Assistant Commissioner, Sales Tax, Enforcement Wing, Bhubaneswar while preparing the tax evasion report has been swayed by assumed low price of sale of ROM without indicating anywhere in the tax evasion report as to how the said price is low. It also does not refer to prevalent market price of the relevant period. In this context, it is important to note here that the opposite parties in their counter affidavit at Paragraph-13 have admitted that the price of ROM is not decided by the Indian Bureau of Mines. In such background, the assumption that ROM is being sold at abysmally low price has no legs to stand. Moreover, there is nothing to show that there is any legal bar for selling of ROM - there exists no legal evidence/a scrap of paper to show that the petitioner has actually sold CLO and not ROM for the years 2008-2011. To our mind power under Section-43 of the OVAT Act cannot be exercised for reassessment unless facts relating to suppression/escapement are discovered. It cannot be exercised by inventing a new formula. Since change of opinion is the basis for issuance of notice under Annexure-7 and for passing the impugned order under Annexure-11, thus, both the impugned orders have been issued without jurisdiction and thus the writ application is maintainable - decided in favor of assessee.

Issues Involved:
1. Validity of the reassessment notice under Section 43 of the Orissa Value Added Tax Act, 2004 ("OVAT Act").
2. Allegation of under-invoicing and the basis for reassessment.
3. Violation of principles of natural justice.
4. Jurisdiction of the taxing authorities to question the business model of the petitioner.
5. Maintainability of the writ application in the presence of an alternative remedy.

Detailed Analysis:

1. Validity of the Reassessment Notice Under Section 43 of the OVAT Act:
The petitioner, a Private Limited Company, challenged the reassessment notice dated 17.5.2012 issued by the opposite party under Section 43 of the OVAT Act for the period 1.4.2008 to 31.3.2011. The petitioner argued that the reassessment was based on mere change of opinion without any new material or information. The court noted that the tax evasion report under Annexure-9 did not dispute the sale of Run of Mines (ROM) but alleged under-invoicing based on an assumed low price of ROM. The court held that reassessment based on change of opinion is impermissible and quashed the notice as being without jurisdiction.

2. Allegation of Under-Invoicing and Basis for Reassessment:
The opposite party alleged that the petitioner sold ROM at abysmally low prices to Jindal Steel & Power Limited (JSPL), leading to under-invoicing. The tax evasion report used an artificial formula to calculate under-invoicing by comparing the price of ROM with the price of Calibrated Lump Ore (CLO). The court found that the report did not provide any evidence of the prevailing market price of ROM or any legal bar on selling ROM. The court concluded that the reassessment was based on conjectures and surmises, and there was no fresh material to justify the reassessment.

3. Violation of Principles of Natural Justice:
The petitioner contended that the reassessment order was passed without providing a copy of the tax evasion report and other relevant documents, violating principles of natural justice. The court noted that the authorized representative of the petitioner was allowed to take extracts from the tax evasion report and the reasons for reassessment were explained to him. The court held that there was no violation of principles of natural justice as the petitioner was given adequate opportunity to present its case.

4. Jurisdiction of Taxing Authorities to Question Business Model:
The petitioner argued that the taxing authorities have no jurisdiction to dictate the business model or method adopted by a businessman. The court agreed, citing decisions that a businessman is free to manage his business affairs according to his wisdom, and the taxing authorities cannot suggest a business model. The court held that the reassessment based on the assumption that selling ROM instead of CLO was unusual was beyond the jurisdiction of the taxing authorities.

5. Maintainability of the Writ Application:
The opposite party argued that the writ application should not be entertained due to the availability of an alternative remedy of appeal. The court, referring to the principles laid down in Whirlpool Corporation and other cases, held that a writ application is maintainable when the impugned order is without jurisdiction or violates principles of natural justice. Since the reassessment was based on change of opinion and without jurisdiction, the court held that the writ application was maintainable.

Conclusion:
The court quashed the reassessment notice dated 17.5.2012 and the reassessment order dated 26.11.2012, including the demand notice, as they were based on change of opinion without any new material, and thus, were without jurisdiction. The writ application was allowed.

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