2019 (2) TMI 3 - HC - VAT and Sales Tax

Valuation - dealer in Cement - inclusion of freight and coolie charges incurred by the assessee - sale of car and two wheeler was not reported for the assessment year 2007-08 - discount offered tax was not paid - TNVAT Act - Tribunal reversed the orders passed by the first appellate authority on going through the assessment file, which contained sample sale bills and some more sale bills produced at the time of arguments before the Tribunal. The Tribunal found that the sample bills do not contain freight and handling charges. Held that - On a reading of the revised assessment orders wherein, the Assessing Officer says that the inspecting officials have verified and found that the assessee has not shown the freight and coolie charges and discount allowed in the sale bills issued by them. Further, the Assessing Officer states that the assessee has not produced sale bills issued by them for verification before him. The next sentence in the revision orders speaks of verification from the bill wise details furnished in respect of discount, freight and coolie charges and it is stated that no uniform method has been followed. This is probably a part of the report submitted by the inspecting officials. The revision of assessments itself are based upon a report of the Enforcement Wing. It has been held in several decisions that if incriminating material is unearthed during the course of inspection, it cannot form a basis of a revision of assessment. In other words, the Assessing Officer would be entitled to issue show cause notice to the assessee calling upon the assessee to explain as to why the turnover should not be revised; and why higher rate of tax should not be levied and demanded. Upon issuance of such notice and receipt of the reply from the dealer, it is incumbent upon the Assessing Officer to take an independent decision in the matter based on the materials placed before the Assessing Officer. There is no finding by the Tribunal that the stand taken by the assessee that it is an indirect expense and in commercial terms, it is a postsale expense was never disbelieved. Consequently, the appellate Tribunal could not have included the said amounts in the taxable turnover. More importantly, cement, being a controlled commodity, price fixation is done by the manufacturer or wholesale distributor, and the assessee, being a small retailer, has no role in fixation of the price, any other charges cannot form part of taxable turnover. Tax cases allowed - the substantial questions of law are answered in favour of the assessee.

Summary

Issues:
Challenging common order of the Tamil Nadu Sales Tax Appellate Tribunal regarding assessment years 2007-08 and 2008-09 under the TNVAT Act.

Detailed Analysis:

Issue 1:
The petitioner challenged the orders passed by the Appellate Deputy Commissioner, contesting the revision of assessments for the years 2007-08 and 2008-09. The Enforcement Wing officials pointed out discrepancies in the taxable turnover related to freight, coolie charges, and discounts. The Assessing Officer proposed to impose tax on these charges, leading to objections from the assessee. The Assessing Officer confirmed the proposal, but the first appellate authority allowed the appeals, which were later reversed by the Tribunal.

Issue 2:
The Tribunal upheld the Assessing Officer's decision on imposing tax on freight and coolie charges, considering them as pre-sale expenses since they were collected before the sale of goods. However, the Tribunal agreed with the first appellate authority regarding discounts not being taxable. The Tribunal's reasoning was based on the lack of reimbursement by customers for these charges, leading to the approval of tax imposition by the Assessing Officer.

Issue 3:
The High Court examined whether the Tribunal's decision to overturn the first appellate authority's findings was justified. The first appellate authority had considered the nature of the petitioner's business as a cement retailer and the compensation received from manufacturers for any shortfall between procurement and sale prices. The petitioner argued that the revision orders lacked natural justice principles and proper reasoning, emphasizing that the charges in question were post-sale expenses and not part of the taxable turnover.

Issue 4:
The High Court scrutinized the basis of the revision of assessments conducted by the Enforcement Wing, emphasizing that incriminating material discovered during inspection should not solely form the basis for revision. The Assessing Officer's failure to independently verify the dealer's claims and issue proper notices for document submission raised concerns about the legality of the revision. The Court highlighted the importance of due process and independent decision-making by the Assessing Officer.

Issue 5:
The Court found that the Tribunal's decision lacked justification for including freight and coolie charges in the taxable turnover despite the dealer's explanation of these charges being post-sale expenses. The Tribunal's failure to disbelieve the dealer's claims and its oversight of the controlled commodity nature of cement and price fixation by manufacturers supported the assessee's case. Citing relevant legal precedents, the Court ruled in favor of the assessee, allowing the tax cases and answering the substantial questions of law in the assessee's favor.