2019 (6) TMI 1138 - HC - VAT and Sales Tax

Reversal of ITC - Section 27(2) of TNVAT Act - Deemed assessment - HELD THAT - The place of business of the writ petitioner was audited by the Enforcement Wing and certain defects were pointed out. Defects pointed out fall under two categories. Though both pertain to reversal of 'Input Tax Credit' ('ITC' for brevity), first reversal of ITC is based on difference in purchase turnover i.e., between balance sheet and monthly returns and second reversal of ITC is based on mismatch i.e., comparison of Annexure -I (purchase details of assessee) and Annexure II (sales details of assessee's sellers). While it is the case of the writ petitioner that first of the SCNs dated 30.11.2016 was not served on the writ petitioner, it is fairly submitted by writ petitioner's counsel that second SCN dated 01.10.2018 was served on the writ petitioner, but it was served as part of a batch pertaining to certain writ petitions which are pending and hence, the writ petitioner could not respond to the second SCN. This explanation is hardly acceptable. This Court is remitting the matter back to the second respondent on the sole ground of not adhering to M/S. JKM GRAPHICS SOLUTIONS PRIVATE LIMITED VERSUS THE COMMERCIAL TAX OFFICER 2017 (3) TMI 536 - MADRAS HIGH COURT . The impugned order is set aside solely on the ground of non-adherence to JKM Graphics principle - petition disposed off.

Summary

Issues:
1. Validity of the revised Assessment Order under the Tamil Nadu Value Added Tax Act, 2006.
2. Allegations of defects in the audit of the petitioner's business by the Enforcement Wing.
3. Dispute over the issuance and response to show-cause notices.
4. Application of the JKM Graphics principle in assessment procedures.

Analysis:
1. The High Court of Madras addressed the challenge to a revised Assessment Order dated 05.04.2019 made under Section 27(2) of the Tamil Nadu Value Added Tax Act, 2006. The petitioner, a dealer in ready-made garments, contested the order based on alleged defects identified during an audit by the Enforcement Wing. These defects primarily involved the reversal of Input Tax Credit (ITC) due to discrepancies in purchase turnover and mismatch between purchase and sales details.

2. The Court noted the issuance of two show-cause notices to the petitioner, dated 30.11.2016 and 01.10.2018. While the petitioner claimed non-receipt of the first notice, it was acknowledged that the second notice was received but not responded to promptly. Despite the petitioner's explanation, the Court emphasized the importance of adherence to the JKM Graphics principle, emphasizing the need for a thorough enquiry before issuing show-cause notices in cases of mismatch.

3. The Revenue contended that the petitioner's failure to respond to the second show-cause notice weakened the plea for applying the JKM Graphics principle. However, the Court, while acknowledging the petitioner's lapse in responding, focused on the procedural irregularity in the assessment process, leading to the order being set aside solely on the grounds of non-compliance with the JKM Graphics principle.

4. In its final order, the Court directed the petitioner to submit all supporting documents to the second respondent within a specified timeframe for a reassessment in accordance with the law, particularly emphasizing the application of the JKM Graphics principle. The judgment highlighted the significance of procedural fairness and adherence to established principles in tax assessments, underscoring the need for a centralized mechanism to address discrepancies effectively and expedite resolution in tax matters.