2019 (9) TMI 171 - HC - VAT and Sales Tax

Efficacious alternative remedy of appeal - stay on recovery of dues - works contract - deemed sale - Section 34(2) of the Gujarat Value Added Tax Act, 2003 - whether the respondent No.2 committed any error in passing the impugned assessment order? HELD THAT - It appears from the materials on record that the writ applicant is a Government approved works contractor since 1967. The writ applicant has so far undertaken the works contracts for various government, semi-government and other such entities. It appears that the writ applicant has been consistently following a method of accounting wherein the material used in the contract is marked-up with the gross profit to quantify the deemed sale and on the said deemed sale the tax is worked out at the applicable rate. As against this tax liability, the input tax credit which is available on the purchases and TDS under Section 59B would be reduced so as to work out the net tax liability. It appears from the materials on record that such method of accounting was accepted by the department till the recent past and the assessments for the earlier years were also framed accepting such method. It appears that the respondent No.2 has not considered the tax audit report containing the contract wise information alongwith the details of the allowable expenditure. The same is on record. It also appears prima facie that the figures of the total contract receipts, total purchases and allowable expenditure, though duly computed and quantified, have not been looked into or discussed. The respondent No.2 has observed in his impugned assessment order that the method adopted by the writ applicant is not in accordance with Section 2(30)(c) of the GVAT Act. We also take notice of the fact that as regards the penalty under Section 34(12) of the Act, only a cyclostyle penalty notice without indicating the nature of infraction has been issued. The matter remanded to the respondent No.2 for a fresh consideration with a direction to re-consider the matter, having regard to the materials on record and after hearing the writ applicant.

Issues Involved:
1. Violation of principles of natural justice.
2. Legality of the assessment order and demand notice.
3. Method of accounting for taxable turnover.
4. Imposition of penalty without adequate reasoning.
5. Availability of alternative remedy.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order and demand notice were issued without affording an adequate opportunity of hearing, thus breaching the principles of natural justice and fair play. The court noted that the hearing provided on 13.03.2019 was a mere formality, and the petitioner was not given a meaningful opportunity to explain the method adopted or the deductions claimed for arriving at taxable turnover of sales.

2. Legality of the Assessment Order and Demand Notice:
The petitioner challenged the assessment order dated 24.03.2019 and the demand notice issued under Section 34(2) of the Gujarat Value Added Tax Act, 2003, on the grounds of being illegal and contrary to law. The court observed that the impugned order did not record any reasons for the high-pitched assessment raising dues to the tune of ?25,08,46,582 inclusive of interest and penalty, thus rendering it arbitrary and illegal.

3. Method of Accounting for Taxable Turnover:
The petitioner consistently followed a method of accounting wherein the material used in the contract was marked-up with the gross profit to quantify the deemed sale. The court noted that this method was accepted by the department in the past. However, the respondent authority rejected this method without providing adequate reasons or considering the tax audit report containing contract-wise information and allowable expenditure details.

4. Imposition of Penalty Without Adequate Reasoning:
The petitioner received a cyclostyle penalty notice without any specific instance or reason for imposing a penalty of ?11,68,53,998. The court found that the respondent authority failed to indicate any reason to believe why such a huge penalty was required, and no proper opportunity was given to the petitioner to explain why the penalty should not be imposed.

5. Availability of Alternative Remedy:
The respondent argued that the writ application should not be entertained as the petitioner had an alternative remedy of preferring an appeal before the Commissioner. The court, however, rejected this contention, stating that when the impugned order is in gross violation of the principles of natural justice, an efficacious alternative remedy is no bar to entertaining the writ application under Article 226 of the Constitution of India.

Conclusion:
The court allowed the writ application in part, quashing and setting aside the assessment order dated 24.03.2019 and the demand notice. The matter was remitted to the respondent for fresh consideration, directing the respondent to reconsider the method of accounting and take into account the decision of the Supreme Court in Gannon Dunkerly and Co. The respondent was instructed to provide cogent reasons if the method of accounting was found to be non-compliant with Section 2(30)(c) of the GVAT Act and to complete this exercise within eight weeks from the date of receipt of the order. Rule was made absolute to the aforesaid extent.

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