2019 (11) TMI 116 - HC - VAT and Sales Tax

Validity of assessment order - Penalty order - Section 67(1) of the Kerala VAT Act - HELD THAT - Inasmuch as the petitioners had, in the assessment proceedings before the Assessing Authority under the KVAT Act, produced the Form 20H certificates obtained by them from the sub-contractors, evidencing the turnover on which tax was paid by the sub-contractors, it was not open to the Assessing Authority to disregard the said material while completing the assessment in relation to the petitioners. As rightly pointed out by the learned senior counsel, there is no statutory prohibition in considering material that is produced by the assessee at the time of hearing before the Assessing Authority merely because the said material was not included in the return that was filed by the assessee for the assessment year in question. On the facts of the instant cases, the material produced by the assessees to support their claim for deduction of a substantial part of the turnover, on which, tax had already been paid by their sub-contractors, ought to have been considered by the Assessing Authority while competing the assessment in relation to the petitioners. The non-consideration of the said material by the Assessing Authority vitiates the assessment orders that are impugned in these writ petitions. To enable the Assessing Authority to pass fresh orders as directed, the petitioners in the said writ petitions are directed to appear before the Assessing Authority, at his Office, at 11.00 a.m. on 28.10.2019. The Assessing Authority shall pass fresh orders, as directed, within one month thereafter - Petition allowed by way of remand.

Summary

Issues Involved:
1. Legality of the penalty orders under Section 67(1) of the Kerala Value Added Tax Act (KVAT Act).
2. Validity of the assessment orders under Section 25(1) of the KVAT Act.
3. Consideration of Form 20H certificates for tax deductions.
4. Rejection of requests for revision of returns.
5. Scope and authority of the Intelligence Officer in penalty proceedings.

Detailed Analysis:

1. Legality of the Penalty Orders Under Section 67(1) of the KVAT Act:

The petitioners challenged the penalty orders issued by the Intelligence Officer under Section 67(1) of the KVAT Act. The court noted that the penalty orders were issued before the completion of the assessment proceedings. The petitioners argued that the Intelligence Officer should not have ignored the Form 20H certificates, which evidenced tax payments made by sub-contractors. The court found that the Intelligence Officer should not engage in a "roving enquiry" suited for assessment procedures, as this could lead to conflicting decisions within the same department. The court quashed the penalty orders, directing the Intelligence Officer to await the assessment orders before initiating any penal proceedings.

2. Validity of the Assessment Orders Under Section 25(1) of the KVAT Act:

The petitioners contested the assessment orders, arguing that the Assessing Authority failed to consider the Form 20H certificates submitted during the assessment hearings. These certificates demonstrated that taxes had already been paid by sub-contractors for the same work. The court held that the Assessing Authority should have considered these certificates to ensure a correct assessment of taxable turnover. The non-consideration of these materials vitiated the assessment orders. Consequently, the court set aside the impugned assessment orders and directed the Assessing Authority to redo the assessments afresh, taking into account the Form 20H certificates.

3. Consideration of Form 20H Certificates for Tax Deductions:

The petitioners had not included the details of Form 20H certificates in their returns but submitted them during the assessment hearings. The court emphasized that there is no statutory prohibition against considering such material at the hearing stage. The role of the Assessing Authority is to consider all available material to arrive at a correct assessment. The court found that the Assessing Authority erred in disregarding the Form 20H certificates solely because they were not included in the initial returns.

4. Rejection of Requests for Revision of Returns:

The petitioners sought permission to revise their returns based on the Form 20H certificates obtained after filing the original returns. The respondents rejected these requests, citing ongoing penal proceedings. The court noted that the orders rejecting the revision requests were dealt with in a separate judgment delivered on the same day. The court implicitly supported the petitioners' position by emphasizing the importance of considering all relevant materials, including those obtained post-filing, during the assessment process.

5. Scope and Authority of the Intelligence Officer in Penalty Proceedings:

The court reiterated that the Intelligence Officer should not usurp the powers of the Assessing Authority by estimating turnover for penalty purposes. The Intelligence Officer's role is limited to identifying potential tax evasion, not determining the exact tax liability. The court cited previous decisions, including U.K. Monu Timbers and Flipkart, to support this view. The court quashed the penalty orders and directed the Intelligence Officer to await the assessment orders before deciding on penal proceedings.

Conclusion:

The court allowed the writ petitions, setting aside the impugned penalty and assessment orders. It directed the Assessing Authority to redo the assessments afresh, considering the Form 20H certificates. The Intelligence Officers were instructed to await the new assessment orders before initiating any penal proceedings. The judgment emphasized the importance of considering all relevant materials during assessments and delineated the distinct roles of the Assessing Authority and the Intelligence Officer.