2020 (6) TMI 497 - HC - VAT and Sales Tax

Works Contract - validity of pre-assessment notice - disallowance of exemption claimed by the petitioner under Rule 10 - disallowance of minor portion of input tax credit - petitioner has made a specific case that the pre-assessment notice does not disclose grounds which has actually been now relied on in the impugned Ext.P-5 assessment order - HELD THAT - Going by the data and facts and figures now projected in Ext.P-6 application for rectification would indicate that the petitioner has made out a very strong case that even parametres like land cost, corpus fund, electrical and water charges, etc. has already been reckoned by the 1st respondent, while determining the issue of value added tax, as per the impugned Ext.P-5 assessment order. Such an aspect would certainly termed as wednesbury unreasonableness in the decision making process, which led to the impugned Ext.P-5 assessment order. Since that is the specific case of the petitioner, it is only to be held that the plea for rectification made by the petitioner as per Ext.P-6 would require serious re-consideration at the hands of the 1st respondent. In that view of the matter, it is ordered that the impugned Ext.P-7 order rejecting the plea for rectification made out as per Ext.P-6 application will stand set aside. This Court has not entered into the merits of the controversy in any manner and has only examined the decision making process on the part of the 1st respondent and has only noted the abovesaid contentions of the petitioner and the adjudication of all those issues on merits would be falling within the exclusive zone and domain of the 1st respondent Assessing Officer - Petition disposed off.

Summary

Issues:
Assessment under the KVAT Act based on financial statements, disallowance of exemption claimed under Rule 10, disallowance of input tax credit, rejection of rectification application, grounds for judicial review, "wednesbury unreasonableness" in decision-making process.

Analysis:
1. The petitioner, an assessee under the KVAT Act, filed a return for the year 2015-2016, but the 1st respondent issued a pre-assessment notice proposing to fix turnover based on figures from the profit and loss account. The notice included disallowance of exemption claimed under Rule 10 and input tax credit. The petitioner's replies highlighted that certain transactions were outside the purview of taxation. Despite this, the assessment order was issued taking the value from financial statements for Kerala as the basis, with disallowances not explained in the notice. A rectification application was filed but rejected without proper grounds. The petitioner sought to quash the assessment and rectification orders.

2. The petitioner contended that the assessment orders were amenable to rectification, emphasizing errors in the rejection of the rectification application. It was argued that disallowed expenses were not justified, and the assessment included components beyond the taxation powers, leading to "wednesbury unreasonableness." The Court was urged to intervene under Article 226 of the Constitution.

3. The Court noted the discrepancy between the pre-assessment notice and the final assessment, agreeing with the petitioner's claim of undisclosed grounds. The petitioner's rectification application showed inclusion of unauthorized components in the assessment. This was deemed unreasonable decision-making, warranting a re-consideration of the rectification plea. The order rejecting rectification was set aside, and the application was remitted for fresh consideration within a specified timeframe.

4. The Court clarified that it did not delve into the merits of the dispute but focused on the decision-making process. All substantive issues were left to the Assessing Officer. The judgment disposed of the Writ Petition, providing directions for the re-examination of the rectification application within a stipulated period, emphasizing the importance of a fair hearing and timely decision-making by the 1st respondent.

By carefully analyzing the contentions raised by the petitioner, the Court addressed the procedural irregularities and directed a re-evaluation of the rectification application, underscoring the principles of natural justice and proper adjudication in tax assessment matters under the KVAT Act.