2021 (3) TMI 237 - HC - VAT and Sales Tax

Levy of sales tax - on the ground that there is abnormally low reporting of purchases when compared to the sale - Mismatch - check post movement where the Assessing Officer wanted to verify the transactions and called for documents relating to check post movements - short payment of tax - stock difference for the assessment year 2016-17. Mismatch - cross verification of the buyers' and the sellers' returns as per the web report - HELD THAT - The issue is with regard to cross verification of the buyers' and the sellers' returns as per the web report and verification of the purchase details from other dealers' Annexure II and the purchase details from the petitioner-dealer's Annexure I has been kept in abeyance by the Department on account of verification, which is being done. Check post movement where the Assessing Officer wanted to verify the transactions and called for documents relating to check post movements - HELD THAT - The assessment orders that the dealer produced necessary documents namely Form F declarations, which, according to the Assessing Officer, were insufficient and therefore, the proposal made in the revision notices was confirmed. Thus, that adequate opportunity should be given to the dealer to place all the records on account of the submission made before us that all records are available with the dealer. Hence, the levy of tax as a result of verification of the check post movement details has to be redone by the Assessing Officer. Short payment of tax - for all the assessment years involved except for the assessment year 2016-16 - Stock difference for the assessment year 2016-17 - HELD THAT - The dealer has agreed to go before the Assessing Officer by producing details - Therefore, the finding rendered in that regard by the Assessing Officer on (i) levy of tax upon verification of the check post movement details, (ii) short payment of tax and (iii) stock difference are set aside and the matters are remanded to the Assessing Officer for a fresh consideration after affording an opportunity of personal hearing to the authorized representative of the dealer. A reading of the relevant assessment orders, which contained the basis, on which, re-assessment proceedings were initiated, shows that the Assessing Officer, on verification of the books of accounts, noticed that the dealer reported their purchases during the relevant years and in the opinion of the Assessing Officer, there is abnormally low reporting of purchases when compared to the sale. Hence, he proposed to treat it as a purchase suppression and issued revision notices. The dealer would state that for the relevant assessment year, their opening stock as per the balance sheet was ₹ 4,57,36,085/-, out of which, 75% of the value constituted stock of Chennai unit and the amounts spent for stitching and job work charges were not considered, which came under direct expenses reported in the balance sheet, which were to be added to the purchase. Further, the dealer would contend that valuation of the closing balance as per the consolidated balance sheet was ₹ 5,21,41,736/-, out of which, ₹ 3,33,98,729/- constituted stock of Chennai unit and the total purchases amounted to ₹ 9,70,07,869/- and there was no suppression of purchases - Assessing Officer rejected the said stand taken by the dealer stating that reconciliation was not properly done nor was supported by documentary evidence. It is the settled legal position that revision of assessment cannot be done on surmises and conjectures, but should have foundational facts. Though the Assessing Officer used the term 'purchase suppression', what has been levied by the Assessing Officer is essentially sales tax on ₹ 9,70,74,613/-, on which, the dealer already paid sales tax at 14.5%. Though elaborate submissions were made by the learned Special Government Pleader as to under what circumstances purchase tax can be levied under Section 12 of the Act, the said issue does not arise in the instant case on account of the fact that the show cause notice issued by the Assessing Officer for revision of assessment was not with a proposal to levy purchase tax. The writ appeals are partly allowed and the levy of sales tax for all the assessment years except for the assessment years 2012-13 and 2016-17 on the ground that the purchases were abnormally low is set aside - With regard to levy of tax under the heads (i) 'check post movement' for all the assessment years except for 2010-11, 2011-12 and 2016-17 and (ii) 'short payment of tax' for all the assessment years involved except for the assessment year 2016-17 and (iii) 'stock difference' for the assessment year 2016-17 alone, the matters are remanded to the Assessing Officer for a fresh consideration after affording an opportunity to the dealer. Appeal allowed in part and part matter on remand.

Summary

Issues involved:
1. Jurisdiction under Article 226 of the Constitution of India and the requirement to exhaust alternate remedies.
2. Exercise of discretion by the Court in taxation matters.
3. Violation of principles of natural justice and lack of jurisdiction.
4. Levy of sales tax based on purchase turnover discrepancies.
5. Mismatch in reporting between buyers and sellers.
6. Verification of check post movement details.
7. Short payment of tax.
8. Stock difference assessment.

Jurisdiction under Article 226 and Alternate Remedies:
The High Court considered whether it could exercise jurisdiction under Article 226 of the Constitution of India when an alternate remedy was available under the Tamil Nadu Value Added Tax Act, 2006. The Court noted that discretion should be exercised cautiously, especially in taxation matters, with exceptions for violations of natural justice or lack of jurisdiction. In this case, the Court found exceptions applied due to inadequate opportunity for submissions and improper assessment of documents by the Assessing Officer.

Levy of Sales Tax based on Purchase Turnover Discrepancies:
The major issue revolved around the levy of sales tax due to a significant difference between reported purchase and sales turnover. The Court found that the dealer's submissions regarding the reporting of purchases were not adequately considered by the Assessing Officer. The Court highlighted discrepancies in the assessment and the lack of a proper basis for revising the turnover solely based on perceived low purchases. Consequently, the Court set aside the sales tax levied on the grounds of abnormally low purchases for most assessment years.

Mismatch and Check Post Movement Details:
The Court addressed issues related to mismatch in reporting between buyers and sellers, as well as the verification of check post movement details. It was noted that the Department had kept the mismatch issue in abeyance for verification. Regarding check post movement details, the Court found that the dealer should be given an opportunity to present all relevant records before a fresh assessment by the Assessing Officer.

Short Payment of Tax and Stock Difference Assessment:
The Court discussed the issues of short payment of tax and stock difference assessment. The dealer agreed to provide details for these issues and agreed to appear before the Assessing Officer for further proceedings. The Court set aside the previous findings on short payment of tax and stock difference, remanding the matters for fresh consideration with a chance for the dealer to present their case.

Conclusion:
In conclusion, the High Court partly allowed the writ appeals, setting aside the levy of sales tax based on abnormally low purchases for most assessment years. The matters related to check post movement, short payment of tax, and stock difference were remanded to the Assessing Officer for fresh consideration. The Court emphasized the importance of affording the dealer a fair opportunity to present their case and directed reconciliation to be done departmentally for the mismatch issue.