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2023 (3) TMI 61 - HC - VAT and Sales TaxUnder-pricing of goods/colourful transactions - Determination of sale price of Iron Ore sold by the petitioner on the basis of average I.B.M. rate in exercise of the powers under Section 35 (7) read with Section 40 (1) of the JVAT Act - HELD THAT - After going through the proviso to Section 35 (7) of the Act it appears that the statute specifically postulates that prescribed authority shall record his reason before initiating the proceedings and no order shall be passed under this sub section without giving the dealer an opportunity to be heard. Section 40(1) provides for Assessment in cases where turnover has escaped assessment on account of reasons indicated under Clause (a) to (e). In cases of concealment or failure to disclose willfully etc. the penal provisions under proviso to 40(1) provide imposition of three times the amount of additional tax assessed - the proviso to Section 35 (7) of the JVAT Act firstly stipulates that the reasons must be recorded by the prescribed authority for initiating the proceeding and secondly, the principles of natural justice should be followed. Though in the instant case the second ingredient of the proviso has been fulfilled; however, there is no document to suggest that the assessing officer has recorded his reason before initiating the proceeding - it is noteworthy that even after remand by the appellate authority in the revised assessment order the assessing officer has not correctly applied its mind to the requirement of law under Section 35(7) of the Act and rather observed that it is not a case where the assessee has sold the goods at a price higher than what is shown by him. In the case of GIRDHARI LAL NANNELAL VERSUS SALES TAX COMMISSIONER, MP 1976 (3) TMI 51 - SUPREME COURT , the Apex Court, held that for the purpose of levy of Sales Tax it would be necessary not only to show that the source of money has not been explained but also to show existence of some material that such acquisition of money has resulted from transactions liable to Sales Tax and not from other sources. The Assessing Officer has come to the finding that it is a case of underpricing . The finding with respect to underpricing of the goods sold by the petitioner recorded by the assessing officer is not tenable in the eye of law. Further, assessing officer in its revised order has stated that underpricing of the petitioner has been occasioned due to connivance of the seller and the purchaser, but no details of such enquiry has been mentioned in the revised order. The lower court records do not show that any such enquiry was conducted by the learned assessing officer to conclude underpricing done by the petitioner before proceeding to impose tax and penalty under Section 40(1) based on the IBM rates - In the absence of tangible materials to support such a finding, it is difficult to assume that a purchaser of petitioner would purchase minerals at a lesser price under an invoice in order to evade payment of tax especially when the said purchaser is entitled to avail ITC under the JVAT Act, 2005. It is only after recording of reasons for initiation of proceedings under Section 35(7) the exercise for determination of value of goods at the time of sale and assessment of tax on such price is to be done by giving the dealer an opportunity of being heard. Though several contentions have been raised by the parties on the merits of the matter regarding the levy of tax and penalty but since the matter is being remanded for the assessing officer on the point of recording of satisfaction under Section 35 (7) of the JVAT Act before initiation of the proceedings, it is refrained from making any observation on the merits of the case regarding the levy of tax and penalty upon the petitioner under Section 35 (7) r/w Section 40 (1) of the JVAT Act. The judgment relied upon by the learned Advocate General i.e. VEENA THEATRE, PATNA VERSUS THE STATE OF BIHAR 1970 (4) TMI 169 - SUPREME COURT relate to cases of best judgment assessment after the rejection of Books of Account of the Assessee - Since in the present case the requirement of law for initiation of the proceedings have not been fulfilled, these decisions are not of assistance to the present cases. Petition disposed off.
Issues Involved:
1. Determination of sale price based on IBM rates. 2. Imposition of penalty under Section 40(1) of the JVAT Act. 3. Compliance with procedural requirements under Section 35(7) of the JVAT Act. Issue-wise Detailed Analysis: 1. Determination of Sale Price Based on IBM Rates: The petitioner challenged the determination of the sale price of iron ore based on the average IBM rate, arguing that the IBM rate is meant for determining royalty payable on minerals and not for VAT/Sales Tax purposes. The assessing officer initially enhanced the Gross Turnover (GTO) using the IBM rate and the average sale price of neighboring mines, which was set aside by the appellate court. However, in the revised assessment, the officer again used the IBM rate to determine the sale price, leading to the imposition of tax and penalty. The court noted that the IBM rate was not a reliable yardstick for determining the sale price for tax purposes, as it is intended for royalty calculations. The Tribunal's reliance on IBM rates was found contrary to the statutory provisions and the factual matrix, as the petitioner had not sold goods at a price higher than shown in the invoices. 2. Imposition of Penalty Under Section 40(1) of the JVAT Act: The petitioner contended that the penalty under Section 40(1) was unsustainable, especially since the original proceedings were initiated under Section 40(2). The court observed that the imposition of penalty under Section 40(1) was incorrect as it was based on the revised assessment, which itself was flawed. The Tribunal's finding that the petitioner misrepresented before the appellate authority was also deemed perverse and contrary to the records. The court emphasized that the penalty provisions under Section 40(1) require a clear finding of concealment or willful nondisclosure, which was not established in this case. 3. Compliance with Procedural Requirements Under Section 35(7) of the JVAT Act: The court highlighted the importance of procedural compliance under Section 35(7), which mandates recording reasons before initiating proceedings and providing the dealer an opportunity to be heard. The assessing officer failed to record reasons before initiating the proceedings, a prerequisite under the statute. The absence of such recorded reasons rendered the entire proceedings invalid. The court noted that the satisfaction of the assessing officer must be based on tangible materials, which was lacking in this case. Conclusion: The court quashed the impugned order of the Tribunal, emphasizing the need for procedural compliance and proper application of statutory provisions. The matter was remanded to the assessing officer to proceed in accordance with the law, ensuring that reasons are recorded before initiating proceedings under Section 35(7). The court also suggested that the Department lay down guidelines for uniform yardsticks in such assessments to avoid similar issues in the future.
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