2023 (5) TMI 649 - HC - VAT and Sales Tax

Valuation - determination of sale price of Iron Ore sold by the petitioner - average rate of neighbouring mines in exercise of the powers under Section 35(7) read with Section 30(4) of the JVAT Act - HELD THAT - After going through the impugned order and other relevant documents placed, it appears that revised assessment proceeding of the petitioner was completed and an order has been passed whereby, in exercise of power u/s 35(7) r/w section 30(4) of the JVAT Act, tax and interest has been imposed upon the petitioner on the ground that petitioner has concealed its GTO. After going through the proviso to Section 35 (7) of the Act it appears that the statute specifically postulates that prescribed authority shall record its 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 35(7) contemplates of such a proceeding against an assessee regarding whom the Assessing Officer is satisfied that he has resorted to selling of goods at a higher price than shown in his invoices. Therefore, 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. In the absence of any 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. It is reiterated that recording of satisfaction is sine qua non before proceeding to impose tax and penalty upon the assessee under Section 35(7) of the JVAT Act. Any such satisfaction is to be based on tangible materials as are found by the AO as the provisions are penal in nature where an assessee is found to be indulging in tax evasion by suppression or concealment of actual sales or turnover by selling goods at a higher price than shown by him. Learned Tribunal has completely failed to consider that the requirement of law for initiating a proceeding under Section 35(7) by recording reasons has not been fulfilled by the Assessing Officer - the matter is therefore required to be remanded to the AO to comply the provisions of Section 35(7) of the Act for initiating the proceeding, if he finds any evidence that the goods have been sold at higher price than shown by the dealers. Petition allowed by way of remand.

Summary

Issues Involved:
1. Whether the sale price of the petitioner company can be determined on the basis of the average sale price of neighboring mines without finding that the petitioner sold goods at a higher price than reflected in its invoices.
2. Whether the provisions of Section 35(7) of the JVAT Act, 2005 can be invoked by the Respondents under such circumstances.

Summary:

Issue 1: Determination of Sale Price Based on Neighboring Mines
The petitioner, engaged in mining and trading of iron ore, challenged the assessment order where tax and interest were imposed based on the average sale price of neighboring mines (M/s. Rungta Mines Ltd.) instead of the actual sale price shown in the invoices. The petitioner argued that the assessing officer did not record any finding that goods were sold at a higher price than the invoice price, which is a prerequisite for invoking Section 35(7) of the JVAT Act. The Tribunal upheld the assessment, but the High Court found this approach contrary to the records and legal provisions, emphasizing that the assessment should be based on the actual sale price unless there is evidence of higher sales prices.

Issue 2: Invocation of Section 35(7) of the JVAT Act
The petitioner contended that the assessing officer failed to record reasons before initiating proceedings under Section 35(7) of the JVAT Act, which mandates that the prescribed authority must record reasons and provide an opportunity for the dealer to be heard. The High Court agreed, noting that the absence of recorded reasons and tangible evidence of higher sale prices invalidated the proceedings. The Court highlighted that the requirement of recording satisfaction is a prerequisite and cannot be dispensed with, making the assessment order unsustainable.

Conclusion:
The High Court quashed the impugned orders of the Tribunal and remanded the matter to the assessing officer to comply with the provisions of Section 35(7) of the JVAT Act. The officer must record reasons before initiating proceedings and provide the petitioner an opportunity to be heard. The Court refrained from commenting on the merits of the case regarding the levy of tax and interest, focusing solely on the procedural compliance under Section 35(7). The writ petition was allowed, and pending interlocutory applications were disposed of.