2014 (9) TMI 618 - HC - VAT and Sales Tax

Levy of penalty under Section 27(2)(iii) - What is the procedure to be followed by the assessing officer when D3 proposal is rejected and whether the assessing officer can straight away refer to the proposal and confirm the revision or whether the assessing officer has to deal with the assessment on merits - Held that - Assessing authority referred the averments made in the show cause notice and thereafter, it has proceeded to refer the deviation proposal (D3) given by the first respondent and proceeded to assess the petitioner and also levy penalty. Even in the D3 proposal, the second respondent while rejecting has directed the assessing officer to pass final orders based on the findings given in the rejection order. Therefore, if the assessing officer proposes to rely upon the findings recorded by the second respondent in the D3 proposal then, such material should have been made available to the petitioner prior to finalising the assessment and providing an opportunity to rebut the same. The same has not been furnished to the petitioner except for referring to such order in the impugned order of revision of assessment. Therefore, there is a total violation of principles of natural justice in these cases. That apart, no opportunity of personal hearing was afforded to the petitioner. Matter remanded back - Decided in favour of assessee.

Summary

Issues:
Challenge to revision of assessment orders for the assessment years 2007-08 to 2010-2011.

Analysis:
The petitioner, a dealer in timber, challenged the revision of assessment orders under the Tamil Nadu Value Added Tax Act, 2006. The first respondent proposed to revise the claim of Input Tax Credit and levy penalties based on alleged improper claims and suspicious transactions. The petitioner submitted a detailed reply denying any wrongdoing, stating that all sales were properly invoiced, and no suppression of sales turnover occurred. The assessing officer confirmed the proposal based on a rejection of a deviation proposal (D3 Proposal) without providing the petitioner with relevant information or an opportunity to respond, leading to a violation of natural justice principles.

The main issue for consideration was the procedure to be followed by the assessing officer when a D3 proposal is rejected. Citing precedent, the court emphasized that assessing officers are not bound by higher authority directions and must independently apply their judgment. The court highlighted that assessments must be based on merit and not solely on directives from higher-ranking officials. The court found the assessments in question not sustainable in law and ordered them to be quashed, allowing the assessing officer to reassess the petitioner after providing an opportunity for a fair hearing.

Despite the availability of an appeal process, the court retained jurisdiction to review the case due to violations of natural justice and jurisdictional issues. The court noted a lack of opportunity for personal hearing and failure to provide relevant materials to the petitioner before finalizing the assessment, leading to a total violation of natural justice principles. Consequently, the court set aside the impugned orders, remanding the matter back to the assessing authority for fresh consideration. The second respondent was directed to provide the deviation proposal to the petitioner for further explanation, followed by a personal hearing and a decision within three months, ensuring compliance with legal procedures and principles of natural justice.