2021 (6) TMI 514 - HC - VAT and Sales Tax

Validity of assessment order - inclusion/ addition of coffee husk in the total turnover of the petitioner - omissions or suppressions by the dealer in maintenance of record or production of records, registers, etc. - HELD THAT - Pre-assessment notice was issued on September 24, 2013, reply dated October 8, 2013 was received on October 9, 2013 by the assessing officer and on October 9, 2013 order in annexure A was made by the assessing officer. Reference to these three dates is made to demonstrate that the Commercial Tax Officer just by receiving the reply on October 9, 2013 has made the order in annexure A. Apparently, order in annexure A is not preceded by enquiry of any sort - The principle laid down by this court in SUZION INFRASTRUCTURE SERVICE LTD. VERSUS CTO 2010 (6) TMI 677 - KERALA HIGH COURT has been considered by this court in other reported decisions on which the petitioner is relying upon - the order in annexure A is vitiated for not holding enquiry, illegal and is liable to be set aside. Non-consideration of sales turnover of husk - HELD THAT - The assumption that coffee husk is generated as coffee seed are sold, coffee husk could also be sold and that the dealer is liable to pay tax thereon, is illegal and unsustainable. The orders in annexures A to C do not consider the issue on the lines discussed above and certainly are based on assumption of sale of coffee husk by the dealer. The liability under the Act arises only in the manner and mode the dealer comes under obligation to pay tax, but not otherwise. The generation of residue such as coffee husk and sale or transfer of goods in any manner contemplated by the Act, certainly attract the incidence of tax, but not as noted above, i. e., generation and self-consumption. Being an indirect tax, the dealer, for self- consumption of coffee husk, is not obligated to include in turnover or pay VAT. The Department certainly failed in establishing that in the case on hand, the coffee husk is not consumed for self, but was sold by the dealer. The Tribunal, while examining this aspect, calls upon the dealer to prove that the dealer has not sold the coffee husk. The fact that concurrent findings are recorded is not reason to list the legal contention with fundamental principles involved in indirect taxation, and the findings when examined in this perspective fail to convince this court. The proposed inclusion of coffee husk in the turnover of dealer for the subject assessment years is unsustainable and illegal and the dealer has produced the account registers for which the assessing officer proposes to passing separate order under the CST Act - the omission or suppression noted is an ancillary circumstance following the main allegation in non-disclosure of coffee husk - the order in annexure A as modified by the order of Tribunal are liable to be set aside - revision allowed.

Issues Involved:
1. Inclusion of coffee husk in the total turnover.
2. Levy of 35% outturn as husk quantity.
3. Valuation of coffee husk at ?2 per kilogram.
4. Inclusion of 10% for omissions or suppressions by the dealer.
5. Violation of principles of natural justice.
6. Obligation of the assessing officer to conduct an enquiry.

Issue-wise Detailed Analysis:

1. Inclusion of Coffee Husk in the Total Turnover:
The petitioner challenges the inclusion of coffee husk in the total turnover for the assessment years 2011-12 and 2012-13. The petitioner contends that the coffee husk is used as compost manure in their estate and not sold, hence should not be included in the turnover. The assessing officer assumed that the coffee husk was sold and included it in the turnover, which the petitioner argues is unjustified without any evidence of sale.

2. Levy of 35% Outturn as Husk Quantity:
The pre-assessment notice issued by the Commercial Tax Officer stated that 35% of the overall quantity of hulled coffee should be considered as husk and valued at ?2 per kg. The petitioner argued that this estimation was arbitrary and without basis, as there was no evidence of the husk being sold.

3. Valuation of Coffee Husk at ?2 per Kilogram:
The assessing officer valued the coffee husk at ?2 per kg and included this in the turnover. The petitioner contested this valuation, arguing that there was no sale of husk and thus no basis for such valuation.

4. Inclusion of 10% for Omissions or Suppressions by the Dealer:
The assessing officer included an additional 10% in the turnover for alleged omissions and suppressions in the maintenance of records. The petitioner argued that this inclusion was based on an assumption without any concrete evidence of omissions or suppressions.

5. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order violated the principles of natural justice. The reply to the pre-assessment notice was submitted on October 8, 2013, and the assessment order was passed the next day, October 9, 2013, without any enquiry or hearing. This rapid decision-making indicated a lack of proper enquiry and opportunity for the petitioner to present their case.

6. Obligation of the Assessing Officer to Conduct an Enquiry:
The petitioner contended that the assessing officer failed to conduct a proper enquiry into whether the coffee husk was used for captive consumption or sold. The court noted that the assessing officer is obligated to conduct an enquiry if requested by the dealer. The lack of enquiry in this case rendered the assessment order illegal.

Conclusion:
The court found that the assessment order was vitiated due to the lack of enquiry and was thus illegal. The inclusion of coffee husk in the turnover was based on assumptions without evidence of sale. The court emphasized that self-consumption of coffee husk as compost manure does not attract tax liability. The orders in annexures A to C were set aside, and the revisions were allowed. The court highlighted the necessity for the assessing officer to conduct a proper enquiry and provide an opportunity for the dealer to be heard, as mandated by the principles of natural justice and the relevant statutory provisions.

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