2023 (3) TMI 732 - HC - VAT and Sales Tax

Validity of assessment orders - rate of G.P. added was 10 11% on the purchases made - Enforcement Wing was of the opinion that this modus operandi is incorrect and required re-consideration by adding gross profit of the respective years as per Profit and Loss (P L) accounts and on the basis of the audited financials - opportunity of personal hearing to be provided, before such increase in the GP - principles of natural justice - HELD THAT - The issue in this case relates to adoption of Gross Profit, whether at 10 11 % as put forth by the petitioner, or at the rate proposed by the Officers. There are any number of submissions that could have been put forth by the petitioner in support of the rate propounded by it, pursuade to the Assessing Officer, had only such opportunity been granted. The petitioner, in its wisdom and based on trade practice, has adopted a certain rate of GP and it is in my view, not appropriate for the Assessing Officer to have adopted a substantially higher rate, without affording the petitioner an opportunity to explain the rates adopted by it - In fact, the conclusion in the impugned orders, is that no materials were provided by the petitioner in support of the G.P. adopted by it. Such failure is a direct consequence of the failure of the authority to have granted an opportunity to the petitioner. That apart, it is a settled position that the reports of the officials of the Enforcement Wing cannot be adopted mutatis mutandis by the Assessing Officer who are expected to apply their minds, independently to the matter though having regard to the opinion of the Enforcement officials as well. In the present case, it is an admitted position that the authority has had nothing new to bring to the table but has merely adopted the rate as put forth by the Enforcement Officers. Petition allowed.

Summary

Issues:
Challenging assessment orders under the Tamil Nadu Value Added Tax, 2006 for the period 2009-2014.

Analysis:
The petitioner, a civil work contractor, filed monthly returns based on purchases made to calculate turnover, following an accepted method in the industry. However, the Enforcement Wing of the Department disagreed with this approach, suggesting a different method based on audited financials and Profit and Loss accounts. The petitioner also followed a completed contract method for direct taxes, which differed from the method proposed by the Commercial Taxes authority for sales tax purposes.

The Enforcement Wing issued multiple notices proposing variations in turnover computation, leading to a series of responses from the petitioner. Despite changes in assessing officers, the final order confirming the proposed variation was passed by the second officer, not the last officer in the series. The petitioner challenged these orders citing procedural irregularities, errors in turnover computation, and lack of independent application of mind by the assessing officer.

The petitioner argued for a personal hearing, emphasizing the need for an opportunity to explain the adopted Gross Profit rate. The court noted that while Section 27 did not mandate a personal hearing, in cases requiring deliberation between parties, it was essential for the officer to allow the petitioner to present their case. The court found that the failure to grant a personal hearing resulted in a serious infirmity in the impugned orders.

Additionally, the court highlighted that the assessing officer should not blindly adopt the Enforcement Wing's recommendations without independent consideration. The court emphasized the importance of the assessing officer applying their mind to the matter. The judgment quashed the impugned orders, stating they were unsustainable and lacked a legal basis. The court allowed the writ petitions, with no costs imposed, and closed the connected miscellaneous petitions.