2023 (5) TMI 76 - HC - VAT and Sales Tax

Validity of assessment order - concealment of Gross Turn Over (GTO) - it is alleged that AO despite taking actual figure of sale price, has taken the value of goods sold on the basis of average IBM rate prevalent for the said month as well as average sale price of three nearby mines-M/s. Orissa Manganese Minerals Ltd., M/s. Rungta Mines Ltd., M/s. Misri Lal Jain and Sons Co. Ltd. Determination of sale price on the basis of average sale price of I.B.M. as the average sale price of I.B.M. is only for the purpose of determining royalty payable on minerals and the same cannot be the basis of determination of sale price, or otherwise? - imposition of penalty under Section 40 (1) of the JVAT Act, 2005 is sustainable in the eye of law, especially when the original proceedings were initiated under Section 40 (2) of the JVAT Act, 2005? 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. 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 - 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 reiterated that recording of satisfaction is sine qua non before proceeding to impose tax and penalty upon the assessee under Section 35(7) read with Section 40(1) of the JVAT Act. Any such satisfaction is to be based on tangible materials as are found by the assessing officer 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. The matter is therefore required to be remanded to the assessing officer 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 - As such, on remand, the AO shall proceed strictly in accordance with law. The petitioner shall be at liberty to raise all the grounds available to him before the AO which shall be considered accordingly. 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 even after remand by the Appellate Authority on the first instance. Petition allowed by way of remand.

Summary

Issues Involved:
1. Determination of sale price based on IBM rates.
2. Imposition of penalty under Section 40(1) of the JVAT Act, 2005.

Summary:

Issue 1: Determination of sale price based on IBM rates
The petitioner, owning merchant mines of iron ore, sold "Run of Mines (ROM)" without processing or screening. The assessment officer determined the sale price based on the average IBM rate and the prices of nearby mines, alleging the petitioner concealed its Gross Turn Over (GTO). The appellate court initially set aside this assessment, stating that GTO cannot be enhanced by comparing sale prices of neighboring mines. However, in the revised order, the assessment officer again used the IBM rate to determine the sale price, leading to the imposition of tax and penalty.

Issue 2: Imposition of penalty under Section 40(1) of the JVAT Act, 2005
The petitioner argued against the imposition of penalty under Section 40(1) when the original proceedings were under Section 40(2). The petitioner contended that IBM rates are for royalty purposes and not for VAT/Sales Tax. The assessing officer admitted that the petitioner did not sell goods at a price higher than shown in invoices but alleged "under-pricing" based on inquiries from businessmen, without providing details of such inquiries. The appellate authority and the Tribunal upheld the revised assessment and penalty.

Court's Analysis and Decision:
The court emphasized the necessity of recording reasons before initiating proceedings under Section 35(7) of the JVAT Act. It found no evidence that the assessing officer recorded reasons before initiating the proceedings. The court noted that the finding of "under-pricing" was not supported by tangible materials and that the assessing officer failed to comply with the statutory requirement of recording satisfaction before initiating proceedings. Consequently, the court quashed the orders of the Tribunal and remanded the matter to the assessing officer to comply with the provisions of Section 35(7) and proceed in accordance with the law.

Conclusion:
The writ petitions were allowed, and the matter was remanded to the assessing officer to follow the legal requirements for initiating proceedings under Section 35(7) of the JVAT Act. The court refrained from making observations on the merits of the case regarding the levy of tax and penalty.