2023 (8) TMI 893 - HC - VAT and Sales Tax

Best Judgement assessment - scope of term 'goods' - electrical energy comes within the definition of goods or not - petitioner submits that since the definition of goods specifically excludes electricity, the contention that electrical energy is included under the 1st Schedule to the Act as exempted goods would not make any difference to the situation - HELD THAT - It is noticed that Ext. P19 notice proceeds on the basis that the goods brought in by the petitioner on 24.3.2008 had been disposed of during the financial year 2008- 09 without disclosing the same to the Department. It is, therefore, presumed that the petitioner had brought in three different windmills and had effected sale of the same which has not been disclosed to the Department. It is on this basis that tax at the rate of 4% on the value of three windmills with cess and interest has been calculated by Ext. P20. The petitioner has produced material to show that what was brought into the State was one windmill in a knocked down condition in three separate vehicles and also to show that the said windmill is still operational and that electrical energy is being generated and supplied to the KSEB. The further contention appears to be that electrical energy being goods included in the 1st Schedule, for which, no tax is payable, the sale of electrical energy also ought to have been disclosed by the petitioner, who is a registered dealer under the KVAT Act, in his returns as turnover which has not been done in the instant case. The remaining question is with regard to the sale, if any, of the windmill as such. From the materials produced by the petitioner, especially Exts. P15, P22 and P24, it is clear that what has been brought into the State of Kerala was one windmill in knocked down condition in three separate vehicles as part of the same bill or invoice. The KSEB is on record stating that one windmill is still functional at Ramakkalmedu and that electrical energy is being generated and supplied to the KSEB from the same. Thus, Ext.P20 order, which does not satisfy the ingredients of Section 25(1) of the KVAT Act is completely unsustainable. Exts. P19, P20 and P26 are, therefore, set aside - petition allowed.

Summary

Issues Involved:
1. Definition of 'goods' under the KVAT Act.
2. Assessment of escaped turnover under Section 25(1) of the KVAT Act.
3. Compliance with procedural requirements for best judgment assessment.
4. Validity of the assessment order and subsequent rectification application.

Summary:

Definition of 'Goods' under KVAT Act:
The petitioner, a partnership firm, installed a windmill in Kerala and filed a nil return under the KVAT Act, arguing that 'electricity' is not considered 'goods' as per Section 2(xx) of the Act. The petitioner contended that since electricity was not taxable, they had no taxable turnover to declare.

Assessment of Escaped Turnover:
A notice under Section 25(1) of the KVAT Act was issued to the petitioner, proposing a best judgment assessment based on the assumption that the petitioner sold windmill parts brought into the state, which are taxable at 4%. The petitioner challenged this, arguing that the assessment was based on an error of fact and law, and filed a rectification application which was rejected.

Compliance with Procedural Requirements:
The petitioner argued that even if there was an error in filing the return, the procedures under Sections 21, 22, and 24 of the KVAT Act should have been followed before proceeding to a best judgment assessment. The court noted that reasonable opportunity must be granted to the dealer to show cause against the proposed assessment.

Validity of the Assessment Order:
The court found that the materials produced by the petitioner, including letters and invoices, showed that only one windmill was brought into the state in a knocked-down condition and was still operational. The court held that the essential ingredient under Section 25(1) for escaped assessment was not met, as there was no element of escaped taxable turnover. The court set aside the assessment order (Ext. P20) and related notices (Ext. P19 and P26), concluding that the assessment was unsustainable.

Conclusion:
The writ petition was allowed, and the impugned orders were set aside due to the lack of evidence supporting the assumption of escaped taxable turnover and procedural non-compliance.