2012 (7) TMI 858 - HC - VAT and Sales Tax

Court affirms State challenge on VAT assessment reversal, clarifies power under sections 25 & 42(2)

The High Court upheld the State's challenge against the Tribunal's decision to reverse the assessment order under section 25 of the Kerala Value Added Tax ... Whether a dealer can file revised return under section 42(2) of the Act, after proceedings have been initiated under section 25 of the KVAT Act and after assessment of escaped turnover ? Held that:- Section 25 is an independent provision enabling assessment of escaped turnover wherein the Assessing Authority initiating action under the above section has been granted the powers to make best judgment assessment.When action is proposed under section 25, revised return can be filed only in the manner provided therein and in the situation provided thereon. Even going by the facts of the instant case, the revised assessment under section 42(2) assumed by Tribunal to have been filed by Assessee is not by way of rectifying a mistake or omission in the annual return with reference to the audited figures. Actual suppression of purchase was detected by Assessing Officer and proceedings initiated. The findings of the Tribunal with respect to OTRV No.22/12 section 25 and section 42(2) of the KVAT Act hence cannot be sustained. The question of law hence is answered in favour of the Revenue and against the assessee.The order of remand with respect to the input tax credit is sustained but the setting aside of the best judgment assessment by the Tribunal is overruled. Issues:1. Challenge to the order of assessment under section 25 of the Kerala Value Added Tax Act, 2003.2. Validity of filing a revised return under section 42(2) after proceedings initiated under section 25 of the KVAT Act and assessment of escaped turnover.Analysis:1. The case involves a challenge by the State against the Tribunal's decision to reverse the order of assessment under section 25 of the Kerala Value Added Tax Act, 2003. The Tribunal remanded the matter, questioning the Assessing Officer's best judgment assessment under section 25. The Tribunal found that the dealer was entitled to file a revised return under section 42(2) and granted input tax credit based on the audited report. However, the State argued that the power to assess for escaped turnover under section 25 was not extinguished by the dealer's claim of returning tax suffered. The High Court disagreed with the Tribunal, emphasizing that section 42(2) allows revised returns only for mistakes detected with reference to audited figures, not for cases of suppression of purchases leading to best judgment assessments under section 25.2. The High Court analyzed the provisions of sections 42(2) and 25 of the KVAT Act. It highlighted that section 42(2) mandates annual audit and permits revised returns for mistakes detected in audited figures. In this case, the Assessing Authority found suppression of purchases, leading to action under section 25 for assessment of escaped turnover. The Court clarified that section 25 is an independent provision allowing best judgment assessments, and revised returns can be filed under section 25 only in specific situations, such as incorrect tax rates. The Tribunal's assumption of a revised return filed by the dealer was deemed irrelevant as the omission was not related to audited figures. Therefore, the High Court ruled in favor of the Revenue, stating that section 42(2) cannot be used to avoid assessments under section 25.3. Regarding the input tax credit issue, the High Court sustained the remand order but overruled the setting aside of the best judgment assessment by the Tribunal. The Assessing Officer was directed to reconsider the estimations, limiting them to those modified by the First Appellate Authority. The Court allowed the tax revision, remanding the assessment to the Assessing Officer for a fresh determination after providing an opportunity for hearing to the assessee.