2013 (7) TMI 47 - HC - VAT and Sales Tax

Sales Tax Tribunal's Inadequate Investigation Overturned - Rule 18-C Compliance Emphasized

The High Court held that the Sales Tax Appellate Tribunal failed to conduct a thorough investigation as required by Rule 18-C of the TNGST Rules before ... Sale suppression - Whether the tribunal discussed the issue in detail rather than reproducing the D3 inspection report proposal inspite of the fact that the Appellate Tribunal is the final fact finding authority? - Held that:- As seen from the order of assessment, the addition of Rs.8,05,303/- came for consideration only on account of the Inspection Wing Official noting huge Gross Profit difference between the first sale and the second sale. It is no doubt true that the sister concern had effected second sales making high gross profit. Whatever be the merits or demerits on the higher profit, as rightly observed by the First Appellate Authority, for the purpose of assessment under Section 12-A of the Act, the AO has to cause enquiry by following the procedures prescribed under Rule 18-C of the Rules. In the absence of any such enquiry, the mere ground that the sister concern had charged higher gross profit by itself could not be a legal ground for making addition. Thus no hesitation in accepting the case of the assessee that a mere difference in profit between the second sale and the first sale would lead to a statutory best judgment under Section 12-A of the Act. In favour of assessee. Issues:1. Interpretation of the role of the Appellate Tribunal in discussing issues in detail.2. Application of principles laid down by the court in a previous judgment regarding assessment.3. Consideration of provisions of Section 12-A of the TNGST Act and Rule 18-C of the Rules in making assessments.Issue 1 - Appellate Tribunal's Role:The assessee, a manufacturer of Electrical Water Heaters, challenged the Sales Tax Appellate Tribunal's order related to the assessment year 2001-02. The primary issue raised was whether the Tribunal adequately discussed the matter instead of merely reproducing the D3 inspection report. The Tribunal had estimated sales suppression and imposed a penalty based on this report without conducting a detailed inquiry. The High Court emphasized that the Tribunal's duty is to conduct a thorough investigation as per Rule 18-C of the TNGST Rules before making any additions to the assessment based on inspection reports. The Court found that the Tribunal's decision lacked proper examination and upheld the assessee's argument, setting aside the Tribunal's order.Issue 2 - Application of Previous Principles:The Appellate Assistant Commissioner referred to a previous court decision emphasizing the need for concrete inquiries to establish sales suppression through under-invoicing as per Rule 18-C of the TNGST Rules. The court held that the Assessing Officer must determine if there is a difference in prices charged to different customers and prevailing market prices before revising assessments under Section 12-A of the Act. The First Appellate Authority criticized the Assessing Officer for not conducting a thorough investigation and making revisions solely based on the inspection report. This lack of proper inquiry led to the conclusion that the assessment could not be made under Section 12-A.Issue 3 - Consideration of Statutory Provisions:The High Court noted that the Assessing Officer had not followed the procedures outlined in Rule 18-C of the Rules, which prescribe factors to be considered during assessments under Section 12-A of the TNGST Act. The Court highlighted that the mere difference in profit between the first and second sale, without a proper inquiry, cannot be a valid basis for making additions to the assessment. The Court emphasized that statutory best judgment under Section 12-A requires a detailed examination following the prescribed procedures. As a result, the Court set aside the Tribunal's decision and allowed the Tax Case Revision, ruling in favor of the assessee.