2016 (8) TMI 524 - HC - VAT and Sales Tax

Court overturns tax assessment orders for private company due to errors and lack of natural justice, remands for reevaluation.

M/s. Sree Annapoorna Sree Gowrishankar Hotels (P) Limited Versus The Assistant Commissioner (CT)

The Court set aside the tax assessment orders under the TNVAT Act for a private limited company operating restaurants and lodging houses. The Court found ... Writ petition - rate of tax - sales of food and drinks to their customers including the sales to the partnership firm, which is running the lodging house - tax paid at 2% under section 7(1)(b) of the TNVAT Act – classification of the assessee as a Two Star Hotel - demand of tax at higher rates – production of branch wise sale details at the earliest – penalty under Section 27(1)(b) of the TNVAT Act – SCN - the respondent, without adverting to any of the records, overruled the objections raised and assessed the petitioner to tax at further rate. Held that: - If the order proceeds on the reasons other than those stated in the notice, in fairness to the claim of the petitioner, the respondent should have indicated the same too in the notice and if the same has not been done, it would amount to violation of principles of natural justice. The respondent directed to examine the specific contention raised by the petitioner that the lodging facility is being carried on by a different entity namely a partnership firm and they are a public limited company. The Assessing Officer has to take note of the advance ruling issued by the authority – writ petition allowed – impugned order set aside – matter remanded back. Issues involved: Assessment of tax under TNVAT Act at different rates for a private limited company running restaurants and lodging house, application of tax rates, failure to consider objections raised by the petitioner, violation of principles of natural justice, absence of personal hearing, lack of sufficient reasons for imposing penalty.Analysis:1. Assessment of Tax Rates:The petitioner, a private limited company engaged in the sale of food and drinks, was initially paying tax at 2% under Section 7(1)(b) of the TNVAT Act. However, the respondent proposed to tax the petitioner at a higher rate of 14.5% for all restaurant sales, alleging that the company should pay tax at 12.5% as a Two Star Hotel. The petitioner contested this revision, clarifying that they were not a hotel but a separate entity from the lodging house in the same building. The respondent's assessment was based on a different premise than initially proposed.2. Application of Tax Rates:The respondent sought to bring 50% of the petitioner's reported turnover under a higher tax rate if branch-wise sales details were not provided. Despite the petitioner submitting records and objections, the respondent assessed the tax at 14.5% for all branches without considering the submitted documents. An advance ruling specifying tax rates for certain food sales was also referenced, highlighting the need for accurate application of tax laws.3. Violation of Principles of Natural Justice:The Court referenced a previous case emphasizing that if an order deviates from the reasons stated in the notice, it violates principles of natural justice. In this case, the respondent's assessment did not align with the initial proposal, indicating a procedural flaw.4. Absence of Personal Hearing and Penalty Imposition:The petitioner was not granted a personal hearing, and the Court noted that insufficient reasons were provided for imposing penalties. The lack of a personal hearing and unclear reasons for penalties raised concerns about procedural fairness and compliance with legal requirements.Conclusion:Considering the discrepancies in assessment, failure to address objections, violation of natural justice principles, absence of a personal hearing, and inadequate reasoning for penalties, the Court deemed it appropriate to set aside the impugned orders and remand the matter to the respondent for fresh consideration. The Court directed the respondent to examine the specific contentions raised by the petitioner, consider the advance ruling, and provide a personal hearing before making a revised assessment.