2020 (4) TMI 140 - HC - VAT and Sales Tax

Unjust tax assessment on inter-state transactions deemed untenable, violating natural justice principles.

The Court found that the tax assessment on inter-state transactions without Form C declarations was unjust and violated principles of natural justice. The ... Principles of natural justice - rate of tax - inter-state transactions - Air Compressor Pump and Spares - concessional rate denied for want of Form C - case of petitioner is that the respondent committed gross violation of principles of natural justice, since no notice was issued, enabling the petitioner to show cause or explain in person on the action of the respondent in having levied 12.5% tax on transactions that were inter-state in character for want of declarations in Form C. HELD THAT:- In terms of Section 22 (4) of the Act, the only recourse available to the respondent is to frame a best judgment assessment. In the case on hand, the respondent had accepted the figures of turnover as furnished in the returns filed by the petitioner, but computed the tax at 12.5% on interstate transactions for want of Form C declarations. Since no notice was issued enabling the petitioner to show cause or explain in person on the action of the respondent in having levied 12.5% tax on transactions that were interstate in character for want of declarations in Form C, this Court is of the opinion that the impugned order has no legs to stand. The impugned order dated 19.09.2013 passed by the respondent is directed to be treated as notice for which the petitioner shall file objections within two weeks from the date of receipt of a copy of this order - petition disposed off. Issues:1. Tax assessment on inter-state transactions without Form C declarations2. Violation of principles of natural justice in assessment proceedingsAnalysis:1. The petitioner, a manufacturer of Air Compressor Pump and Spares registered under TNVAT and CST Acts, dealt with products falling under the category of 'capital goods' taxable at 4% on local sales and 3% against Form C on sales outside the State. For inter-state sales under Section 8(2)(b) of the CST Act, tax was to be calculated at 10% or the applicable rate in the appropriate State. The petitioner reported turnovers for 2007-2008 but the respondent initiated assessment proceedings under TNVAT Act levying 12.5% tax on inter-state transactions lacking Form C declarations, leading to the present writ petition challenging the assessment.2. The petitioner contended that the respondent violated principles of natural justice by not issuing a notice or providing an opportunity to explain the imposition of 12.5% tax on inter-state transactions without Form C declarations. The respondent's action was deemed unjust as Section 22(2) allowed for the acceptance of returns as filed, and there could not be partial compliance. The Court found the assessment order lacking due process as no notice was issued for the petitioner to defend their case, leading to the order being deemed untenable.3. The Court directed the impugned order to be considered as a notice, requiring the petitioner to file objections within two weeks and present evidence and necessary documents. The respondent was mandated to issue a fresh order after considering the objections and providing a personal hearing to the petitioner within eight weeks. The writ petition was disposed of with no costs, and the connected matters were closed accordingly.