Gujarat HC quashes VAT assessment order for denying hearing opportunity, violating natural justice principles under Section 2(30)(c)

Gujarat HC quashed an assessment order and penalty notice passed without providing hearing opportunity to the petitioner, violating natural justice principles. The court found the authority failed to consider previous HC directions in Malani Construction Company case and issued only a cyclostyled show-cause notice without proper findings regarding Section 2(30)(c) of the VAT Act. Matter remanded to respondent with directions to conduct fresh hearing, apply mind to accounting methods, and provide detailed reasoning while considering Supreme Court precedent in Gannon Dunkerley case.

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Issues Involved:
1. Validity of the assessment order dated 14.11.2009.
2. Validity of the notice for amount assessed dated 14.11.2009.
3. Adherence to the principles of natural justice.
4. Compliance with the directions issued by the Coordinate Bench of the High Court in the previous judgment.
5. Correct application of Section 2(30)(c) of the Gujarat Value Added Tax Act, 2003.
6. Justification for the imposition of penalty under Sections 34(7) and 34(12) of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order dated 14.11.2009:
The petitioner challenged the assessment order on the grounds that it was passed without proper consideration of the method of accounting consistently followed by the petitioner, which was based on the cost plus gross profit method. The assessment order was found to be arbitrary and passed without affording the petitioner an opportunity to explain their method of arriving at the taxable turnover of sales.

2. Validity of the Notice for Amount Assessed dated 14.11.2009:
The notice for the amount assessed was also challenged on similar grounds as the assessment order. It was argued that the notice lacked specific reasons for the imposition of a huge penalty and was issued in a cyclostyle format, indicating multiple instances without specifying any particular reason applicable to the petitioner's case.

3. Adherence to the Principles of Natural Justice:
The petitioner contended that the assessment order was passed in violation of the principles of natural justice, as no proper opportunity of hearing was provided. The respondent authority failed to indicate specific reasons for rejecting the petitioner's method of accounting and did not provide an opportunity to explain the deductions claimed.

4. Compliance with the Directions Issued by the Coordinate Bench of the High Court in the Previous Judgment:
The Coordinate Bench had previously remanded the matter back to the respondent for fresh assessment, directing the respondent to reconsider the method of accounting and the decision of the Supreme Court in the case of Gannon Dunkerly & Co. The petitioner argued that these directions were not followed, and the respondent once again passed the assessment order without proper consideration of the petitioner's consistent method of accounting.

5. Correct Application of Section 2(30)(c) of the Gujarat Value Added Tax Act, 2003:
The respondent authority applied Section 2(30)(c) of the Act to determine the taxable turnover of sales, rejecting the petitioner's method of accounting. The petitioner argued that the respondent did not provide reasons for rejecting the deductions claimed and did not consider the labour and incidental expenses required to be deducted under the Act.

6. Justification for the Imposition of Penalty under Sections 34(7) and 34(12) of the Act:
The petitioner challenged the imposition of a huge penalty, arguing that the notice for penalty was issued without indicating specific reasons for the penalty. The respondent authority issued a cyclostyle notice, indicating multiple instances without specifying any particular infraction applicable to the petitioner's case.

Judgment:
The High Court quashed and set aside the assessment order dated 14.11.2009 and the notice for penalty dated 14.11.2009. The matter was remanded back to the respondent for fresh consideration, directing the respondent to provide an opportunity of hearing to the petitioner and to follow the directions issued by the Coordinate Bench in the previous judgment. The respondent was instructed to apply their mind to the method of accounting and to take into consideration the decision of the Supreme Court in the case of Gannon Dunkerly & Co., providing detailed reasons for their conclusions. The entire exercise was to be completed within 12 weeks from the date of receipt of the order. The court did not go into the merits of the matter and directed the respondent to pass a de novo order after giving the petitioner an opportunity of hearing.

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