TaxTMI 
TaxTMI 
2014 (12) TMI 954
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....by the Officials of the Audit Department of the respondent from 29.01.2013 to 07.02.2013 and from 26.2.2013 to 28.01.2013. In the course of audit, the following defects were pointed for the seven assessment years, which are for the Assessment Year 2006-07, suppression of sale of taxable scrap; for the Assessment year 2007-08, suppression of sale of taxable scrap and non payment of tax on the sale of assets; for the Assessment year 2008-09, suppression of sale of taxable scrap and non payment of tax on the sale of assets; for the Assessment year 2009-10, suppression of sale of taxable scrap and non payment of tax on the sale of assets; for the Assessment year 2010-11, suppression of sale of taxable scrap and non payment of tax on the sale of assets; for the Assessment year 2011-12, suppression of sale of taxable scrap, non payment of tax on the sale of assets and incorrect rate of tax on the sale of accessories and parts on mobile phone and for the Assessment year 2012-13, suppression of sale of taxable scrap, non payment of tax on the sale of assets and incorrect rate of tax on the sale of accessories and parts on mobile phone. 4.In the light of the above, the first respondent iss....
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....y the Hon'ble Supreme Court relating to best judgment assessment and therefore, the petitioner need not be relegated to the statutory Appellate Authority to challenge the impugned orders. It is submitted that exhaustion of alternate remedy is a rule of convenience or discretion rather rule of law, which does not oust the jurisdiction of this Court; where the order complained against is alleged to be illegal or contrary to law, a petition would lie to this Court under Article 226 of the Constitution of India. It is submitted that the Hon'ble Supreme Court in the case of RAM AND SHYAM COMPANY v. STATE OF HARYANA AND OTHERS [AIR 1985 SCC 1147], has held that exhaustion of alternate remedy to be a rule of convenience and discretion rather than rule of law and does not oust the jurisdiction of the Court. Further, it is submitted that the exhaustion of alternate remedy in the present case is not efficacious, since it would place an onerous burden of pre-deposit of huge amount on the petitioner, as the mandatory condition precedent to filing of appeal. 8. On the issues which arises in all these seven assessment orders, the following submissions were made in seriatem: 8.1 Best Ju....
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....ined based on the books of accounts, there can be no grounds for making a best judgment assessment as held in the case of S.G.JAYARAJ NADAR (supra). Further, it is submitted that penalty does not arise merely upon the proof of default and penalty will not be imposed unless the party either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregarded of its obligation. It is submitted that no such allegation was made against the petitioner alleging dishonest conduct, contumacious behaviour and the question of imposing penalty does not arise. In support of such contention, reliance has been placed on the decision of the Honourable Supreme Court in HINDUSTAN STEEL LTD. v. STATE OF ORISSA [ AIR 1970 SC 253]. It is submitted that the words 'willful' and 'suppression', signify conscious, deliberate and intentional withholding of information with mala fide, and not an unintentional failure or a failure due to inadvertence. In support of the said contention, reliance was placed on the decisions in the cases of Tamil Nadu Housing Board V. Collector of Central Excise [Madras 1994 (74) ELT 9 (SC); Collector of Centr....
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....e, that by itself is not the sufficient ground for equal addition. By referring to the observation made by the assessing officer in the order of assessment, it is submitted that the assessing officer accepted that the petitioner had disclosed the scrap sales to the Audit Team. Therefore, it cannot be stated that there was willful non-disclosure of assessable turnover merely on the ground that at the time of re-assessment of the escaped turnover on the basis of best judgment, the turnover was indicated and this is not enough to hold the dealer as having willfully suppressed the turnover. In support of the said contention, reliance was placed on the decision of this Court in the case of State of Tamil Nadu v. S.M.Baba Sahib [(1979) 44 STC 299]. 8.4 Tax on export of capital assets:- On the next issue viz. tax on export of capital assets, which issue arises in five years viz. 2007-08 to 2011-12, it is submitted that the imposition of tax on export of capital assets was wholly without jurisdiction and hit by Article 286(1)(b) of the Constitution of India. In terms of Section 18 of the TNVAT Act, export sales are zero rated for the purpose of TNVAT Act and the question of levying tax o....
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.... petitioner allegedly sold only part of plant and machinery and inventory to NSNPL, is not acceptable and under the Income Tax Act, the transaction has been regarded as a slump sale. The entire business has been transferred as a whole and the Network business constitute a separate identifiable business. Therefore, it is submitted that the tax demanded on transfer of assets to NSNPL is not tenable. In support of the said contention, reliance was placed on the decisions of this Court in the case of Deputy Commissioner of Commercial Taxes V. K.Behanan Thomas [1977 (39) STC 325] and in the case of Monsanto Chemicals of India (P) limited V. State of Tamil Nadu [(1982) 51 STC 278]. 8.6 Tax on disallowance of sales returns:- On the next issue relating to tax on disallowance of sales returns, it is submitted that no reasons have been assigned by the Assessing Officer under this head and therefore it is not assessable. 8.7 Tax at higher rate on parts and accessories:- On the issue relating to tax at higher rate on parts and accessories, the learned Senior counsel advanced arguments in terms of the proviso under section 3(2) of TNVAT Act that all spare parts, components and accessories o....
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....refore, when there is escapement of income section 27(1)(a) of the TNVAT Act would stand attracted as the said provision states "where, for any reason", and the scope is much wider than Section 22(4) of TNVAT Act. 9.4 The penalty imposed on the petitioner is sought to be justified by contending that there is no voluntary disclosure and payment of tax was only after it was detected by the Audit Department and the amount having not been disputed and the subsequent conduct of the dealer in paying the tax amounts to willful non-disclosure warranting penalty under section 27(3) of the TNVAT Act. In such circumstances, when suppression was detected, the quantity of addition to be made in a particular case cannot be adjudicated in a Writ Petition. In support of the said contention, reliance has been placed on the decision of the Full Bench of the Kerala High in the case of V.ABOOBACKER v. STATE OF KERALA [(2010) 27 VST 308 (Ker)(FB)] and the decision in the case of A.B.SONS v. STATE OF TAMIL NADU [(2012) 50 VST 234 (Mad)]. 9.5 With regard to the issue relating to tax on export of capital assets, it is submitted that the assessment should be based on records. It has to be established by ....
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....s conducted. There is no discussion why the sales returns is disallowed. On the above grounds, the learned Senior counsel sought for setting aside the impugned orders. 11. By way of further reply, learned Special Government Pleader submitted that Section 12(2) of the Madras Sales Tax Act corresponds to section 22(4) of TNVAT Act. The issue dealt with in the case of S.G.JAYARAJ NADAR (supra), is a prima facie assessment, whereas in the instant case it is a reassement under section 27 of the TNVAT Act, which gives wide power to the assessing authority and the assessment can be reopened upto to the period of six years from the date of assessment. Therefore, it is submitted that the decision relied on by the learned Senior Counsel for the petitioner pertaining to best judgment assessment had been rendered interpreting the provision of law which existed at that point of time and the power under section 27 of the TNVAT Act is different and therefore the decisions are not applicable. 12. Further, by referring to Form No.I, which is a format of the monthly return, it is submitted that all details which are required to be furnished are primary details and the assessee are bound to furnish....
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....on is that the petitioners approached this Court without exhausting the appeal remedy available under the Act; that the dealer has got substantive remedy to prefer statutory appeal which is a creature of statute with legal sanctity and there is no justifiable reason to bypass the appellate remedy. It is further submitted that all the issues raised by the petitioner involves adjudication of disputed questions of fact and therefore Writ Petitions are not maintainable and the petitioner should be directed to file appeals as against the impugned assessment orders. 17.Learned Senior counsel for the petitioner would contend that exhaustion of alternate remedy is a rule of convenience and discretion rather than the rule of law. When the petitioner has contended that the impugned assessment orders are vitiated on account of total non-application of mind, made in violation of principles of natural justice, failure to consider the relevant facts and being devoid of reasons, the petitioner is fully justified in filing these Writ Petitions before this Court, moreso, when the petitioner has specifically pleaded and established that there has been serious violation of principles of natural just....
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....he decisions of this Court in the cases of Jayalakshmi Oil Mills, Sri Ramu Furniture Co. and S.V.Cycles stores (supra) are relied on. 21.Imposition of tax on export of capital asset is said to be the outcome of non-application of mind as it is an export sale of capital assets and no sales tax could be levied. 22.Regarding transfer of business to NSNPL , the petitioner would state that it is a transfer of business as a whole and would fall under Explanation III to section 2 (41) of the Act and there was no material available with the Assessing Officer to state that only part of the business was transferred and no documents were called for and the observation is purely made on surmises and conjectures. 23.The petitioner would state that the transfer of network division to NSNPL has been treated as a slump sale under the Income Tax Act, which is a relevant factor. To support their contentions, the decision in the case of K.Behanan Thomas and Monsanto Chemicals of India (P) limited (supra) have been relied. 24.Regarding disallowance of sales returns and tax at higher rate on sales returns, it is stated that there is no reasons have been assigned by Assessing Officer in the impugned....
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....rit petition in the face of an alternative remedy provided under the Act, the apex court held that the presence of an alternative remedy is not an absolute bar in entertaining a writ petition. The apex court considered the decisions reported in [2003] 2 SCC 107 Harbanslal Sahnia v. Indian Oil Corporation Ltd.), [2001] 10 SCC 491 (Modern Steel Industries v. State of U.P.), [2010] 3 SCC 321 (Hindustan Petroleum Corporation Limited v. Super Highway Services), [2009] 14 SCC 451 (National SampleSurvey Organization v. Champa Properties Limited) as well as [1998] 8 SCC 1 (Whirlpool Corporation v. Registrar of Trade Marks ) and held that the rule of exclusion of writ jurisdiction by availability of an alternative remedy, is a rule of discretion and not one of compulsion and there could be contingencies in which the jurisdiction under article 226 of the Constitution of India could be exercised in spite of availability of an alternative remedy. The question to be decided is relating to the jurisdiction, manner of exercise of power by the Assessing Officer and the correctness and propriety of the decision making process and whether principles of natural justice was adhered. Therefore, it is h....
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....ion 22. Deemed assessment and procedure to be followed by assessing authority:- 1........ 2........ 3...... 4.If no return is submitted by the dealer for any period of the year or if the return filed is incomplete or incorrect, or if not accompanied with any of the documents prescribed or proof of payment of tax, the assessing authority shall, after making such enquiry as it may consider necessary, assess the dealer to the best of its judgement, subject to such conditions as may be prescribed, after the completion of that year: Provided that before taking action under this sub-section, the dealer shall be given a reasonable opportunity of being heard." Section 27(1)(a) of TNVAT Act reads as follows: "Section 27.Assessment of escaped turnover and wrong availment of input tax credit.-- 1 (a) Where, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment to tax, the assessing authority may, subject to the provisions of sub-section (3), at any time within a period of six years from the date of assessment, determine to the best of its judgement the turnover which has escaped assessment and assess the tax payable on such turnover after....
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....ed out that the best of judgment assessment on a estimate, which the assessing authority has to make not capriciously, but,on settled and recognised principles of justice; an element of guess work is bound to be present in best judgement assessment, but it must have a reasonable nexus to the available material and the circumstances of each case. It was further pointed out where accounts books are available along with other records, there can be no ground for making best judgement assessment. If the quantum of turnover were based on the assessee's books, it cannot be treated as a best judgment assessment. 37. It was further pointed out that the distinction between best judgment assessment and assessment based on the Accounts submitted by an assessee must be borne in mind. Sometimes there may be trivial mistakes in the accounts maintained by the assessee and the omissions may be unintended. In such circumstances, those accounts may be accepted as genuine and substantially correct, and assessment are made on the basis of the accounts maintained, eventhough the Assessing Officer may add back to the accounts those items that might have been omitted to be included. In such a case, t....
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....ssment are best judgment assessments, but revision of assessments in contra distinction with best judgment assessments under Section 22(4) of the Act. Question No.2 is accordingly answered against the petitioner. 39. Having held that the impugned assessments are revision of assessments in exercise of the power conferred under Section 27(1)(a) of the TNVAT Act, we move on to consider the other questions and to examine as to the correctness of the assessment orders and in particular the decision making process. 40. One of the issues raised by the petitioners which is common for all the seven assessment years is the correctness of equal time addition on probable omission and suppression of scrap sales. It was stated that on verification of books of accounts, it was noticed that the petitioner has effected sale of scrap from Chennai Ware House at Kattupakkam and factory at Sriperumbudur and they have reported only sales turnover of scrap relating to the Warehouse and not reported the sales turnover of scrap relating to Chennai factory in the monthly returns. Therefore, the pre-revision notice proposed to tax the turnover of sale of scrap for the year 2006-2007. Similar observations w....
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....f TNVAT Rules, 2007, but the dealer had not disclosed the sales of scrap on the monthly returns furnished, therefore, they have deliberately suppressed the taxable turnover and failed to pay tax on the taxable turnover of the scrap sales . Further it was stated that at the time of inspection only, they disclosed the sale of scrap and it is willful non-disclosure of assessable turnover by the dealer warranting equal time addition for probable suppression and omission. Therefore, the objection by the dealer was overruled. 42. The learned Senior counsel for the petitioner submitted that as per the law laid down by this Court in the case of Jayalakshmi Oil Mills (supra) and the decisions in the cases of Sri Ramu Furniture and S.V.Cycles Stores (supra), the equal time addition are liable to be set aside; further, assessing officer acted arbitrarily and abused his jurisdiction by not even attempting to distinguish or deal with the decisions of this Court which were cited before the assessing officer. Relying on the decision of the Honourable Supreme Court in the case of East India Commercial Co. Ltd., Vs. Collector of Customs [AIR 1962 (SC) 1892], it is submitted that law declared by th....
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....he Honourable Division Bench of this Court in the case of A.B.& Sons Vs. State of Tamil Nadu [(2012) 50 VST 234(Mad)], and the decision of the Full Bench of Kerala High Court, in the case of V.Aboobacker Vs. State of Kerala [(2010) 27 VST 308 (Ker.) (FB)]. 44. In Jayalakshmi Oil Mills (supra), the Division Bench of this Court pointed out that when there is no basis for equal addition for probable omission, the same is unwarranted as it is only based on estimate that too probable suppression, it is only a guess work and no material for making equal amount for probable suppression and accordingly, deleted the equal addition for probable omission. Similar view was taken in the case of Sri Ramu Furniture Company (supra), wherein, the Division Bench pointed out the fact that in the subsequent year there was an inspection, which revealed suppression, by itself would not be a good ground to sustain the equal addition for the earlier assessment year. In S.V.Cycles Stores (supra), the Division Bench pointed out that addition under the head "equal addition" for probable omission, does not follow as an automatic, concomitant assessment on actual suppression; merely because the assessee's....
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....udit by the officials of the department, is said to have detected the mistake which according to them was an inadvertent clerical mistake, paid tax and interest even prior to the conclusion of the audit by the officials. This, in my view, would be a relevant factor, and should have weighed in mind by the assessing officer while deciding the question as to whether the conduct of the petitioner warranted equal addition. Unfortunately, the assessing officer did not venture to examine the relevant issue and misdirected himself. 47. In case of Naturhu Ram Ramesh Kumar (supra), referred by the Revenue, a dealer registered under the Delhi Sales Tax Act, 1975 and Delhi Value Added Tax Act, 2005, was carrying on the business of manufacture and sale of sweets, namkeens and other eatables, had not shown his income correctly, despite opportunity having been granted to the dealer, to explain the books of accounts, wherein, substantial discrepancy was found between the receipts shown in the books of accounts and the gross receipts, this appeared to be a common feature for all the assessment years. While considering the facts of the said case, the Honble Supreme Court pointed out that the assess....
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....equested to furnish the corresponding sales vouchers which are said to have not been furnished and data was culled out from their audited balance sheet and stated that the petitioner has manufacturing plant only at Chennai , all the plant and machinery and goods regarding Tamil Nadu manufacturing unit only therefore, they are liable to pay tax on the disposal of their assets. Further the sale of fixed assets were not reported in the monthly returns. The petitioner, in their objections stated that the gross value of asset was adopted without giving allowance for depreciation and figures available in the balance sheet relates to all-India figures and that the company has operation in 22 States and sales effected in different States are reported to the Department and as far as Tamil Nadu is concerned, they stated that they have exported the assets to the foreign country which is zero rate and not to be taxed. 51. The assessing officer, rejected the contention stating that the petitioner were unable to produce State-wise break up at the time of audit, failed to furnish the actual sale value of the assets despite opportunity and failed to produce documents and details. By referring to ....
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.... demand, the order of assessment is perfectly valid and in any event, these being factual issues, cannot be adjudicated in a writ petition. 54. After hearing the submission on either side and on perusing the observations made in the assessment order to treat the transaction, which the dealer claimed to be export sales as local sales, is on the ground of non-furnishing of documents or inadequacy of documents produced. The consistent case of the petitioner is that the sales effected were export sales, zero rated under TNVAT and not taxable under VAT / CST. They claimed to have explained to the audit officials regarding the nature of business and the business operations, which they have in India. The dealer appeared for personal hearing and filed the written submissions on 25.03.2014. Apart from that, they have filed additional written submission on 17.4.2014 along with the copy of financial statement and copies of export document which according to them relates to sale of fixed assets. 55. In the impugned assessment order, though the assessing officer, while detailing the value of assets sold, has failed to advert into the effect of the export documents produced by the petitioner. ....
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....vision, research and development unit and the petitioner had transferred all its assets and liabilities related to network division together with employees to NSNPL under business transfer agreement, and with effect from April 2007, the petitioner seized to carry on the said business and even now, they are not engaged in network business. 58. The assessing officer, reiterated the stand taken in the pre-revision notice, stating that the petitioners have sold only part of the plant and machinery and stock inventory to NSNPL. Further, it was observed that the petitioner declaring Nokia India Private Limited as a whole unit only availed various concessions from the Government and hence, the contention of the petitioner cannot be accepted and confirmed the proposal to levy tax on the said transaction. 59. Learned Senior counsel submitted that the assessing officer failed to appreciate that the entire assets including the inventory of the network business was sold by the petitioner as a going concern and under the Income Tax Act, the transaction has been assessed as slump sale . Further, it is submitted that for the year 2012-13, the assessing officer accepted the transfer of the sales....
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....ct as to whether the network division which is claimed by the petitioner to be a separate entity and that they have transferred all its assets and liabilities together with its employees to NSNPL, if such is the case, would it be transfer of a business as a whole. There was no material available with placed by the assessing officer to state that only part of the plant and machinery and stock inventory has been sold except to state that the petitioner declaring themselves as a single unit availed various concessions from the Government, therefore, their contentions that sold the business as a whole, cannot be accepted. 64.In the case of BEHANAN THOMAS (supra), the question which arose for consideration was whether the claim of the dealer that they have transferred the entire business as a whole and therefore exempt from tax was justified. The Hon'ble Division Bench held that when a person is carrying on business, sells the entire business or a branch of the business, he sells the same as a running business or as a going concern, the sale proceeds of such a transaction cannot be said to constitute turnover as defined in the Act, because the sale proceeds are not proceeds of sale....
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.... and accordingly, the same is set aside and the matter is remanded to assessing officer directing to make thorough enquiry into the contentions raised by the petitioner by applying proper test as indicated above and to see whether the transaction would fall within the scope Explanation III to Sub Section (2) of Section 41 of TNVAT Act. 66. The next issue is with regard to tax on disallowance of sales returns. This issue is common to four years viz., 2009-10 to 2012-13. Learned Senior counsel for the petitioner submitted that sales returns have been disallowed and mentioned in the tabulated statement in the penultimate portion of the impugned assessment orders while determining the taxable turnover. On a perusal of the assessment order dated 27.6.2014, for the year 2009-10, in the body of the order, there is no discussion or finding as to why there has been disallowance of sales returns except an entry in Col.3 of the tabulated statement, stating sales return disallowed and the rate of tax imposed is 12.5%. Thus, such disallowance was without assessing reasons. Therefore, the imposition of tax on disallowance of sales return has to be necessarily set aside and remanded to the asses....
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....it for mobiles and components and accessories of mobile phones are therefore taxable at the rate of 14.5% and this cannot be classified as information technology products. The plea raised by the petitioner is not tenable and the finding rendered by the assessing officer with regard to parts and accessories of mobile phones were being made in specific Entry 13-A(f) of Part C of the First Schedule of the TNVAT Act is valid and proper and accordingly stands confirmed and the petitioner's contention is rejected. 69. This leaves us with the last issue with regard to imposition of penalty which is common to all the seven years. In the pre-revision notices, there were proposals to levy penalty under section 27(3) of the Act in respect of all the defects / omissions / suppressions pointed out. The petitioner in their objection submitted that section 27(3) could be invoked only when the dealer has escaped assessment due to willful nondisclosure of the assessable turnover and there must be evidence to indicate that there exists malafide intention for not disclosing at the time of assessment and the bonafides of the petitioner must be considered before alleging suppression. The assessee ....
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.... of Central Excise, Chandigarh -I reported in 2007 216 ELT 177; UNIWORTH TEXTILE LIMITED VS. COMMISSIONER OF CENTRAL EXCISE, RAIPUR reported in 2013 288 ELT 161 (SC); and Cosmic Dye Chemical vs Collector Of Central Excise reported in (1995) 6 SCC 117. 71. Learned Special Government Pleader after elaborately referring to the factual situation submitted that the mistake was found out by the Department during the course of audit, but for the audit conducted in 2013, the non-disclosure of sale of scrap would not have come to light. That the disclosure should start from the filing of the return and the conduct of the petitioner/dealer in willfully suppressing the sales turnover in the returns warrants levy of penalty. The quantum of penalty is not a matter to be adjudicated in a writ petition. The claim of payment of tax and interest at the time of audit would not absolve or exonerate the dealer from their act of suppression and non-disclosure of full and correct turnover before the assessing authority. The levy of penalty is an offshoot of non-disclosure of the sale of scrap in the monthly returns. 72.Section 27(3) of the Act states that in making an assessment under clause (a) of su....
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....eturns is an inadvertent clerical mistake. The petitioner would further state that this was ascertained by them while they were preparing for audit and this was much prior to the inspection done by the officials of the Department. They would further state that on noticing the inadvertent mistake, on their own volition, disclosed the same to the audit officials, when they commenced the audit inspection, paid full tax and interest even prior to the completion of the audit inspection. Therefore, they plead that the non-disclosure was not willful on the date when the audit team prepared their report, the tax and interest have been fully paid and there is no cause for levying penalty. However, the assessing officer did not examine this aspect and merely quoted the expression used in Section 27(3) viz., willful non-disclosure . Mere use of expression "willful" does not make an act or action willful or deliberate. It is a question of fact to be proved by the person who makes an allegation against another for having acted in a willfully negligent manner or deliberately acted with malafide with an intention not to comply the statutory provisions. This exercise was not done by the assessing ....
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....with the provisions of TNVAT Act or the rules made thereunder until they are repealed or amended. The Commissioner, issued one such circular dated 25.08.1999 laying down guidelines for the assessing officer with regard to assessments, best judgments assessment, procedures etc. In Clause 16 therein, it is stated that additions to turnover reported cannot rest on subjective satisfaction of authority. The order must state reasons and the order shall be a speaking order so that the assessee, higher authorities and judicial forums may know the basis for the best judgment assessment. It is further stated that fair opportunity is to be given to the assessee and judicial consideration given to the representations, evidences and materials furnished by the assessee. The assessment should be based on relevant materials and on evidence available in the record and not on suspicions or surmises. The Assessing Officer should not disregard the materials in the records without valid reasons. Any guess work must be rational and reasonable. Capricious assessment without regard for available material is not permissible under law. 76. The Assessing officer should have borne in mind the guidelines issu....