TaxTMI 
TaxTMI 
2017 (5) TMI 543
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....ck-B, Iron Ore Mines comprising M.L. area over 947.046 hectares was executed in favour of Sunder Lal Sarda and Mohan Lal Sarda. Initially, the mining activities were undertaken by the lessee and the "Run of Mines" for short, "ROM", which is otherwise called as mother earth of Iron Ore consisting of raw unprocessed ores in its natural state obtained after blasting or digging was excavated and handed over to M/s. Jindal Steel & Power Limited, for short, "JSPL". Thereafter, "JSPL", which has installed crusher plant inside the leasehold area used to crush and downsize the excavated ores/ROM consisting of large boulders, fragments and fines along with other contaminants/impurities. According to Mr. Gopal Jain, learned Senior Advocate for the petitioner after crushing of ROM in the crusher and sizing in the screen, Calibrated Lump Ore (CLO) is obtained. Size of CLO varies from 5 mm to 18 mm or 10 mm to 40 mm containing higher grade of iron. Another by-product of such crushing and screening is known as Fines containing granule materials like alumina, silica, dusts, spoils and other impurities. According to Mr. Jain, learned Senior Advocate, these Fines require further processing by way of....
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....ee should pay highest rate of royalty prescribed for the lumpy iron ore containing 65% Fe and above for the entire quantity of ROM mineral supplied to "JSPL" for crushing and sizing. While such was the position, the mining lease granted in favour of Sunder Lal Sarda and Mohan Lal Sarda was transferred in the name of the petitioner Company vide proceeding No.8762/SM dated 9.7.2006. According to Mr. Jain, learned Senior Advocate, the petitioner continued with the practice of mining ROM from the leasehold area and selling the entire quantity of ROM to "JSPL". In the year 2008, the petitioner entered into a long-term agreement with "JSPL" for supply of ROM for a period of 10 years. It was agreed between the parties to supply the ROM at agreed rate of Rs. 400/- per Metric Ton initially with a stipulation that the rate and quantity of ROM, which was to be supplied would be reviewed from time to time, which would be mutually decided by both the parties to the agreement. Thus, the petitioner Company has been selling ROM excavated from the mines to "JSPL" on "as is where is basis" and paying highest rate of royalty prescribed for CLO containing 65 % Fe and above for the entire quantity of R....
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....t Page-13 reflects quantum of VAT paid, royalty paid and Entry Tax paid. According to the petitioner, the petitioner had filed Returns under Section-33 of "OVAT Act" for the above mentioned three years and paid applicable VAT and the Entry Tax thereon. However, for the period 2008-09, audit assessment under Section-42 of "OVAT Act" was completed accepting the books of account. Copy of that assessment order has been filed as Annexure-6 to the writ application. Similarly for the period 2009-10 and 2010-11, Returns were accepted under Section7 39 of "OVAT Act" as self-assessed. In Annexure-6, the authorities accepted the business module of the petitioner regarding sale of ROM as it is and held that the petitioner is engaged in mining activity, i.e., extracting, digging out iron ore lumps/ROM and that extraction of such iron ore does not come under purview of manufacturing as no new different article having distinct name, character comes out. Thus, the petitioner cannot avail Input Tax credit on the same. Thus, according to Mr. Jain, learned Senior Advocate vide Annnexure-6, the authorities accepted the business module of the petitioner Company regarding digging out of Iron Ore/ROM wit....
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....of Sales Tax, Enforcement Wing, Bhubaneswar, selling of ROM instead of selling CLO after processing it, was unusual as the cost of processing ROM so as to convert it to CLO was not very high. Further, according to him, the entire production of ROM was sold at an abysmally low price. Basing on these two assumptions, an artificial formula was invented by him by which he came to a conclusion that the quantum of under invoicing to be about Rs. 1961 Crores and accordingly the tax evasion report was prepared. Mr. Jain submitted that though a request was made for supply of a copy of the tax evasion report the same was not provided to the petitioner. On 16.8.2012, the petitioner submitted its written note of submission. Further, on 30.8.2012, another statement was recorded from Surendra Panda, who was the authorised representative of the petitioner Company. On 17.10.2012 and 22.11.2012, the petitioner submitted its further written notes of submission inter alia stating that in absence of fresh material in possession, the notice issued under Section 43(1) of "OVAT Act" alleging escaped reassessment/under assessment was without jurisdiction. The entire tax evasion report has been passed on ....
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....ingenious method, which was unearthed by the Enforcement Wing of the Commercial Tax Department for which assessment was reopened. However, they admitted that the price of ROM is not statutorily decided by the Indian Bureau of mines. While defending, the impugned notice under Annexure-7 and the impugned reassessment order and Demand under Annexure-11, the stand of the opposite parties is that the petitioner was selling ROM at an abnormal price to its preferred buyer though paying royalty pertaining to the highest grade of CLO which indicated that it was not selling ROM, but was selling CLO. Further, according to them, the prevarication of the dealer-petitioner was caught red-handed when it was found that aggregates of CLO and Fines at the hand of "JSPL" equalled to the quantum of ROM transferred by the petitioner to "JSPL". Therefore, the claim of the dealer/petitioner that it was selling impure ROM only after paying royalty of the highest grade of CLO was found to be arithmetically impossible. Further, it is the stand of the opposite parties that the agreement under Annexure-3 is a post dated agreement of an ante dated activity regarding sale of CLO at the value of ROM, while payin....
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....e for processing of ROM into CLO was around Rs. 203 per M.T. and the price of lump ore was around Rs. 2000/- to Rs. 4000/-. Thus, the Assessing Authority recorded the finding that there was huge under invoicing and resulting in escapement of turnover. In the counteraffidavit, their further stand is that as indicated earlier the agreement under Annexure-3 was/is in contravention of provisions of Mines & Minerals (Development & Regulation) Act, 1957, Sale of Goods Act, Odisha, Entry Tax Act and "OVAT Act". Further, the opposite parties have asserted that the owner of mining lessee does not acquire any title i.e. any saleable right on the minerals upon mere raising from the ground. The lessee does not acquire a saleable right in its raw from or in its processed form until removed from the mining area upon payment of royalty. So, the claim of the petitioner that it was selling ROM to "JSPL" is contrary to the conditions of the lease and various statutory provisions. Further, the opposite parties have asserted that by virtue of the agreement under Annexure-3, there has been an illegal shifting of point of sale from ex-leasehold area to ex-mine point. On this account, also the agreemen....
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....r Annexure-2, all along, the petitioner has paid royalty at the highest rate applicable to the highest grade of ore. Further, the petitioner reiterated that the entire demand under Annexure-11 is based on erroneous comparison of prices of altogether two different commodities, namely, price of ROM sold by the petitioner to "JSPL" with that of CLO. Further, it is the case of the petitioner that since the impugned orders are ex-facie perverse, arbitrary and wholly illegal and unsustainable being without jurisdiction, therefore, existence of alternative remedy is no bar to maintainability of the writ application. With regard to attack on the agreement, the stand of the petitioner is that much after permission was granted under Annexure-2 for supply of ROM, such agreement under Annexure-3 was entered into. Therefore, no mala fide can be read into the same. With regard to establishment of processing plants by the petitioner as alleged by the opposite parties in Paragraphs-9 and 33(d) of the counter-affidavit, the stand of the petitioner is that they have not established any such processing plant within the leasehold area. The said plant has been established by the "JSPL" in terms of perm....
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.... issued merely on account of change of opinion, such notice is totally without jurisdiction and liable to be set aside. Additionally, he submitted that the notice under Annexure-7 is legally vulnerable as it contained no reason. He submitted that though pursuant to notice under Annexure-7, the petitioner has participated in the proceeding however in its written submission dated 17.10.2012, the petitioner has made it clear that it reserved its right to challenge the notice. Secondly, he submitted that since there has been infraction of principles of natural justice as copy of the report under Annexure-9 was not supplied to the petitioner despite repeated requests, the impugned order under Annexure-11 is legally vulnerable and the same is liable to be set aside. He also submitted that the Annexures to the said report, which are copies of various documents which run up to 180 pages having not been supplied to the petitioner, there has been gross violation of principles of natural justice. Merely, permitting the authorised representative of the petitioner to take note of the gist of the report was wholly inadequate so as to enable the petitioner to comprehend the allegations made in th....
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....ons are available with the Assessing Authority on the basis of which he can form an opinion that whole/any part of the turnover of a dealer in respect of a particular tax period has escaped assessment or has been under assessed. In other words only if these conditions are satisfied then the assessing authority gets jurisdiction to reopen the assessment. According to him, here the tax evasion reports refers to quantum production, dispatch and sale value of ROM as disclosed by the petitioner in its Returns for the period April, 2008 to March, 2011. Therefore, apparently there was no fresh materials/fresh information in order to come to the conclusion regarding under invoicing/escaped assessment or under assessment. According to him, it is well settled that with regard to reopening of assessment, the information means (1) the information must be authentic and capable of giving rise to inference regarding escapement, (2) the information should be definite and there must be necessity of live link between the material and believe (3) there should be new information dehors the assessment record thereby giving rise to evasion of tax and (4) the materials should be relevant and should not b....
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....his context, he also submitted that the VAT authorities failed to appreciate that Fines contained huge quantity of waste and impurities and for making the same usable further washing and beneficiation is required. Further, he submitted that even a bare look at the tables given in Annexure-11 relating to details of quantity of ROM sold and quantum of CLO transferred by "JSPL" does not show that quantity of ROM is equal to quantity of CLO. Moreover all these figures have never been disputed by the mining authorities. Rather, the Mining Authorities have granted transit permits some of which have been filed under Annexure-12 accepting selling of ROM by the petitioner to "JSPL". Once mining authorities are not disputing the nature of minerals sold and price of minerals, Revenue authorities cannot go into those matter to come to a conclusion that since the quantity of CLO and Fines equals the quantity of ROM so it must be taken that the petitioner has sold CLO not ROM. According to him the Revenue Authorities are not the experts under the law to arrive at such a conclusion. Thus by coming to such a conclusion, the opposite party no.3 under Annexure-11 has also acted without jurisdiction.....
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.... point of reopening of assessment not being permissible on mere change of opinion, the petitioner relied on the following decisions: Binani Industries Ltd., Kerala -vrs- Assistant Commissioner of Commercial Taxes, VI Circle, Bangalore and others [(2007) 15 SCC 435], Commissioner of Income Tax, Delhi - vrs- Kelvinator of India Limited [(2010) 2 SCC 723], Indian and Eastern Newspaper Society, New Delhi -vrs- Commissioner of Income Tax, New Delhi [(1979) 4 SCC 248], Naba Bharat Ferro Alloys Ltd., and another -vrs- State of Orissa and others [(2010) 31 VST 319 (Orissa)]. In Binani Industries Ltd., (supra) the Hon'ble Supreme Court has made it clear that re-opening the assessment by mere change of opinion is entirely impermissible. Merely because the assessing authority changes his view or opinion, it cannot review its earlier decision. In Kelvinator of India Limited (supra), the Hon'ble Supreme Court has made it clear that change of opinion cannot be a reason to reopen the assessment as that would amount to review. In case of M/s. Indian and Eastern Newspaper Society, New Delhi (supra), it has been laid down that an error discovered by assessing authority on a reconsideration of same m....
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....te submitted that the authorities have gone wrong in initiating reassessment proceeding thinking that business module adopted by the petitioner of selling ROM at a particular price was unusual particularly when there is nothing to show that such a business practice was prohibited by law. Accordingly, he contended that opposite party No.3 exceeded his jurisdiction in issuing notice of reassessment under Annexure-7 and in passing the impugned order under Annexure-11/Annexure-D. 7. With regard to definition of ROM as unprocessed/uncrushed raw material as obtained after digging and blasting, the petitioner relied on the decisions of National Mineral Development Corporation Ltd., -vrs- State of M.P. and another [(2004) 6 SCC 281]. There it has been made clear that in Iron Ore production the run of mine (ROM) is in a very crude form and its existence has been recognised in Rule-64B of the Minining Concession Rules,1960. On the question of onus of proof lying on the Revenue Authority to prove that the assessee has received an undisclosed sum from sale, the petitioner relied on the following decisions in the cases of Girdhari Lal Nannelal -vrs- The Sales Tax Commissioner M.P. [(1976) 3 S....
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....ies have permitted the petitioner to beneficiate ROM by installing primary, secondary and tertiary iron crusher units, i.e., processing units, the claim of the petitioner that it has sold ROM cannot be accepted to be factually correct. He also attacked the agreement under Annexure-3 saying that the same is void because of violation of the terms of mining lease and provisions of Mines and Minerals (Development and Regulation) Act 1957 and Sale of Goods Act. He also submitted that in the present case, there has been no change of opinion. According to him, the allegations contained in tax evasion report under Annexure-9 were never considered or dealt by the Assessing Authority either in the assessment proceeding under Section - 42 of "OVAT Act" or while accepting Returns under Section 39 of "OVAT Act". Therefore, the initiation of proceeding under Section-43 of "OVAT Act" cannot be said to be on the basis of change of opinion. With regard to proceeding under Section-43 of "OVAT Act" being without jurisdiction, he submitted that the notice for assessment under Section- 43 of "OVAT Act" was issued on the basis of information in possession of the Assessing Authority after receipt of the ....
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....iples of natural justice have been violated. With regard to contention of the petitioner relating to absence of fresh material/new material to reopen an assessment proceeding, he submitted that the same is not a sine qua non for initiation of proceeding for reassessment of the proceeding under Section-43 of "OVAT Act". According to him, Section-43 of "OVAT Act" covers both the case of escaped assessment and under assessment and there is a distinction between the two. In case of under assessment, there is no scope for estimate because turn over would remain the same, while a low rate has been applied on the earlier occasion, the appropriate rate is only to be applied. But case of escaped assessment stands on a different basis. Though, he had filed two written notes of submission dated 25.8.2016 and 1.11.2016, however, in view of the order passed on 1.11.2016, we will only take into account the last written note of submission filed by the opposite parties on 1.11.2016. It may be noted here that while in Index portion of written submission dated 25.8.2016, the Revenue relied on 10 judgments; in written submission dated 1.11.2016 as per the Index portion, they have relied on only 6 jud....
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....old area to "JSPL" in accordance with the provision of T.P. Regulations and O.M.(P.T.S.) OUA Act, 1989 & 1990 Rules thereunder subject to certain conditions. This letter dated 27.3.2004 was filed by the petitioner on 1.3.2017, along with a memo with copy served on opposite parties after the matter was reserved for judgment on 27.2.2017 after further hearing. In tune with letter dated 27.3.2004, on 5.4.2004 vide Annexure-2 the Deputy Director, Mines, Joda, Keonjhar intimated the lessees about such approval of Director of Mines for supply of ROM (iron ore) on ex-mines basis within the leasehold area to "JSPL" with a number of conditions. One such condition was the lessees have to pay the highest rate of royalty prescribed for lumpy iron ores containing 65% Fe and above for the entire quantity of ROM supplied to "JSPL" for crushing and sizing. On 22.6.2006, Sunder Lal Sarda and Mohan Lal Sarda transferred the mines in favour of the petitioner after the State Government granted permission for such transfer. "JSPL" continued to purchase ROM from the petitioner. On 31.3.2008, the petitioner entered into an agreement with "JSPL" for sale of ROM under Annexure-3. Though, the learned Standi....
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....d in the same proceeding has been filed as Annexure-6 to the writ application. In Annexure-6 the authorities have accepted that the petitioner is engaged in digging and extraction of iron ore lumps and ROM and such process does not involve any manufacturing activity. With regard to years 2009-2010, 2010-2011, the self assessments made by the petitioner under Section-39 of "OVAT Act" were accepted by the authorities. For the years 2008-2009, 2009-2010 & 2010-2011, the petitioner had filed annual returns in Form-H1 before the authorities of Indian Bureau of Mines disclosing the quantity of ROM excavated and sold during the concerned periods. These documents have been filed as Annexure-4 Series. While such was the position on 29.8.2011 (Annexure-B), the Sales Tax Officer, Investigation Unit, Barbil issued notice to the petitioner for producing several documents for the tax period 1.4.2008 to 31.4.2011. Vide self-same notice, the petitioner was asked to produce documents/registers relating to purchase, production and dispatch of iron ore, sized iron ore and iron ore Fines so also the sale figures of iron ore, sized iron ore and iron ore Fines both in term of quantity and value grade-wi....
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....e utilized in the assessment was shown to Sri Panda, the authorised representative, who took extract thereform. Further, a statement was recorded from Sri Panda. The said statement finds place at Page-209 of the L.C.R. and the same is quoted hereunder: "In response to notice no.2913 dt.17/05/2012 and no.2914 dt.17/05/2012, I, being authorized by M/s Sarda Mines P. Ltd appeared today i.e. 02/07/12 before the Deputy Commissioner of Sales Tax, Barbil Circle, Barbil and filed Hazira. M/s. Sarda Mines Pvt. Ltd. is the lessee of Thakurani Iron Ore Mines, Block B spread over an area of 947.046 hectares. M/s. Sarda Mines Pvt. Ltd sells the entire production of ROM (Rum of Mines) to M/s. Jindal Steel & Power Ltd. It does not sell outside the State nor export iron ore fines. On my appearance, I sought to know the reasons of reopening of assessment for the period 01/04/2008 to 31/03/2011. The Assessing Authority (Deputy Commissioner of Sales Tax, Barbil Circle, Barbil) explained me the reasons of reopening of assessment based on information contained in a tax evasion report no.58 dt.29/02/2012 submitted by the Asst. Commissioner of Sales Tax, Enforcement Range, Bhubaneswar. The contents of ....
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.... been completed under Section 39 of the OVAT Act. To rebut the allegations of under invoicing, I may be allowed twenty days time. I shall submit a written note of submission. Considering my prayer, the assessing authority fixed the next date of hearing to dt. 20/07/2012 at 11 A.M. Recorded to my dictation, Read over, explained and Admitted to be true and correct. Sd/2.7.2012 Deputy Commissioner of Sales Tax, Barbil Circle, Barbil." Raghunath Panda 02/07/2012 (Authorised Representative) M/s. Sarda Mines (P) Ltd. 11. The above noted statement shows that the contents of the report under Annexure-9/Annexure-C were explained to the authorized representative of the petitioner in detail. The basis of allegation of under invoicing was also explained to him. The basis on the processing charge of Rs. 230/- has been arrived at was also explained to him. He was shown the sale prices of different grades of CLO and iron Fines of Orissa Mining Corporation Ltd. for the years, 2008-2009, 2009-2010, 2010- 2011 of Barbil Sector, which was utilized for arriving at the conclusion of under invoicing. Shri Panda was allowed to go through the calculation sheets prepared by the reporting a....
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....he provision of this appeal, we will address the said issue first. As per well settled principles of law relating to maintainability of writ application in the face of availability of alternative remedy as has been made clear in Whirlpool Corporation -vrs- Registrar of Trade Marks, Mumbai and others, (supra), The State of H.P. and others v. Gujurat Ambuja Cement Ltd. (supra) and The State of Uttar Pradesh -vrs- Mohammad Nooh, (supra), a writ application is maintainable when the impugned order(s) has/have been passed without jurisdiction or in violation of principles of natural justice. Therefore, we have to examine whether in the present case there has been any violation of principles of natural justice or whether the impugned orders have been passed without jurisdiction. First, we will examine the contentions relation to violation of principles of natural justice. The tax evasion report under Annexure-9/Annexure-C runs only to 5 pages. The authorised representative of the petitioner, Mr. Raghunath Panda went through the same on 2.7.2012 and the contents of the report were also explained to him in detail as per his own statement quoted earlier. The basis of allegation of under invo....
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....essed the quantum of sale/turnover or has received any undisclosed amount. It has simply proceeded on the basis of an assumption that business module of selling ROM at a low price instead of selling CLO is an unusual thing as ordinarily mine owner sells CLO after processing of ROM spending a miniscule amount in order to achieve real market value. In this context, law is well settled that the Taxing Authorities do not have the power to dictate as to what business module or method should be adopted by a businessman. It is upto him to manage his business affair according to his wisdom as has been rightly held by Allahabad High Court in Hemraj Udyog (supra) and Saurashtra Chemicals (supra). Secondly, the Assistant Commissioner, Sales Tax, Enforcement Wing, Bhubaneswar while preparing the tax evasion report has been swayed by assumed low price of sale of ROM without indicating anywhere in the tax evasion report as to how the said price is low. It also does not refer to prevalent market price of the relevant period. In this context, it is important to note here that the opposite parties in their counter affidavit at Paragraph-13 have admitted that the price of ROM is not decided by the I....
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....hubaneswar and another (1993) 90 STC (Orissa) 280). Though the petitioner has participated in the proceeding pursuant to Annexure-7, however while filing its voluminous written submission on 17.10.2012 it has made it clear that it is participating without prejudice to its right to challenge the notice. In such background, we have no hesitation in holding that the notice under Annexure-7 was itself issued without jurisdiction and is liable to be quashed. 15. Though quashing of Annexure-7 would result in automatic quashing of the entire proceeding pursuant to such notice, however for the sake of completeness, we will discuss how the end result under Annexure-11 is even otherwise illegal. We make it clear that we will scan the reassessment order under Annexure-11 keeping in mind the law laid down by the Hon'ble Supreme Court in the decision of Gobardhan Das Bhanji (supra). In passing the impugned reassessment order under Annexure-11 while accepting the reasoning given in the tax evasion report under Annexure-9/Annexure-C based upon so-called unusual business practice of sale of ROM at low price, the opposite party No.3 has travelled beyond the same by coming to a conclusion that the ....
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....ating to quantum of turnover/quantity of sell of ROM. The opposite party No.3 has also referred to the conduct, which is required of a prudent business man. As indicated earlier the Taxing Authorities lack jurisdiction to suggest business module. He also refers to abysmally low price paid by the petitioner while selling ROM without indicating how such a conclusion has been arrived at. The opposite party No.3 also refers to attempt by Assistant Commissioner, Sales Tax, Enforcement Range, Bhubaneswar under Annexure-9 to find "factual anomaly". However a perusal of Annexure-9 nowhere reflects the same. Even there exists no discussion on factual anomalies in the impugned order under Annexure-11. Neither in the Tax Evasion Report nor under Annexure-11 there exists any allegation anywhere about suppressing of figures of turnover of sales of ROM. Rather, relying on certain presumptive parameters and an artificial formula which takes in to account price of another commodity i.e. CLO, the reassessment proceeding has been initiated and concluded. Thus, such a reassessment proceeding is clearly based on change of opinion. Further, though opposite party No.3 treats the report under Annexure-9 ....
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....treated as CLO. Further, there exists no scientific data to show that 100% output of CLO and Fines from a given quality of ROM is not possible. In the case of M/s.Mideast Integrated Steel Ltd. and another (supra), this Court was concerned with the issue that once converted to CLO and fines, the quantum of royalty received by the State became less. Here, the said issue does not arise, as the petitioner is paying royalty at the highest rate. So there is no question of the State loosing on royalty. There the approved mining scheme clearly stipulated that no mineral benefication was permissible within the leased area, which was violated by the petitioner there. With regard to M/s. Bhushan Power and Steel Ltd. (supra) cited by the Revenue, the said case is clearly distinguishable on facts. There, the Vigilance report was utilised in audit assessment under CST (O) Rules, 1957 illegally. This Court held that audit assessment has to completed only on the basis of materials available in audit visit report and that audit assessment and assessment of escaped turnover cover separate and distinct field. With regard to M/s. Bharat Petroleum Corporation Ltd. (supra), there it has been made clear....