1999 (3) TMI 597 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Maintainability of the writ petition against the assessment order.
2. Adherence to principles of natural justice and procedural requirements in the assessment process.
3. Validity of the best judgment assessment under the Karnataka Sales Tax Act.
4. Specific grounds of assessment: over-valuation of closing stock, under-valuation of raw materials consumed, and valuation of work-in-progress.

Detailed Analysis:

1. Maintainability of the Writ Petition:
The court considered whether the writ petition against the assessment order is maintainable. It referenced several judgments to establish that a writ petition is maintainable when there is a violation of principles of natural justice or if the order is procedurally ultra vires. The court cited cases like *Instalment Supply Ltd. v. Sales Tax Officer* and *Coffee Board v. Joint Commercial Tax Officer* to support the view that an aggrieved party can invoke the jurisdiction under Article 226 of the Constitution if the order is passed in breach of natural justice principles. The court emphasized that the existence of an alternative remedy does not oust the jurisdiction of the High Court under Article 226, especially in cases involving fundamental rights or where natural justice is violated.

2. Adherence to Principles of Natural Justice and Procedural Requirements:
The court noted that the petitioner was not given specific instances of sales outside the books of account, nor was any detailed information provided regarding the inspection by the Intelligence Wing of the Commercial Taxes Department. The assessment order referenced a news report without notifying the petitioner, which was deemed against the principles of natural justice. The court emphasized that any material used against the assessee must be communicated to them, and reliance on inadmissible evidence like news reports is not permissible.

3. Validity of the Best Judgment Assessment:
The court scrutinized whether the best judgment assessment adhered to established legal principles. It referenced several cases to outline that such assessments must be fair, unbiased, and based on rational grounds. The court highlighted that the assessment should not be vindictive or capricious and must have a reasonable nexus to the available material. The court found that the best judgment assessment in this case was based on conjectures and misunderstandings of accounting principles, making it unsustainable.

4. Specific Grounds of Assessment:
Over-valuation of Closing Stock:
The court found that the assessing authority failed to consider the purchase price of raw materials for the year 1997-98. The value of closing stock is bound to increase if the cost of raw materials increases. The court noted that the petitioner maintained regular books of account, which were not found unreliable, and the increase in closing stock value was justified by the increased cost of raw materials.

Under-valuation of Raw Materials Consumed:
The court observed that the assessing authority made a mistake in averaging the prices of different raw materials. The actual values should have been considered instead of averages. The court found that the cost of raw materials was higher in 1997-98 compared to the previous year, contradicting the assessment's basis of under-valuation.

Valuation of Work-in-Progress:
The court noted that the addition of 20% to the taxable turnover based on work-in-progress was speculative and not supported by any examination of books or material evidence. The figures used by the assessing authority were from the previous year, and there was no justification for the addition.

Conclusion:
The court quashed the assessment order and the demand notice, directing the assessing authority to frame a fresh assessment after providing proper opportunity to the petitioner. The court emphasized that assessments should be based on established principles of law and not arbitrary decisions. The court also directed the Commissioner of Commercial Taxes to ensure that frivolous demands are not created, as it can adversely affect the business of a dealer.