VAT - BEST JUDGEMENT ASSESSMENT BASED ON ASSUMPTIONS IS LIABLE TO BE SET ASIDE

[Mr. M. GOVINDARAJAN]

Section 25 of Uttharakhand Value Added Tax Act, 2005 (‘Act’ for short) provides for assessment by the authorities for registered dealers.   Section 25(6) provides that notwithstanding anything contained in this section, to assess a dealer who has not been deemed assessed under sub-section (3) or who has been selected for assessment under sub-section (4), the assessing authority shall serve on such dealer, a notice requiring him to appear on a date and at a place specified therein, to attend and submit periodical returns and annual return of his turnover, if not filed earlier, along with the proof of payment of late fee, if any, and to produce or cause to be produced the books of accounts and all evidences on which the dealer relies in support of his returns including sale and purchase invoices, or to produce such evidences as may be specified in the notice.  Opportunity given under this sub-section for submission of periodical returns and annual return shall not prevent the assessing authority from imposing penalties, interest or late fee, if any, under any other provisions of the Act, for not filing such returns within prescribed time.

Section 25(7) provides that if the dealer complies with the notice issued under sub-section (6) and the assessing authority after examining periodical returns the annual returns, books of account and documents and after considering all the evidences produced in the course of proceedings or the evidences collected or received by the assessing authority and after making such enquiry, as he may deem fit,-

• is satisfied that turnover of sales and purchases disclosed and amount of tax shown as payable by the dealer in the annual return is correct, assess the dealer to tax in accordance with the provisions of the Act, by an order in writing;
• if the assessing authority is of the opinion that the turnover or the liability of the tax disclosed by the dealer and the amount of tax paid by the dealer does not appear to be correct shall give him reasonable opportunity of being heard by giving him a show cause notice stating the reason, for non acceptance of the turnover of sales or purchase or liability of tax as disclosed by the dealer, and after considering the reply submitted by the

Dealer-

• if he is satisfied that the turnover disclosed by the dealer in the annual return is correct, shall assess the dealer to tax by an order in writing according to the provisions of the Act,
• (ii) if he is not satisfied with the reply submitted by the dealer, shall determine the turnover to the best of his judgment and the tax payable thereon according to the provisions of the Act, by an order in writing;

Where the opportunity under sub-section (6) for submission of periodical returns and annual return along with the proof of deposit of late fee and production of books, accounts and documents and evidences on which the dealer relies in support of his returns including sale invoices, or for production of such evidences as may be specified in the notice has been afforded to the dealer but for any reason he has not availed such opportunity and thereby the assessing authority could not examine the correctness and propriety of particulars shown in such returns, it shall not be necessary to issue show cause notice to such dealer before making an assessment order to the best of his judgment;

The Act provides for best judgment assessment by the assessing authority.   But this assessment should be rationale.   It may not be on the basis of interpolation/assumption.  The assessment should be based on documents available.  The same has been discussed in detailed by the Uttarakhand High Court in the following case law:

In ‘Dragon Inn V. Commissioner of Commercial Tax’ – 2014 (3) TMI 241 - UTTARAKHAND HIGH COURT the department made a survey in the eatery of the assessee on 14.04.2004.  The Department observed that from morning to evening up to 6.50 p.m., the value of sales was around Rs.3000.   On that basis of the survey report, the Assessing Officer assumed that from 06.51 p.m. until about 8.30/9.00 p.m., the sale will be about Rs.15,000.  On the basis of the said assumed figure the Authority assessed the turnover for the financial year as Rs.59 lakhs.  The Adjudicating Authority confirmed the demand.  The assessee went in for appeal before the Commissioner (Appeals) fixed the turnover for the financial year 2004 – 05 at Rs. 12.40 lakhs on the assumption that the daily sales of the assessee was Rs.3,5000/-   The Tribunal also on appeal fixed the turnover for the financial year 2004 – 05 at Rs.27.75 lakhs on the assumption that the daily sales of the assessee was Rs.10,000/-.

In the mean time the assessment for the financial years 2005 – 06 and 2006 – 07 was completed.  During these financial years the assessee showed Rs.2.63 lakhs and Rs.5.15 lakhs as the turnover for the respective financial years.   The same was accepted by the Assessing Officer.   Before the matter was concluded by the Tribunal assessment for the financial year 2007-08 was also completed.  The Assessing Authority was satisfied that the turnover for this financial year was less than the taxable financial limit.

Against the order of the Tribunal the assessee filed revision petition before the High Court. The High Court held that there is no basis for assumption of the Assessing Officer to arrive at the turnover.  There was nothing else available for the assessing authority or the appellate authority or the Tribunal to reasonably assess the turnover for the said financial year.   The fact remains that the turnovers for the subsequent years were accepted at substantially low figure.

The High Court considering the above held the conclusion would be that neither the assessment by the original authority, nor the assessments by the appellate authority or by the Tribunal are sustainable. The High Court set aside the impugned order of the Tribunal. The High Court remanded the matter back to the assessing authority to make a fresh and fair assessment on the basis of materials available on record by giving reasonable opportunity to the assessee.