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2016 (9) TMI 518 - MADRAS HIGH COURT

2016 (9) TMI 518 - MADRAS HIGH COURT - [2016] 95 VST 296 (Mad) - Validity of order of assessment - TNVAT Act, 2006 - FMCG products - stock transfers - maintenance of accounts - MFG-pro - SAP - audit by enforcement wing for 15 days - opportunity of personal hearing - Held that: - the impugned assessment is a very complicated issue and this is all the more established from the fact that the enforcement officials namely, the second respondent had spent 15 days in the place of business of the petiti .....

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ral justice - assessment order requires interference - first respondent directed to redo the assessment in accordance with law, after affording an opportunity of personal hearing and adopt any one of the modes for verification of the data/records in terms of the observations contained in this order - petition allowed - decided in favor of petitioner. - W.P.Nos.28818 & 28819 of 2014 - Dated:- 29-8-2016 - T. S. Sivagnanam, J. For the Petitioner : Mr. N. Sri Prakash For the Respondent : Mr. Manohar .....

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oimbatore from which they effect sales both inside the State of Tamil Nadu as well as inter-state from the State of Tamil Nadu. They are stated to undertake periodical stock-transfers of their goods to their depots/branches within and outside the State of Tamil Nadu for further sales. The petitioner is stated to be engaged in the purchase of products such as diapers, sanitary napkins, shampoos etc., from third party manufacturers to be sold through their depots either locally or outside the Stat .....

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is stated to maintain their accounts through MFG-pro initially and later by System, Application and Products package (SAP). It is stated that SAP package is a German Multinational Software Corporation that makes software to manage business operations and customer relations. The SAP, Enterprise Resource Programme, [ERD], enables the user company to avail the benefits of customer package, which helps the company from sourcing stage to sales. The petitioner would state that during the course of aud .....

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incorrect, as the assessment for the said year was completed on the basis of the books of accounts of the petitioner. By a further letter dated 25.08.2009, the petitioner was directed to provide explanation, it appears that a Senior Executive of the petitioner incharge of the sales tax matters had personally met the second respondent and explained the factual errors found in the annexure and also explained about the details of the transactions for the period from 01.01.2007 to 31.03.2009. After .....

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er submitted their objections vide their letter dated 02.05.2011 and requested for a personal hearing to make further submissions. After about two years, the petitioner received another notice dated 28.03.2013, in which a new issue in addition to the proposals contained in the notice dated 14.12.2010, was mentioned. Thereafter, another notice dated 06.12.2013 was issued. The petitioner furnished a Chartered Accountant certified trading account for the State of Tamil Nadu on 30.07.2014. On 22.09. .....

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raw materials, packing materials and finished goods and as per the statement, the closing stock as on 31.03.2008, in their depots located in various parts of Tamil Nadu was ₹ 1,03,48,39,123/-. The petitioner also expressed their readiness to produce additional details. Senior Executive of the petitioner appears to have met the first respondent on 31.01.2014, 05.02.2014 and 30.09.2014 and requested to drop all further proceedings. The petitioner sought to impress upon the first respondent .....

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ad thoroughly examined the books of accounts maintained in the MFG-pro/SAP System. The petitioner would further state that the objections filed by them on 02.05.2011, and 30.09.2014 and the documentary evidence filed along with the same including the Chartered Accountant's certified trading account has exhaustively covered all transactions of the petitioner. While so, the petitioner was served with the order of assessment, dated 10.10.2014, which is impugned these Writ Petitions. 5. Mr.N.Sri .....

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ictory to the other parts of the same impugned order which have accepted the correctness of the monthly returns and the books of accounts of the petitioner. Therefore, the impugned order suffers from total non-application of mind. That the first respondent has totally ignored the objections given by the petitioner dated 30.09.2000, and therefore, there is a gross violation of principles of natural justice. Referring to the notice, dated 14.12.2010, and commenting upon the manner in which, notice .....

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, godowns, vessels or vehicles shall be open to inspection, at all reasonable times, by such officer. Sub-section (3) empowers the officer to seize the accounts, registers, records, etc., if he has reason to suspect that any dealer is attempting to evade payment of any tax, fee, or other amount due from him under the Act. Sub-section (4) empowers the officer to enter upon the office, shop etc., belonging to any other dealer, if he has reason to believe that a dealer keeps or is keeping any of hi .....

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luminous or in the alternative could have accepted their offer to inspect the accounts in their office, which was done by the first respondent's predecessors earlier. Further, in the counter affidavit, the first respondent has accepted the fact that they have seen the SAP data, but would state that the data was inadequate and this averment contained in paragraph 4(b) of the counter affidavit is contradictory to the stand taken in para 7 of the counter affidavit. Further, it is submitted that .....

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in which the first respondent has completed the assessment will clearly show that he is acting as per the dictat of the second respondent, rather seeking to implement the proposal of the enforcement. To emphasise upon the role of the Assessing Officer, the learned counsel referred to the observations of the Hon'ble Supreme court in the State of Kerala vs. C.Velukutty reported in [1966] 17 STC 465 (SC). To support the contention that the impugned order has been passed in violation of princip .....

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eliance was placed on the observations of the Hon'ble Supreme Court in paragraph 34 of the judgment in Cholan Roadways Ltd., vs. G.Thirugnanasambandam reported in (2005) 3 SCC 241. 7. Mr.Manohar Sundaram, learned Additional Government Pleader after elaborately reiterating about the inspection conducted by the enforcement wing of the department in the place of business of the petitioner referred to the show cause notices issued and submitted that the second respondent (enforcement) had called .....

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acceptance. Regarding the offer to produce the accounts in the format maintained by the petitioner in CD form cannot be accepted, since the accounts are to be maintained in terms of Rule 6 of the Rules and Rule 6(2)(b) stipulates what are the particulars, that should be made available in the accounts and this Rule should be read along with Section 64, which mandates the form in which accounts, have to be maintained. Further, it is submitted that Section 65, is not applicable to the present proc .....

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on record. 9. The sheet anchor of the submissions of the learned counsel appearing for the petitioner is on the ground that the impugned order of assessment has been passed in violation of principles of natural justice, it is an outcome of non-application of mind, it is not a fair exercise of power, based on irrelevant consideration, amounts to a clear abdication of the statutory duties, as the first respondent has acted as per the dictat of the second respondent (enforcement) and suffers from g .....

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rder is in violation of principles of natural justice, suffers from errors apparent on the face of the record or out come of irrelevant consideration and when perversity is writ larged on the face of the order. 10. To consider these aspects, it would be not necessary to examine the merits of the assessment and if the Court is convinced that the impugned order is in violation of principles of natural justice or suffers from errors apparent on the face of the record, then it would be a case, where .....

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of ₹ 136,93,17,498/- as taxable turnover with the proposal to tax the sum at 12.5%. Objections were given by the petitioner on 02.05.2011, and there appears to have been no action taken thereafter for nearly two years, after which the petitioner received another notice dated 28.03.2013. This notice was restricted only with respect of the sales turnover of a particular product and there were no reference to the earlier notice dated 14.12.2010, nor the petitioner's reply dated 02.05.201 .....

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tate that the petitioner has not produced the relevant books of accounts to substantiate that the turnover was correctly reported. However, before rejecting the petitioner's contention, opportunity was given to the petitioner to produce the books of accounts to substantiate the correct turnover. The petitioner submitted their reply dated 30.09.2014 which appears to be a very elaborate reply, explaining the factual details and reiterating that there has been no suppression of turnovers and fo .....

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based on standard norms. It is seen that the Chartered Accountant's certificate is not a stand alone document, but contains annexures. 13. As rightly pointed out by the learned counsel for the petitioner, much importance has been given to Chartered Accountant's certificate under the TNVAT Act, as separate provision was inserted by Amendment Act 18 of 2012 with effect from 30.08.2012. Therefore, there is a sanctity attached to the such certificate and unless the department is able to est .....

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preamble portion of the order, this is sufficient to hold that there is violation of principles of natural justice. 15. This reply is very crucial because after the explanation dated 02.05.2011, a show cause notice dated 06.12.2013, was issued purportedly, superseding the earlier notices, dated 14.12.2010 and 28.03.2013. However, it is not clear whether it is in supersession as the notice dated 06.12.2016 states that for the sake of clarity and convenience fresh notice comprising of the proposa .....

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ndent in their counter affidavit has stated that the petitioner has produced the Chartered Accountant's certificate alone and that could not obviate, the need for production of accounts, in the preceding paragraph i.e., para 4(b), there is a statement made that the details furnished through SAP data, were inadequate. However, the first respondent appears to have lost sight of the fact that he is the Assessing Officer who is enjoined with the statutory duty to complete the assessment, inadequ .....

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ve proof of a wrong having been committed. Thus, when the Assessing Officer issues a show cause notice based on the information furnished to him by the enforcement, and the dealer responds to the allegations and proposals in the notice, the Assessing Officer has to objectively analyse the explanation given by the dealer and the materials produced by him to dislodge the information passed on to the officer by the enforcement wing. The Assessing Officer cannot be bowed down by the observations of .....

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use notice itself is lost and the powers of the Assessing Officer would stand reduced to that of the Executing Officer, when the statute prescribes a different duty to be done by him. While on this issue, it would be beneficial to refer to the role of the Assessing Officer as observed by the Hon'ble Supreme Court in the case of C.Velukutty (supra), that he must not act dishonestly or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly .....

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that sense, too, the assessment must be to some extent arbitrary. Explaining what is best of his judgment , the Hon'ble Supreme Court pointed out that:- Judgment is a faculty to decide matters with wisdom truly and legally judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a best judgment assessment . It shall not be a wild one, but shall have a reasonable nexus to the available mate .....

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averments in the counter affidavit shows that the SAP data was examined by the enforcement and this Court is at a loss to understand as to why the Assessing Officer should not exercise his powers in examining the accounts maintained by the petitioner in a particular format. It is true that the Rules stipulate the manner in which the accounts have to be maintained. However, it is not the case of the first respondent that the data available with the petitioner does not confirm to the Rules. The p .....

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ssessment proceedings is an outcome of dialogue and deliberations. In certain cases to understand the nature of activity, done by a dealer/assessee, the Assessing Officer must equip himself to the nuances of the particular trade, so as to ensure that the disclosure made by the Assessee in their return is full and true. Therefore, I see no reason as to why the first respondent should fight shy of visiting the place of business of the petitioner or in the alternative, the entire data in the format .....

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