(Common Prayer: These Writ Petitions are filed under Article 226 of the Constitution of India, seeking for a Writ of Certiorari, to call for the records on the files of the first respondent herein in TIN- 3341080802250/2007-08 and TIN:33410802250/2008-09, dated 10.10.2014, and quash the same insofar as it relates to the assessment of a sum of Rs.134,07,58,140/- and 136,93,17,498/- at 12.5% and imposition of consequential penalty under Section 27(3), or pass such further or other orders.)
Common Order
1. The petitioner is a registered dealer on the file of the first respondent under the provisions of the Tamil Nadu Value Added Tax Act, 2006, (TNVAT Act), and the Central Sales Tax Act, 1956, (CST Act), stated to be engaged in the business of FMCG products such as detergents, soaps, cosmetics, toothpaste, coffee, tea, etc., having their factory at Hosur and at Chennai. Besides their factory, the petitioner states that they have depots/branches located in Chennai, Dindugal and Coimbatore 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 State or stock transfer to their depots and branches outside the State.
2. In these Writ Petitions, the petitioner has challenged the order of assessment passed by the first respondent, dated 10.10.2014, under the TNVAT Act for the year 2007-08 and 2008-09.
3. Between 01.06.2009 and 15.07.2009, the place of business of the petitioner was audited by the second respondent, during which the transactions done during the period from 01.01.2007 to 31.03.2009, is said to have been verified. The petitioner 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 audit, the officials were given full access to the MFG-pro/SAP system of the petitioner. The audit officials recorded the statement of the Manager-Salas Tax of the petitioner on 31.07.2009 and on 05.08.2009, further details were sought for from the petitioner. The said letter was accompanied by an annexure and the petitioner would state that the details in the annexures were by and large incorrect and the alleged excess as per the account for the years 2006-07 as indicated in the annexure was also 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 about 2 months, the petitioner received pre-revision notice, dated 14.12.2010 from the first respondent in which there were various proposals and one of them related to a proposal to treat a sum of Rs.136,93,17,498/- as taxable turnover was proposed to be tax at 12.5%.
4. The petitioner's case is that since the notice was bereft of reasons, it was clear that the first respondent was acting on the dictat of the second respondent, thus abdicating his powers and jurisdiction. The petitioner 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 22.09.2014, the first respondent called for production of books of accounts from the petitioner though the books of accounts were thoroughly verified by the audit officials which fact was also accepted in the notice, dated 06.12.2013, the petitioner submitted their objections vide letter dated 30.09.2014 along with that, they furnished statements prepared from their books of accounts maintained in MFG-pro/SAP system. The statement is said to containing product wise details of opening, closing stock of 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 Rs.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 that providing printed statements of their monthly purchase entries would be voluminous and therefore, requested permission to provide them in CD format. Alternatively, the first respondent was requested to visit their office premises, so that he can have direct access to the MFG-pro/SAP System. This request was made by the petitioner as the previous incumbent, who has occupying the office of the first respondent, had visited the office premises of the petitioner during March/April 2012 and he had 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 Prakash learned counsel appearing for the petitioner submitted that the first respondent erroneously treated the sum of Rs.136,93,17,498/-, as taxable turnover in gross violation of the principles of natural justice as the first respondent did not deal with the various objections and documentary evidence filed by the petitioner thereby abdicating his quasi judicial powers. The impugned order insofar as it has treated as the said turnover as taxable turnover is clearly erroneous and contradictory 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 was issued, it is submitted that the first respondent accepted that he has received the proposal from the Enforcement officials for implementation of the same. Reference was made to Section 65 of the TNVAT Act deals with 'powers to order production of accounts and powers of entry, inspection etc.,' and in terms of sub-section (2), all accounts, registers, records and other documents maintained by a dealer in the course of his business, the goods in his possession, and his offices, shops, 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 his goods, accounts, registers etc., in such office.
6. The learned counsel also referred to Rule 6 of the TNVAT Rules and submitted that the dealer is entitled to maintain accounts in electronic form and Rule 20 empowers officers to conduct search of any office, shop, place of business cum residence, godown etc. It is submitted that in the light of the above statutory provisions, the first respondent ought to have accepted the petitioner's offer to submit the accounts in CD format as it is voluminous 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 the Chartered Accountant's certificate is sacrosanct in terms of Section 63A of the TNVAT Act and this provision shows the significance attached to the certificate issued by a qualified Chartered Accountant and such certificate accompanied with data and details could not have been brushed aside by the respondent in the manner done in the impugned order. It is submitted that when the respondent in the counter affidavit, has admitted the fact that he has seen the books of accounts, the manner 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 principles of natural justice without considering the explanation offered by the petitioner and the documents placed, reliance was placed on the decision of the Hon'ble Division Bench of this Court in Murali Trading Co., vs. Joint Commercial Tax Officer, reported in (1967) 19 STC 221(Mad). To emphasise his submission that the first respondent misdirected himself by not posing the correct questions, failing to take into consideration relevant factors and taking into consideration irrelevant facts, reliance 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 for further details relating to the defects observed during the course of audit and the second respondent was not convinced with the details furnished by the petitioner and therefore, forwarded the report of the VAT audit to the first respondent. It is submitted that the Assessing Officer cannot be expected to go and sit in the office of the dealer and therefore, the submission of the petitioner that the first respondent ought to have inspected their accounts in their office, is not feasible of 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 proceedings. The learned counsel referred to the certain paragraphs of the counter affidavit and in particular paragraphs 4(a)(b)and(c). With the above submission, the learned counsel stated that if the petitioner was aggrieved, he should have preferred an appeal as against the impugned order and the petitioner should not be permitted to bypass such remedy available under the Act.
8. I have elaborately heard the learned counsels appearing for the parties and carefully perused the materials placed 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 gross errors, which are apparent on the face of the record. If the above issues mentioned by the petitioner stand attracted, then obviously there would be no necessity to relegate the petitioner to avail the appellate remedy. It is true that in taxation matters, Court should be slow in interfering with the orders of assessment by issuing 'Writs' when the statute provides for hierarchy of remedies, but this Rule has always had an exception, when the assessee is able to establish that the order 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 the matter has to be remanded back to the authority for proper consideration.
11. For about 15 days, the officials of the enforcement wing, namely, the second respondent, were in the place of business of the petitioner collecting data, verifying records, materials, recording the statements etc. The process appears to have been completed during November-December 2010. On 14.12.2010, pre-revision notice was issued by the first respondent. Among other things, it contained a proposal to treat a sum of Rs.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 02.05.2011. Thus, the petitioner apparently was led to believe that the explanation given by the petitioner on 02.05.2011, was found acceptable. However, this belief was short-lived, as the petitioner received another notice dated 06.12.2013, purportedly being issued in super-session of the earlier notices. Subsequently, another notice was issued on 22.09.2014, wherein it was accepted by the first respondent that the petitioner had filed a statement certified by a Chartered Accountant, but proceeded to state 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 for the past 10 decades, the petitioner is a most respected business house in the state and a prompt tax payer.
12. The petitioner stated that they do not maintain separate profit and loss and account for its operation in the State of Tamil Nadu, however, as per the requirement of Income Tax Act and Companies Act, PandL and balance sheet are prepared on all India basis and in addition to the Chartered Accountant certificate already provided, they furnished a tabulation of gross profit worked out 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 establish that incorrect particulars were certified, the certificate cannot be out-rightly rejected. The impugned order refers to the petitioner's replies, dated 02.05.2011, 22.09.2014 and 30.09.2014, in the preamble i.e., reference column of the order.
14. On a perusal of the reasons recorded by the first respondent in page 6 of the impugned order, it is seen that the explanation or reply given by the petitioner, dated 30.09.2014, has not been considered. Though, it has been referred to in the 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 proposals already made is issued afresh. Therefore, for all practical purposes, the show cause, which would be relevant, is the notice dated 06.12.2013. Thus, the explanation given by the petitioner dated 30.09.2014, is a vital document and that could not have been brushed aside. The counter affidavit is full of inconsistencies that is to say inconsistency in what has been pleaded in various paragraphs in the counter affidavit and inconsistent with the findings recorded in the impugned order. The respondent 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, inadequacy or adequacy of information gathered by the enforcement wing, is of no consequence, when the Assessing Officer takes up the case for assessment to tax.
16. In my view the report of the Enforcement Officer could at best be treated, as a first information report gathered based on audit in the place of business of the dealer. If such is the report, it can be only a prima facie material to initiate action in accordance with the provisions of the Act. The first information report is not a conclusive 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 the enforcement wing and in several cases that appears to be so and this malady is on account of the fact that the enforcement officers are superior officers to the Assessing Officer.
17. Presumably, this had led the first respondent to use the expression that the enforcement proposal has been received by him for implementation while issuing show cause notice dated 14.12.2010. If enforcement proposals are received for implementation by the Assessing Officer, then the purpose of issuing a show cause 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 believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In 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 material and the circumstances of each case. Though subsection (2) of section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material.
18. If the impugned order is tested on the anvil of the role of the Assessing Officer as explained above, then the only conclusion that could be arrived at is, that the Assessing Officer has abdicated his statutory duties.
19. The 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 petitioner's justification is that the accounts are maintained in that particular format, which is a specially designed software and this helps them in monitoring the business through out the country. The Assessing Officer is a statutory authority who plays a very vital role in assessing dealers to tax. Therefore, the endeavour of the officer should be to ensure that not a rupee of revenue payable to the Government is missed out in collection, that is why financial experts have said that an assessment 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 maintained by the petitioner can be made available in the office of the first respondent with the infrastructure being set up at the cost of the petitioner. In fact, during the course of argument, the learned counsel for the petitioner was fair enough to state that they are ready and willing to provide print outs of the entire data, but it would be voluminous running to several lahks of pages and it would be a very difficult task for the first respondent to verify the details, apart from wastage of stationary. He has extended one more option that they are ready and willing to establish a required computer installation in the office of thefirst respondent and provide all the data in the system and Senior Executives wellversed with the data will be present in the office of the first respondent to assist the first respondent in clarifying any doubts that may be arise in the process of verification.
20. Undoubtedly 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 petitioner gathering details and information. Therefore, there is absolutely no reason for the first respondent to complete the assessment in the manner done in the impugned order. He is required to take into consideration relevant factors and should not proceed to decide the matter based on irrelevant considerations, which are not germane for determining the disputed issues. Above all failure to consider the petitioner's explanation dated 30.09.2014, amounts to serious violation of principles of natural justice. Thus, for all the above reasons, this Court has no hesitation to hold that the impugned assessment orders require interference.
21. In the result, the Writ Petitions are allowed and the impugned orders are set aside and the first respondent is 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. No costs. Consequently, connected Miscellaneous Petitions are closed.