Jharkhand High Court
M/S. Padam Kumar Jain vs The State Of Jharkhand on 20 April, 2023
Author: Rongon Mukhopadhyay
Bench: Rongon Mukhopadhyay, Deepak Roshan
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IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P.(T) No. 3279 of 2022
M/s. Padam Kumar Jain, (A proprietorship concern), having its office at
Chaibasa, West Singhbhum, through its Proprietor, namely, Padam
Kumar Jain ..... Petitioner
Versus
1. The State of Jharkhand, through the Commissioner, Commercial Taxes
Department, having its office at Ranchi.
2. Deputy Commissioner of Commercial Taxes, Chaibasa Circle, District
West Singhbhum (Jharkhand).
3. Assistant Commissioner of Commercial Taxes (Incharge), Chaibasa
Circle, Chaibasa, West Singhbhum (Jharkhand) ...... Respondents
With
W.P.(T) No. 3282 of 2022
M/s. Padam Kumar Jain, (A proprietorship concern),having its office at
Chaibasa, West Singhbhum, through its Proprietor, namely, Padam
Kumar Jain ...... Petitioner
Versus
1. The State of Jharkhand, through the Commissioner, Commercial Taxes
Department, having its office at Ranchi.
2. Deputy Commissioner of Commercial Taxes, Chaibasa Circle, District
West Singhbhum (Jharkhand)
3. Assistant Commissioner of Commercial Taxes (Incharge), Chaibasa
Circle, Chaibasa, West Singhbhum (Jharkhand) ...... Respondents
With
W.P.(T) No. 3285 of 2022
M/s. Padam Kumar Jain, (A proprietorship concern),
having its office at Chaibasa, West Singhbhum, through
its Proprietor, namely, Padam Kumar Jain ...... Petitioner
Versus
1. The State of Jharkhand, through the Commissioner, Commercial
Taxes Department, having its office at Ranchi
2. Deputy Commissioner of Commercial Taxes, Chaibasa Circle,
District West Singhbhum (Jharkhand)
3. Assistant Commissioner of Commercial Taxes (Incharge), Chaibasa
Circle, Chaibasa, West Singhbhum (Jharkhand)...... Respondents
CORAM : HON'BLE MR.JUSTICE RONGON MUKHOPADHYAY
HON'BLE MR. JUSTICE DEEPAK ROSHAN
For the Petitioner : Mr. Sumeet Gadodia, Advocate
Mr. Ranjeet Kushwaha, Advocate
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Ms. Akansha Mittal, Advocate
Ms. Prakash Narayan, Advocate
For the Respondents : Mr. Rajiv Ranjan, A.G.
Mr. P.A.S. Pati, G.A.-II
14/ 20.04.2023 W.P.(T) Nos. 3279, 3282 and 3285 of 2022
These three writ petitions concerning the same petitioner arise out of
the common order dated 25th January, 2020 & 20th, January 2022 passed by
the learned Commercial Taxes Tribunal, Jharkhand, Ranchi in Revision Case
No. JR 70 (A) of 2017, JR 70 (B) of 2017 and JR 70 (C) of 2017, as well as
Review Case No. JR05-07 of 2022, respectively; whereby the revision
petitions and review petitions of the petitioner have been rejected and the
determination of sale price of Iron Ore sold by the petitioner on the basis of
average I.B.M. rate in exercise of the powers under Section 35 (7) read with
Section 40 (1) of the JVAT Act has been upheld.
Since the issue is common in all these writ applications, as such the
relevant facts of W.P.(T) No. 3282 of 2022 are referred which will suffice to
dispose of the issue involved in these cases.
2. The brief facts of the case as pleaded by the petitioner are that the
petitioner is having merchant mines of iron ore, located at Thakurpari,
Noamundi Block and Manoharpur Block. Iron ore extracted from mines is
known as "Run of Mines (ROM)" which requires further processing and
screening. Petitioner's premise does not have processing and screening facility
and thus, only ROM was being sold by the petitioner. ROM includes Fines &
Lumps and the grade of minerals found in petitioner's premises was between
52-65% Fe content, which would be evident from survey report as contained
in Annexure-1.
Before assessment proceeding of the petitioner was completed wherein,
in alleged exercise of power u/s 35(7) r/w Section 40(2) of the JVAT Act, tax
and interest imposed upon the petitioner on the alleged ground that petitioner
has concealed its Gross Turn Over (for short GTO). The assessing officer
despite taking actual figure of sale price, has taken the value of goods sold on
the basis of average IBM rate prevalent for the said month as well as average
sale price of three nearby mines-M/s. Orissa Manganese & Minerals Ltd., M/s.
Rungta Mines Ltd., & M/s. Misri Lal Jain and Sons Co. Ltd. The assessing
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officer while determining alleged concealed sale price, has even taken into
consideration Rs.22,76,45,615/- sold against Form-H as alleged concealed
turnover on 16.02.2013, assessment order was passed by Respondent No.3,
wherein turnover determined and/or before assessment proceeding was
excluded from total turnover. Thereafter a writ application was filed
challenging the assessment order; however, in writ petition, petitioner was
directed to file appeal.
3. Being aggrieved, petitioner filed an appeal before the JCCT (Appeal),
Jamshedpur being Appeal Case No. CB-VAT-A-14/2013-14. The learned
appellate court set aside the assessment order and remanded the matter back to
the assessing officer, wherein it was specifically recorded that:-
• GTO of the petitioner cannot be enhanced by comparing sale
price of neighboring mines.
• Assessing officer has not found that petitioner has sold its
goods lesser than the price shown in sale invoices of the
petitioner.
Thereafter, revised assessment order was passed by the assessing officer
by stating inter-alia that petitioner has not sold goods at a price higher than the
price reflected in its sale invoice; rather the dispute pertains to "under-pricing"
by the petitioner which has come to the knowledge of the assessing officer after
enquiring from businessmen. However, at the time of passing of revised order,
the assessing officer has compared the sale price of the petitioner with IBM
Rate only and has proceeded to levy penalty two times of alleged concealment
of tax u/s 40(1) of the JVAT Act, 2005.
4. Being aggrieved, petitioner again filed appeal before the JCCT
(Appeal) being Appeal Case No. CB-VAT-A-09/2015-16. However, contrary
to its earlier finding, the learned appellate court rejected the appeal of the
petitioner. Thereafter, the petitioner filed a revision petition being JR 70 (A)
of 2017 before the Commercial Taxes Tribunal, Jharkhand at Ranchi which
was dismissed on 25th January, 2020 and thereafter, petitioner filed Review
Case No. JR 05 of 2020 before the learned Tribunal.
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The learned Tribunal rejected the revision application of the petitioner.
Thereafter, review petition of petitioner has also been rejected by learned
Tribunal.
5. Learned counsel for the petitioner has taken us through the relevant
provisions of JVAT Act, 2005, Section 2 (xlvii) Sale and 2 (xlviii) sale price
definition, in particular Section 35(7) and Section 40 relating to turn over
escaping assessment. Learned counsel for the petitioner has, inter alia,
questioned the impugned findings on two-fold legal issues:
• Whether sale price of the petitioner company can be
determined on the basis of average sale price of I.B.M. as the
average sale price of I.B.M. is only for the purpose of
determining royalty payable on minerals and the same cannot
be the basis of determination of sale price?
• Whether imposition of penalty under Section 40 (1) of the
JVAT Act, 2005 is sustainable in the eye of law, especially
when the original proceedings were initiated under Section 40
(2) of the JVAT Act, 2005?
In support of the legal issues, the following submissions have been made:
(a) Average sale price determined by the IBM is the sole basis on which
GTO of the petitioner has been enhanced and consequently tax and penalty
have been imposed upon the petitioner, despite the fact that price notified by
the IBM was only for the purpose of determining royalty payable on the
minerals and the same cannot be taken as basis for determining the sale price
for levy of VAT/Sales Tax which would be itself evident from the Notification
dated 10.12.2009 issued by the Government of India, Ministry of Mines
(Annexure-9).
(b) Assessing officer himself, in the revised order has categorically
recorded its finding that petitioner has not sold goods at a price higher than the
price shown in its invoice and thus, no tax could have been levied to the
petitioner under section 35(7) of the JVAT Act, 2005.
From bare perusal of Section 35(7) of the JVAT Act it would reveal that
assessing authority is entitled to determine the market value of the goods sold
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by the petitioner only and only if the assessing officer comes to a definite
finding that the goods have been sold at the rate higher than the rate shown by
the petitioner and admittedly in the instant case the assessing officer has
himself admitted that petitioner has not sold its goods at higher price than the
price shown by the petitioner in its invoices.
Thus, section 35(7) of the JVAT Act which permits the assessing officer
to determine the market value of goods is not applicable to the facts of the
present case.
(c) The State Tax authorities as well as the learned Tribunal has failed to
take into consideration the definition of "Sale" and "Sale Price" occurring in
Section 2 (xlvii) & 2(xlviii) respectively of the JVAT Act which in substance
provides that the VAT would be levied on the sale of goods and on the
consideration received for such sale of goods and not on the basis of market
value of the goods in question. Thus, they have failed to consider the aforesaid
provisions of the JVAT Act at the time of deciding the issue ofdetermination
of goods sold by the petitioner.
(d) Further finding with respect to "under-pricing" of the goods sold by the
petitioner recorded by the assessing officer is totally misconceived and not
tenable in the eye of law. It is really un-understandable that why purchaser of
petitioner would purchase minerals at a lesser price just in order to evade
payment of tax especially when the said purchaser is entitled to avail ITC under
the JVAT Act, 2005.
(e) Further, assessing officer in its revised order has stated that "under-
pricing" of the petitioner has been derived from the enquiry made from other
businessmen, but no details of such enquiry has been mentioned in the revised
order. The lower court records itself demonstrates that no such enquiry
whatsoever was conducted by the assessing officer to conclude under-pricing
done by the petitioner.
(f) The quantity of goods sold has not been disputed either by the assessing
officer or the learned appellate court or by the Tribunal. Further, nowhere the
returns of the petitioner have been disputed by the Tax authorities or by the
learned Tribunal. In fact, the remand order passed by the learned appellate
court was limited remand order and the revised order should have only
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confined to the facts that whether petitioner has sold its goods at a higher
price than shown in invoice. But the assessing officer has exceeded its
jurisdiction and has held that the instant case relates to under-pricing of goods
sold by the petitioner.
(g) Apart from the aforesaid contentions; learned counsel further contended
that prior to amendment carried out in Section 40(2) vide notification bearing
no. LG18/2013-08/LJ dated 02.07.2014, only interest was leviable on the
alleged concealed turnover. In fact, at the time of original assessment order,
the learned assessing officer has imposed interest upon the petitioner under
Section 40(2) of the JVAT Act but, just in order to artificially enhance
the alleged amount due against the petitioner, penalty under Section 40(1) has
been imposed upon the petitioner while passing the revised order which is
wholly illegal, untenable in the eye of law.
Further, initiation of proceeding under Section 40(1) of the JVAT Act
is in thenature of re-assessment proceeding and could not have been initiated
by converting original proceeding initiated under Section 40(2) which is a
before assessment proceeding to a proceeding under Section 40(1) being a re-
assessment proceeding.
6. In order to buttress his contention, learned counsel for the petitioner
relied upon the judgment of Hon'ble Apex Court rendered in Morriroku U.T.
Indians Pvt. Ltd. Vs. State of U.P. reported in (2008) 15 VST 559 (SC)
wherein it has been held that "Sales Tax is a tax on the price received or
receivable by the dealer in respect of sale and the dealer is entitled to frame the
price structure which is best suited for the type of business with a view to stand
the competition".
Petitioner also relied upon the following judgments: -
• State of Rajasthan Vs. Rajasthan Chemists Assn. reported in (2006) 6
SCC 773 wherein the Hon'ble Supreme Court has reiterated the principle of
levy of "tax on sale of goods" and held that State Legislature does not have
legislative competence to give the expression "sale of goods" extended
meaning and to enlarge its legislative fields to cover those transaction for
taxing which do not properly confirm the element of sale of goods within the
Sales Tax.
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• M/s. Girdharilal Nanhelal Vs. The Sales Tax Commissioner, M.P.
reported in (1976) 3 SCC 701 wherein it has been held that in order to impose
liability, onus of proving the ingredients of sale squarely lies upon the
department.
• M/s. Devkavai Velji Vs. State of Jharkhand & Ors. reported in 2013(2)
JLJR456, the Hon'ble Jharkhand High Court has observed that tax cannot be
levied on differential rate, merely because the petitioner has sold goods at a
rate lower than themarket rate.
Apart from the above, petitioner is placing reliance upon the judgment
of Hon'ble Apex Court passed in the of Commissioner of Income Tax Vs.
Calcutta Discount Co. Ltd. reported in (1974) 3 SCC 260 (Para-11) wherein
it has been held that a dealer cannot be assessed on the basis of market price
of goods sold by the said dealer.
7. Learned AAG-II has argued on behalf of the State. A counter affidavit
has been filed in the matter contending that ROM consists of less ferrous
content of iron, while Iron Ore consists of higher quantity of Ferrous content.
This is the reason that there is nomention of ROM in the rate of IBM. Based
on the records showing the sale of iron ore filed by the petitioner, it is argued
that the petitioner had been producing/raising iron ore as lumps which are
more valuable than ROM and fines. It is also pointed out from these invoices
that the rate of iron ore lump (ROM) and fines, ferrous wise mentioned in Tax
invoices is lower rate than the ferrous wise, grade wise mentioned rate of IBM.
The basis for initiation of the proceedings by the assessing officer was
this satisfaction that the petitioner has sold the iron ore at a higher price than
shown by him in these invoices. Thus, the ingredients of Section 35 (7) of the
JVAT Act were satisfied for proceeding against him in terms of Section 40 (1)
of the JVAT Act.
Pursuant thereto; notices were issued under Section 40 (1) and 40 (2)
upon the petitioner for the relevant assessment years by order dated
15.02.2012, 25.02.2012, 13.06.2012, 27.06.2012, 28.12.2012 and 31.01.2013.
Since the Assessing officer found a case of underpricing, the orders dated 31 st
January, 2013 was passed imposing tax and penalty upon the petitioner. The
same were taken in appeal before the Joint Commissioner (Appeals), who set
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aside the order and remanded the matter to the assessing officer to take a fresh
decision in accordance with law. Thereafter, the revised assessment order was
passed by the assessing officer, inter-alia holding that the petitioner has
indulged in underpricingof the goods sold at a higher price after enquiries from
the businessmen. Since the IBM rates of royalty are determined on average of
10 such mines operating in the area, revised every month for the purposes of
payment of royalty, the said yardstick was adopted by the assessing officer to
arrive at a best judgment /assessment since the books of accounts of the
petitioner were disbelieved. The appellate authority considered the matter once
again but rejected the appeals vide orders dated 31.03.2017 in all the cases.
It is further argued by the State counsel that sale of lumps and fines have
been made. The dealer was guilty of misrepresenting before the appellate
authority that he did not have any screening or processing unit. It is submitted
that for the relevant years though the petitioner did not have a screening or
processing unit but the petitioner did have such units for the previous years.
The learned tribunal has also addressed the issue relating to price
variation of iron ore of same grade giving different uses by holding that the
I.B.M rate are determined on the basis of average sale price and I.B.M. is a
standard government organization. Rates published are reliable and also
proper. According to the learned tribunal also there cannot be any evidence
of underpricing to the effect that the goods are sold at a price higher than
what is reflected in the sale invoices, as such, such sale transactions are
generally colourable transaction between the buyer and the seller. The
documents available showed that the goods were sold at a higher price and
there was no requirement to take recourse to the provision of 35 (7), rather the
assessment order could have been passed in terms of Section 35 (5) and 35 (6)
of the JVAT Act. Only when such evidence is not there and on the basis of
enquiry conducted by the assessing officer, he was satisfied that the goods have
been underpriced, then a case under Section 35 (7) is made out.
8. Learned counsel for the State has placed reliance on the decisions of the
Hon'ble Apex Court in the case of M/s VEENA THEATRE, PATNA versus
THE STATE OF BIHAR reported in 1970 (3) SCC 79, Para 9 and THE
COMMISSIONER OF SALES TAX, MADHYA PRADESH versus M/S
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H.M.ESUFALI, H.M. ABDULALI, SIYAGANJ, MAIN ROAD, INDORE
reported in (1973) 2 SCC 137, Para 8 and 11 in support of his submission that
in a case where the invoices and books of accounts of the petitioner were not
believable the assessing officer had no other option than to make a best
judgment/assessment by making an estimate of the sale price relying upon the
I.B.M. rates.
He lastly submits that the revised assessment order does not suffer from
any illegality or error. The impugned orders passed by the learned tribunal
upholding the same, therefore, needs no interference.
Learned counsel for the petitioner in reply has sought to distinguish
these decisions on facts and they relate to case of best judgment assessment
when the Books of Account were either rejected or were not produced.
9. Having gone through the rival contentions of learned counsel for the
parties and after going through the impugned order and other relevant
documents placed before us it appears that revised assessment proceeding of
the petitioner was completed and an order has been passed whereby, in exercise
of power u/s 35(7) r/w section 40(2) of the JVAT Act, tax and interest has been
imposed upon the petitioner on the ground that petitioner has concealed its
GTO.
The assessing officer at the first instance despite taking actual figure of
sale price, had taken the value of goods sold on the basis of average IBM rate
prevalent for the said month as well as average sale price of three mines-M/s.
Orissa Manganese & Minerals Ltd., M/s. Rungta Mines Ltd., & M/s. Misri Lal
Jain and Sons Co. Ltd.
Aggrieved by the assessment order, the petitioner assailed the same in
appeal before the JCCT (Appeal), Jamshedpur being Appeal Case No. CB-
VAT-A- 14/2013-14. The learned appellate court set aside the assessment
order and remanded the matter back to the assessing officer by recording that
the GTO of the petitioner cannot be enhanced by comparing sale price of
neighboring mines and the AO has not found that petitioner has sold its goods
lesser than the price shown insale invoices of the petitioner.
Thereafter, a revised assessment order was passed. In the revised
assessment order though the assessing officer held that the petitioner has
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not sold goods at a price higher than the price reflected in its sale invoice;
however, he observed that the dispute relates to "underpricing" by the
petitioner which has come to the knowledge of the assessing officer after
enquiring from businessmen. However, this time at the time of passing of
revised assessment order, the AO has compared the sale price of the petitioner
with IBM Rate only and has proceeded to levy penalty two times of alleged
concealment of tax u/s 40(1) of the JVAT Act, 2005.
10. After going through the aforesaid facts and the history of the case it
appears that to decide the lis involved in these cases, section-35 of JVAT Act
play an important role as it deals with assessment and self-assessment.
For brevity, Section 35 is quoted herein below:
"35. Assessment and Self-Assessment --
• Subject to provisions of sub-Section (2), the amount of tax due from a
registered dealer or a dealer liable to be registered under this Act shall be
assessed in the manner hereinafter provided, for the Tax Period during which
the dealer is so liable as prescribed.
• Notwithstanding anything contained in this Section, if a registered
dealer has failed to furnish return or returns under sub-Section (1) of Section 29
in respect of any tax period or periods, the prescribed authority shall proceed to
make provisionalassessment under Section 36.
• Where a registered dealer having turnover upto 1 (one) crore per annum
other than the registered dealer referred to under sub-section 5 has furnished:-
• All the returns for any tax period.
• Revised returns and annual returns in respect of any tax period
within the prescribed time and in the prescribed manner.
• Has paid the tax payable according to such returns or revised
returns as also interest payable if any.
• Has furnished the Audit report within the prescribed time if
required andin the prescribed manner.
The returns so filed are found to be in order shall be accepted as self -
assessment in the prescribed manner subject to adjustment of any arithmetical
errors apparent on the face of the said return(s) and his assessment shall be
deemed to be havebeen made for the purpose of subsection (1) of Section 35,
provided this provision shall not applicable to dealers covered under section 19
of the Act.
• The amount of input tax credit, exemptions and other credits or
concessions claimed by the dealer in the return(s) for which no supporting
declarations, certificates or evidence required under this Act or Central Sales
Tax Act is furnished, self assessment shall be made accordingly without such
input tax credit, exemption and other claims, treating such sales as taxable by
levying appropriate rate of tax, notwithstanding the fact that the dealer may have
been prevented by sufficient cause to produce such declarations, certificates or
evidence in support of his claim.
• If a dealer has furnished all the returns and the revised returns, if any,
within the prescribed period and in the prescribed manner or within next fifteen
days thereafter and -
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The prescribed authority is satisfied that the returns or the revised returns as
the case may be, and self assessment claim are prima-facie correct, consistent
and complete, he shall accept the self assessment as filed by the dealer and shall
assess the amount of tax and interest due from the dealer on the basis of such
returns, after makingprima-facie adjustment in the nature of arithmetical errors,
if any, in the returns and theself assessment;
• In the circumstances, if the self-assessment under sub-section (1), (2),
(3), (4) and (5) has not been filed within the prescribed time, the prescribed
authority shall serve on such dealer a notice in the prescribed manner requiring
him on a date and at atime and place to be specified therein either to attend in
person or through an authorised representative or to produce or to cause to be
produced any accounts and other evidences on which such dealer may rely in
support of such returns and claims thereof and assess the dealer, the amount of
tax and interest due from the dealer on the basis of such returns which have come
on records and after making such adjustments asmay be necessary including -
• disallowance of claim of input tax credit, exemptions, discounts and
deductions and any other concessions or rebates not supported by requisite
evidence as required under the Act or the rules made thereunder; and
• disallowance of claims of tax payments and refund adjustment not
verified orotherwise not admissible; and
• withdrawal of claim of tax credit including carry forward of tax credit not
admissible under the Act; and
• levying of interest applicable under this Act.
Provided, notwithstanding anything contained in Section 36 if registered
dealer fails to comply with the terms of the notice under this sub-section or
accounts and other evidence produced by him are, in the opinion of the
prescribed authority incorrect, incomplete or unreliable either wholly or partly
the said authority shall assess, to the best of its judgment, the amount of tax and
interest due from the dealer which have come on records and after making such
adjustments as may be necessary".
(7). If the prescribed authority is satisfied that goods have been sold a price
higher than that shown by the dealer, he may determine value of goods at the
time of the saleand proceed to assess the tax on such price.
Provided before initiating such proceedings, the prescribed authority
shall record his reasons for doing so and no orders shall be passed under this
sub-section without giving the dealer an opportunity of being heard."
Section 40(1) and (2) are also quoted herein below:
• Turnover escaping Assessment --(1) Where after a dealer is assessed under
Section 35 or Section 36 for any year or part thereof, and the Prescribed Authority,
uponinformation or otherwise has reason to believe that the whole or any part of
the turnover of the dealer in respect of any period has -
• escaped assessment; or
• been under assessed; or
• been assessed at a rate lower than the rate on which it is assessable
• been wrongly allowed any deduction therefrom; or
• been wrongly allowed any credit therein;
the prescribed authority may, serve or cause to serve a notice on the dealer and
after giving the dealer reasonable opportunity of being heard and making such
inquiries as he considers necessary, proceed to assess to the best of his judgement,
the amount of tax due from the dealer in respect of such turnover, and the
provisions of this Act shall so far as may be, apply accordingly.
Provided, for clause (a), where the prescribed authority has reasons to
believe that the dealer has concealed, omitted or failed to disclose willfully, the
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particulars of such turnover or has furnished incorrect particulars of his such
turnover and thereby return figures are below the real amount, the prescribed
authority shall proceed to assessor reassess the amount of tax due from the dealer
in respect of such turnover and the provisions of this Act, shall so far as may apply
accordingly and for this purpose,'the dealer shall pay by way of penalty, a sum
equal to thrice the amount of additional taxassessed.
" (2) If the prescribed authority in the course of any proceeding or upon any
information,which has come into his possession before assessment or otherwise,
under this Act, and issatisfied that any registered dealer or a dealer to whom the
registration certificate has been suspended under sub-section (7) of Section 25 -
• has concealed any sales or purchases or any particulars thereof,
with a view to reduce the amount of tax payable by him under this
Act, or
• has furnished incorrect statement of his turnover or incorrect
particulars of his sales or purchases in the return furnished under
sub-section (1) of Section 29; or otherwise,
the prescribed authority shall, after giving such a dealer an opportunity of being
heard, by an order in writing direct that he shall, in addition to any tax payable
which is or may be assessed under Section 35 or 36 or 38, pay by way of penalty
a sum equal to thrice theamount of tax on the concealed turnover or on concealed
or incorrect particulars* for each month of such suppression or concealment or
for furnishing incorrect particulars; on the amount of tax payable under the Act
or on the suppressed turnover or on concealed turnover or for
furnishing incorrect particulars.
The interest shall be payable before the completion of the assessment and
for determining the amount of penalty payable, the prescribed authority shall
quantify the amount of tax payable provisionally under this Act."
11. After going through the proviso to Section 35 (7) of the Act it appears
that the statute specifically postulates that prescribed authority shall record his
reason before initiating the proceedings and no order shall be passed under this
sub section without giving the dealer an opportunity to be heard. Section 40(1)
provides for Assessment in cases where turnover has escaped assessment on
account of reasons indicated under Clause (a) to (e). In cases of
concealment or failure to disclose willfully etc. the penal provisions under
proviso to 40(1) provide imposition of three times the amount of additional
tax assessed. Section 35(7) contemplates of such a proceeding against an
assessee regarding whom the Assessing Officer is satisfied that he has resorted
to selling of goods at a higher price than shown in his invoices.
Therefore, the proviso to Section 35 (7) of the JVAT Act firstly
stipulates that the reasons must be recorded by the prescribed authority for
initiating the proceeding and secondly, the principles of natural justice should
be followed.
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Though in the instant case the second ingredient of the proviso has been
fulfilled; however, there is no document to suggest that the assessing officer
has recorded his reason before initiating the proceeding.
At the cost of repetition, after passing the assessment order pursuant to
such notice under Section 40(2) of the Act, the matter was remanded by the
Appellate Authority.Thereafter by invoking provisions of Section 35(7) read
with Section 40(1) of the JVAT Act, the revised assessment order was passed
which has been affirmed up to the learned Tribunal and is impugned herein.
12. At this stage on going through the materials on record, it is noteworthy
that even after remand by the appellate authority in the revised assessment
order the assessing officer has not correctly applied its mind to the requirement
of law under Section 35(7) of the Act and rather observed that it is not a case
where the assessee has sold the goods at a price higher than what is shown by
him.
13. The principles regarding concept of 'Sales Tax' as compared to Income
Tax or Excise Duty have been explained in the case of Morriroku U.T.
Indians Pvt. Ltd. (supra) at paragraphs 19 and 23 quoted hereunder :-
"19. Before analysing Section 3 of the 1948 Act, it is important to
keep in mind that in income tax cases, tax is exigible on "real income"
which means the actual income received by or which accrues to the
assesses. In case of sales tax, tax is exigible on real price received or
receivable by the dealer in respect of a sale. A dealer is entitled to
frame his price structure in a manner conducive to the type of his
business or with a view to withstand the competition. In a given case,
cost may be more than the price. The dealermay base his price
structure to give an incentive to his clients, agents,distributors, etc.,
particularly if he is a manufacturer. In such cases, his price structure
has to be scrutinized by the Department under the sales tax law to find
out the real sale price receivable by him. There may be cases where
heis required to give a discount on account of defect in quality or
delay. The important thing to be noted is that "price" is the amount of
consideration which a seller charges the buyer for parting with the
title to the goods. It comprises of the amount which the dealer himself
has to pay for the purchaseof the goods, the expenditure, which he is
to incur for transporting the goods from the place of purchase to the
place of sale, the duties, if any, levied on the particular goods bought
by him, the octroi duty, which he may have had to pay and his own
margin of profit after meeting handling charges includinginterest on
the capital invested. The cost price of the goods actually paid by him
under various heads of accounts would no doubt constitute the
consideration for which he would part with his title to the goods. The
entire amount of consideration, including the sales tax component,
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which the purchaser pays, would constitute the price of goods. To this
extent, there is no difficulty. The difficulty comes in when by law or by
legal fiction the Department seeks to introduce a notional concept as
an element of the "real price". This is particularly important when
there is no rule to that effect in the sales tax law. Even under the
definition of turnover in Section 2(i) onehas to take into account only
the aggregate amount for which goods are bought or sold. It is this
aggregate amount which is taxable under Section 3 read with Section
2(i) of the 1948 Act."
xxx xxx xxx
"23. On the other hand, excise duty is a levy on a taxable event of
"manufacture" and it is calculated on the "value" of manufactured
goods. Excise duty is not concerned with ownership or sale. The
liability under the excise law is event based and irrespective of
whether the goods are sold or captively consumed. Under the excise
law, the liability is there even when themanufacturer is not the owner
of law material or finished goods (as in the case of job-workers).
Excise duty, therefore, is independent of ownership[see Ujagar
Prints (II) v. Union of India]. Therefore, for sales tax purposes, what
has to be taken into account is the consideration for transfer of
property in goods from the seller to the buyer. For this purpose, tax is
to be levied on the agreed consideration for transfer of property in
the goods and in such a case cost of manufacture is irrelevant. As
compared to the sales tax law, the scheme of levy of excise duty is
totally different. For excise duty purposes, transfer of property in
goods or ownership is irrelevant. As stated, excise duty is a duty of
manufacture. The provisions relating to measure (Section 4 of the
1944 Act read with the Excise Valuation Rules, 2000) aim at taking
into consideration all items of costs of manufacture and all expenses
which lead to value addition to be taken into account and for that
purpose Rule 6 makes a deeming provision by providing for national
additions. Such deeming fictions and notional additions in excise
law are totally irrelevantfor sales tax purposes. Therefore, in any
event, these notional additionscannot be read into Clause 5.1 and
Clause t.2 of the General Agreement for Purchase of Parts dated
31.7.1997."
In the case of M/s. Girdharilal Nanhelal (supra) cited by the petitioner,
the Apex Court has at para-7 held that for the purpose of levy of Sales Tax it
would be necessary not only to show that the source of money has not been
explained but also to show existence of some material that such acquisition of
money has resulted from transactions liable to Sales Tax and not from other
sources.
14. At this stage it is relevant to refer the relevant part of the revised
assessment order which is quoted herein below:
ßv/kksgLrk{kjh }kjk ;gkWa Li'V djuk U;k;ksfpr gksxk fd vkyksP; ekeyk laO;ogkj
Nqik;s tkus ls lacf/kr ugha gSA oLrqr% vkyksP; ekeyk eky dk voewY;u (Under
Pricing)djds fcdzh n"kkZus ,oa dj vioapuk djus dk gSA bl ekeysa esa Under Pricing ls
15
dzsrk dks Hkh dj vioapuk dk vk/kkj izkIr gks jgk gSA bl ekeysa esa fcdzsrk vkSj dzsrk ds
fefyHkxr ls de nj ij dz;&fcdz; fn[kk;k tk jgk gS ,oa nksuks ds }kjk dj vioapuk
fd;k tk jgk gSA ;g ,d Colourful Transaction gSaA vkyksP; ekeys esa v/kksgLrk{kjh
larq'V gS fd O;kikjh }kjk Under Pricing djds dj vioapuk dh x;h gSAÞ
From the above extracts of the revised assessment order, it clearly
transpires that the Assessing Officer has come to the finding that it is a case of
'underpricing'. The finding with respect to "underpricing" of the goods sold
by the petitioner recorded by the assessing officer is not tenable in the eye of
law. Further, assessing officer in its revised order has stated that
"underpricing" of the petitioner has been occasioned due to connivance of the
seller and the purchaser, but no details of such enquiry has been mentioned in
the revised order. The lower court records do not show that any such enquiry
was conducted by the assessing officer to conclude underpricing done by the
petitioner before proceeding to impose tax and penalty under Section 40(1)
based on the IBM rates. Even the appellate authority on the second occasion in
its order dated 31.03.2017 accepted the above finding of the Assessing Officer
in the revised assessment order that it is not case of the assessee having sold
goods at a higher price than shown by him in the invoices but a case of
'underpricing'.
In the absence of tangible materials to support such a finding, it is
difficult to assume that a purchaser of petitioner would purchase minerals at a
lesser price under an invoice in order to evade payment of tax especially when
the said purchaser is entitled to avail ITC under the JVAT Act, 2005. It is only
after recording of reasons for initiation of proceedings under Section 35(7) the
exercise for determination of value of goods at the time of sale and assessment
of tax on such price is to be done by giving the dealer an opportunity of being
heard.
15. At this stage it is further appropriate to observe that the condition of
recording satisfaction under proviso to Section 35 (7) is a prerequisite
before initiation of proceedings and cannot be dispensed with by the
Assessing Officer. In other words, the assessing officer is duty bound to record
his reasons before initiating any proceeding. It appears that the petitioner had
also specifically raised this plea before the Assessing Officer before passing of
16
the revised assessment order and also before the appellate authority thereafter
at the second instance.
It is reiterated that recording of satisfaction is sine qua non before
proceeding to impose tax and penalty upon the assessee under Section 35(7)
read with Section 40(1) of the JVAT Act. Any such satisfaction is to be based
on tangible materials as are found by the assessing officer as the provisions are
penal in nature where an assessee is found to be indulging in tax evasion by
suppression or concealment of actual sales or turnover by selling goods at a
higher price than shown by him. The matter is therefore required to be
remanded to the assessing officer to comply the provisions of Section 35(7) of
the Act for initiating the proceeding, if he finds any evidence that the goods
have been sold at higher price than shown by the dealers.
16. Though several contentions have been raised by the parties on the
merits ofthe matter regarding the levy of tax and penalty but since the matter
is being remanded for the assessing officer on the point of recording of
satisfaction under Section 35 (7) of the JVAT Act before initiation of the
proceedings, we consciously refrain from making any observation on the
merits of the case regarding the levy of tax and penalty upon the petitioner
under Section 35 (7) r/w Section 40 (1) of the JVAT Act. The judgment relied
upon by the learned Advocate General i.e. M/s VEENA THEATRE, PATNA
and THE COMMISSIONER OF SALES TAX, MADHYA PRADESH
(supra) relate to cases of best judgment assessment after the rejection of Books
of Account of the Assessee. Since in the present case the requirement of law
for initiation of the proceedings have not been fulfilled, these decisions are not
of assistance to the present cases.
17. As such, on remand, the AO shall proceed strictly in accordance with
law. The petitioner shall be at liberty to raise all the grounds available to him
before the AO which shall be considered accordingly.
18. Learned Tribunal has completely failed to consider that the requirement
of law for initiating a proceeding under Section 35(7) by recording reasons has
not been fulfilled by the Assessing Officer even after remand by the Appellate
Authority on the first instance. Consequently, the common impugned order
17
dated 25th January, 2020, passed by the learned Commercial Taxes Tribunal,
Jharkhand, Ranchi in Revision Case No. JR 70 (A) of 2017, JR 70 (B) of 2017
and JR 70 (C) of 2017, as well as common order dated 20th January, 2022
passed in Review Case No. JR 05 of 2022, JR 06 of 2022 and JR 07 of 2022
are quashed.
19. As a result, W.P.(T) No. 3279 of 2022, W.P.(T) No. 3282 of
2022 and W.P.(T) No. 3285 of 2022 are, hereby, allowed in the manner
and to the extent indicated above on contest. Pending I.A., if any, is also
disposed of.
(Rongon Mukhopadhyay, J.
(Deepak Roshan, J.) Amardeep/