Larsen & Toubro Ltd. Vs State of Jharkhand and Ors. (Supreme Court of India)
Point for consideration:
The only point for consideration before this Court is whether on the information given by the audit team of the Auditor General, Bihar, the Assessing Authority was satisfied that reasonable ground exists to believe that a part of the turnover of the appellant-Company has escaped assessment within the meaning of Section 19 of the State Act based on which the assessing officer can re-open the assessment?
Held by Supreme Court
It is clear that the Assessing Officer was of the opinion that as the goods had not been transferred to appellant-Company but had been consumed, so it does not come under the purview of taxation. In other words, the Assessing Officer was not satisfied on the basis of information given by the audit party that any of the turnover of the appellant-Company had escaped assessment so as to invoke Section 19 of the State Act. From the above, it also appears that the assessing officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction which is not permissible under law.
EXTRACT OF THE JUDGMENT
1) The present appeal has been filed against the final judgment and order dated 17.11.2006 passed by the Division Bench of the High Court of Jharkhand at Ranchi in W.P. (T) No. 2630 of 2006 whereby the High Court dismissed the petition filed by M/s Larsen & Toubro Ltd.-the appellant –Company while upholding the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur.
2) Brief facts:
(a) The appellant-Company, having its registered office at Mumbai, is a public limited company and is involved in manufacturing, trading, leasing and construction business throughout the country. At the relevant time, the appellant-Company was involved in the execution of civil work contracts for its client, viz., Tata Iron & Steel Company Ltd. (TISCO) and had been filing its returns under the Bihar Finance Act, 1981 (hereinafter referred to as ‘the State Act’) and also under the Central Sales Tax Act, 1956 (hereinafter referred to as ‘the Central Act’) in the Commercial Taxes Department, Urban Circle, Jamshedpur.
(b) For the Assessment Year (AY) 1991-92, the appellant-Company filed returns under the State Act. However, the assessment proceedings in relation to the above period, i.e., AY 199 1-92 was completed in the year 1996 and an assessment order dated 24.01.1996 was passed by the assessing authority.
(c) After the assessment proceedings, an audit team of the Auditor General, Bihar, audited the assessment order dated 24.01.1996 and found that the dealer was allowed exemption of Rs. 3,12,47,916/-, being the amount of goods consumed by the appellant-Company during the course of execution of works contract. The appellant-Company claimed that such goods were purchased on payment of tax but no declaration in Form IX-C along with other evidence was submitted whereas the production or declaration of Form IX-C was mandatory, hence, the claim was not allowable and the said fact was conveyed to the assessing authority.
(d) On 28.09.2000, the office of Commissioner of Commercial Tax, Urban Circle, Jamshedpur, served a show cause notice to the appellant-Company to state as to why tax should not be levied on it for the amount of Rs. 3,12,47,916/- which was wrongly exempted from being taxed under the provision of the State Act.
(e) After affording an opportunity of hearing to the appellant-Company, a re-assessment order dated 27.02.2006 was passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur whereby an additional demand of Rs. 35,72,475/- was created against the appellant-Company.
(f) Being aggrieved by the re-assessment order dated 27.02.2006, the appellant-Company preferred a writ petition being W.P. (T) No. 2630 of 2006 before the High Court. A Division Bench of the High Court, vide order dated 17.11.2006, dismissed the petition filed by the appellant –Company while upholding the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle,
(g) Aggrieved by the order dated 17.11.2006, the appellant-Company has preferred this appeal by way of special leave.
3) Heard the arguments advanced by Mr. Pravin H. Parekh, learned senior counsel for the appellant-Company and Mr. Amarendra Saran and Mr. Ajit Kumar Sinha, learned senior counsel for the respondent-State and perused the records.
Point for consideration:
4) The only point for consideration before this Court is whether on the information given by the audit team of the Auditor General, Bihar, the Assessing Authority was satisfied that reasonable ground exists to believe that a part of the turnover of the appellant-Company has escaped assessment within the meaning of Section 19 of the State Act based on which the assessing officer can re-open the assessment?
Rival contentions:
5) Learned senior counsel for the appellant-Company contended that an ‘audit objection’ cannot be construed as ‘information’ within the meaning of Section 19 of the State Act, based on which the assessing officer can change his opinion and re-open the assessment. The ‘audit objection’ relates to tax levied on turnover relating to ‘consumables’ wherein there is no sale/deemed sale involved. Consumables by its very nature are goods used for own consumption. The assessment order dated 24.01.1996 rightly records the said fact.
6) Learned senior counsel further contended that the original assessment order specifically considered whether purchase tax is to be paid under the State Act on the disputed items and the same was decided in negative and hence taxing the items later on is a mere change of opinion by the Assessing Authority on the very same set of facts that were available on the date of passing the assessment order dated 24.01.1996.
7) Learned senior counsel further contended that non-filing of Form IX-C under Section 11 of the State Act read with Rule 12 of the Bihar Sales Tax Rules, 1983 (hereinafter referred to as ‘the Rules’) does not attract the levy in the facts of the present case as the goods are used for ‘own consumption’ and there is no sale or ‘deemed sale’ of the said goods involving a transfer of property in the said goods to anybody.
8) It was further contended that Section 19 of the State Act read with Rule 20 and Form XIV of the Rules specifically requires the satisfaction of the Prescribed Authority regarding requirement of re-assessment before the issuance of the notice in this regard. The initiation of the re-assessment proceedings and the subsequent re-assessment order dated 27.02.2006 are illegal as there was no satisfaction on the part of the Prescribed Authority about existence of reasonable grounds to believe that turnover has escaped assessment. Hence, the same are liable to be set aside.
9) Learned senior counsel further contended that it is relevant to note the circumstances under which the appellant-Company was unable to produce the relevant records. The assessment year (AY) in question is 199 1-92. The assessment order in relation to the same was passed on 24.01.1996. The show cause notice proposing to re-open the assessment was served on the appellant-Company on 28.09.2000 which was replied in detail by the appellant-Company vide letter dated 13.11.2000. Thereafter, for a period of five years, there was no communication from the side of the respondents and the appellant-Company, under the bonafide belief that the letter dated 13.11.2000 had satisfied the requirements of show cause notice, forwarded all the records to their dumping yards at Chennai. Learned senior counsel contended that owing to the above circumstances the failure of the appellant-Company to produce the aforesaid records was not at all willful.
10) Learned senior counsel finally contended that the order of re-assessment dated 27.02.2006 is illegal and the assessment proceedings cannot be re-opened on the basis of audit objection, as the same does not amount to ‘information’ as contemplated under Section 19 of the State Act. The impugned order amounts to change of opinion on the same set of facts and law which were available even at the time of passing the order of assessment.
11) In support of the above contentions, learned senior counsel has relied upon the following decisions, viz., M/s Indian & Eastern Newspaper Society, New Delhi vs. Commissioner of Income Tax, New Delhi (1979) 4 SCC 248, Bhimraj Madanlal vs. State of Bihar and Another (1984) 56 STC 273, Usha Sales (Pvt.) Ltd. vs. The State of Bihar (1985) 58 STC 217 and Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam vs. M/s Thomas Stephen & Co. Ltd. Quilon (1988) 2 SCC 264.
12) Per contra, learned senior counsel for the respondent-State submitted that the assessing authority has not revised the assessment on the basis of the audit report only rather it had satisfied itself before revising and the same can be seen from the fact that it had rejected part of the audit opinion and applied its mind before passing the order
13) Learned senior counsel for the respondent-State further submitted that the ‘audit objection’ in the present case is an ‘information’ within the meaning of Section 19 of the State Act and the competent authority has rightly re-assessed the turnover and demanded legally payable valid tax which was escaped. He further submitted that the word ‘information’ used in the Section is of the widest amplitude and comprehends variety of factors including information from external sources of any kind including discovery of new facts or information available in the record of assessment not previously noticed or investigated.
14) Learned senior counsel for the respondent-State submitted that if there is obvious mistake apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment. He finally submitted that there is no illegality in the re-assessment order dated 27.02.2006 as well as in the order dated 17.11.2006 passed by the High Court and the claim of the appellant-Company is liable to be rejected.
15) In support of his submissions, learned senior counsel has relied upon the following decisions, viz., Commissioner of Income Tax P.V.S. Beedies Pvt. Ltd. (1998) 9 SCC 272, Anandji Haridas and Co. (P) Ltd. vs. S.P. Kasture and Others AIR 1968 SC 565, Commissioner of Customs, Mumbai vs. Virgo Steels, Bombay and Another (2002) 4 SCC 316, Supreme Paper Mills Limited vs. Assistant Commissioner, Commercial Taxes, Calcutta and Others (2010) 11 SCC 593 and Chatturam & Ors. vs. CIT, Bihar AIR 1947 FC 32.
Discussion:
(16) In the instant case, an audit team of the Auditor General, audited assessment order dated 24.01.1996 and found that the dealer was allowed an exemption of Rs. 3,12,47,916/- being the amount for goods consumed by the appellant-Company during the course of execution of works contract. It is the claim of the appellant-Company that those goods were purchased on payment of tax but no declaration in Form IX-C along with other evidence was submitted. The same fact was brought to the notice of the assessing authority which in furtherance thereof issued a show cause notice to the appellant-Company. The production of Form IX-C was held to be mandatory and the claim of the appellant-Company was disallowed and an order of re-assessment dated 27.02.2006 was passed by the competent authority for an additional amount of tax of Rs. 35,72,475/- after following the due procedure of law.
17) The point arises for consideration is as to whether an ‘audit objection’ can be construed as ‘information’ within the meaning of Section 19 of the State Act based on which the assessing officer was satisfied that reasonable grounds exist to believe that any part of the turnover of the appellant-Company had escaped assessment under Section 19 of the State Act.
18) Learned senior counsel for the appellant-Company argued that it is mere a change of opinion which resulted in re-assessment order and is not information as contemplated under Section 19 of the State Act. Learned senior counsel for the respondent-State submitted that ‘audit objection’ in the present case is definitely ‘information’ within the meaning of Section 19 and the High Court has rightly uphold the re-assessment order dated 27.02.2006.
19) In view of the above, it is relevant to quote Section 19 of the Bihar Finance Act, 1981 which is as under:-
“19. Turnover of registered dealer escaping assessment – (1) If upon information which has come into his possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused under the third proviso to sub-section (2) of Section 14, in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer or a dealer assessed under sub-section (5) of Section 17 has been under-assessed or assed at a rate lower than that which was correctly applicable or any deductions therefrom has been wrongly made, the prescribed authority may, subject to such rules may, be made by the State Government under this part, and –
(a) Within eight years from the date of the order of the assessment or reassessment where the said authority has reasons to believe that the dealer has concealed, omitted or failed to disclose willfully the particulars of such turnover or has furnished incorrect particulars of such turnover and thereby returned figures below the reason amount,
(b) Within eight years’ from the date of the order of the assessment or reassessment in any other case.
Serve on the dealer a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 17 and proceed to assess or reassess the amount of tax due from the dealer in respect of such turnover, and the provisions of this part shall, so far as may be, apply accordingly as if the notice under this sub-section was a notice under sub-section (2) of Section 17:
Provided that the amount of tax shall be assessed or re-assessed after allowing such deductions as were permissible during the said period and at rates at which it would have been assessed had the turnover not escaped assessment or full assessment, as the case may be.
Explanation: – Production before the prescribed authority of accounts, registers or documents from which material facts could, with due diligence, have been discovered by the said authority, will not necessarily amount to full disclosure within the meaning of this section.
(2) (a) The prescribed authority shall, in a case falling under clause (a) of sub-section (1), direct that the dealer shall pay by way of penalty a sum not exceeding three times but not less than an amount equivalent to the amount of tax which is or may be assessed on the escaped turnover.
(b) The penalty imposed under clause (a) shall be in addition to the amount of tax which is or may be assessed on the escaped turnover, and the order imposing penalty may precede the assessment of escaped turnover.
(c) For determining the amount of penalty under clause (a), where the penalty precedes assessment under clause (b) the prescribed authority shall quantify the amount of suppression and tax thereon provisionally in the prescribed manner.
(d) No order shall be passed under this sub-section without giving the dealer an opportunity of being heard in the prescribed manner.
3) Any assessment or reassessment made and any penalty imposed under this section shall be without prejudice to any action which is or may be taken under section 49.”
Sub-Section (1) of Section 19 very clearly prescribes that the competent authority, upon information, if satisfied that reasonable ground exists to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer assessed under sub-Section (5) of Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable, may, within eight years from the date of order of assessment, proceed to assess or reassess the amount of tax in respect of such turnover.
20) For ready reference, the relevant portion of the assessment order dated 24.01.1996 is also extracted hereunder:-
“The Company has used the following work under its Tender work on its level and if we separate the both, then it is like this.
