M/S. Sree Khadi Kendra vs. The Commercial Tax Officer

Held

The Court allowed the writ petition. It held that there was apparent confusion regarding the assessee's concern, its constitution, and tax liability. While the department claimed to have issued a pre-assessment notice via email to P. Venkata Subbaiah, identified as the sole proprietor, the petitioner asserted they were a partnership firm dealing in exempt commodities and had not received proper notice. The Court noted prima facie strength in the petitioner's contention that their concern dealt with NIL tax commodities. Given the inconsistency in claims and the documentary evidence showing the firm's registration as a partnership, the Court found it in the interest of justice to set aside the impugned assessment order and the subsequent notice. The matter was remitted back to the 1st respondent for fresh assessment proceedings, with a direction to issue a fresh pre-assessment show cause notice, afford an opportunity for objections/explanation, and pass an order on merits after a personal hearing. The Court expressly left undecided the specific tax liability, as the matter was remanded.

Facts

The petitioner, M/s. Sree Khadi Kendra, a registered dealer under the A.P. VAT Act, 2005, and CST Act, 1956, challenged an assessment order dated 18.02.2017 and an urgent statutory notice dated 22.08.2019. The petitioner deals in cloth, which is exempt from tax, and purchases machinery spares and gunny for internal use. The petitioner claims to have consistently filed NIL tax returns, which were accepted by the department. However, the petitioner received a notice demanding arrears of tax under the CST Act for 2012-13 and 2013-14, totaling Rs. 7,33,414/-, and an assessment order for 2014-15 for Rs. 1,57,215/-. The petitioner contended that the assessment order contained incorrect information, stating the business was in 'Packing material' instead of cloth, and was passed without a show cause notice. The department, in its counter, stated that a pre-assessment notice was sent via email to the registered email ID, and as there was no response, the assessment order was passed. The department also questioned the petitioner's status, claiming the firm was a proprietorship concern of P. Venkata Subbaiah, and the petitioner, claiming to be a partner, had no connection.

Key Issues

1. Whether the assessment order dated 18.02.2017 and the urgent statutory notice dated 22.08.2019 are illegal and violative of the principles of natural justice for being passed without proper service of show cause notice to the petitioner, as contemplated under the A.P. VAT Act, 2005 and CST Act, 1956? Petitioner's arguments: The petitioner argued that the assessment order was passed without affording them an opportunity of being heard, as no pre-assessment show cause notice was served. They contended that the assessment order contained factual inaccuracies regarding their business and that the demand for arrears was illegal. They relied on the fact that their business in cloth was exempt from tax and that their returns were consistently accepted as NIL. Revenue's arguments: The revenue contended that a pre-assessment notice was issued to the assessee through online mode to the email ID available in VATIS records on 20.10.2016, as per the amended Rule 64(c). They argued that the petitioner failed to respond to this notice for four months, after which the assessment order was passed and dispatched via email. The revenue also raised a preliminary objection regarding the petitioner's locus standi, asserting that the firm was a proprietorship concern and the petitioner, claiming to be a partner, was not connected with the firm.