M/S.R.K.Digital Solutions vs. Commercial Tax Officer (Intgelligence)

Held

The Court held that the assessment order was based on facts of which the petitioner was not adequately informed in the show cause notice. While the petitioner's reply to the show cause notice was silent on waybills, the notice itself did not specifically require their production, nor was the petitioner informed that failure to produce them would lead to ITC disallowance. The Court considered it appropriate to set aside the impugned assessment order. The first respondent was directed to issue a fresh notice in Form VAT 305-A, provide the petitioner an opportunity to be heard, including an oral hearing, and then pass a fresh assessment order within two months. The Court noted that if the petitioner failed to respond to the fresh notice or appear for the hearing, the first respondent could proceed without further opportunity. The ratio decidendi is that an assessment order cannot be passed based on grounds not properly communicated to the assessee in the show cause notice, violating principles of natural justice.

Facts

The petitioner, a registered dealer, challenged an assessment order dated 27.02.2017 passed by the first respondent. The order disallowed input tax credit (ITC) of Rs.1,56,83,268/- claimed by the petitioner on a turnover of Rs.158,71,55,306/-. The petitioner contended that irrelevant considerations influenced the order, specifically the reliance on a bank statement obtained without notice and the assertion that the petitioner was established solely to claim ITC without genuine sales. The revenue argued that the petitioner failed to prove physical movement of goods from M/s. Sri Exports despite being informed in a notice that they were established to claim ITC on purchases without material transfer. The petitioner later produced waybills, which were not submitted to the assessing authority.

Key Issues

1. Whether the assessment order passed by the first respondent is vitiated by irrelevant considerations and lack of proper notice to the petitioner regarding the basis of disallowance of input tax credit (ITC)? (Mixed question of law and fact, concerning principles of natural justice and assessment procedures). Petitioner's arguments: The petitioner argued that the first respondent relied on irrelevant factors, including a bank statement obtained without putting the petitioner on notice. They also contended that the assessment order wrongly presumed the petitioner was established solely to claim ITC without genuine sales. The petitioner highlighted that while waybills were not produced before the assessing authority, these were later filed with the writ petition and the show cause notice did not specifically demand them. Revenue's arguments: The revenue contended that the petitioner was specifically informed in a notice (Form VAT 305-A dated 23.12.2016) that they were established to claim ITC on purchases without material transfer, yet failed to produce proof of physical movement of goods from M/s. Sri Exports.