M/S.Modern Sanitary vs. State Of Kerala

Held

The Court held that the Assessing Officer arrived at conclusions and recorded them without examining the records/books of accounts and without affording an opportunity to the petitioner to present their case. The Court found this to be a short ground for setting aside the assessment order. Consequently, the assessment order dated 02.07.2013, along with the confirming orders passed by the Deputy Commissioner and the Kerala VAT Appellate Tribunal, were set aside. The matter was remitted back to the Assessing Officer for a fresh determination. The petitioner was granted two months from the date of receiving the judgment to file supporting documents and records regarding the percentage of broken and unsaleable goods for the relevant return period. The Court did not expressly leave any issue undecided.

Facts

The petitioner, M/s. Modern Sanitary, a dealer registered under the Kerala Value Added Tax Act, 2003, is challenging an assessment order for the return period 2010-11. The Assessing Officer issued a notice proposing best judgment assessment due to the petitioner claiming input tax credit (IPT) on broken and unsaleable sanitary wares and tiles. The petitioner's reply was considered, and an assessment order dated 02.07.2013 was passed. This order directed the reversal of 35.6% of the deleted stock, amounting to Rs. 25,29,405.00, and levied reverse tax, cess, totaling Rs. 3,19,338.00, with a balance of Rs. 2,75,543.00 due after adjustments. The petitioner contended that the figures and inferences regarding IPT were incorrect and that the assessment was made without proper verification of records.

Key Issues

1. Whether the Assessing Officer erred in determining the taxable turnover by reversing a percentage of the deleted stock without proper verification of the petitioner's records and books of accounts, thereby violating principles of natural justice? The petitioner argued that the Assessing Officer's figures and inferences regarding input tax credit were incorrect and that the assessment suffered from material illegality. They contended that their business inherently involves a substantial percentage of damaged, broken, and unsaleable goods as closing stock. The petitioner asserted that redetermining taxable turnover without verifying records and books of accounts is illegal and should be set aside. They requested an opportunity to establish their claim regarding broken and unsaleable goods. The petitioner also argued that the Assessing Officer should accept returns as filed by the dealer. The respondent, the State of Kerala, did not present any arguments as recorded in the judgment.