Malani Construction Company vs. State Of Gujarat

Held

The Court held that the respondent No.2 committed an error in passing the impugned assessment order and demand notice. The Court found that the respondent No.2 had not adequately dealt with the submissions canvassed by the petitioner, including the method of accounting adopted and the reliance on the Supreme Court decision in Gannon Dunkerly and Co. The Court noted that the tax audit report containing contract-wise information and allowable expenditure was not considered. Furthermore, the penalty notice was a cyclostyle format without indicating the nature of the infraction. The Court concluded that the impugned order was bereft of reasons, constituting a gross violation of the principles of natural justice. Therefore, the Court rejected the preliminary contention of the respondents regarding the availability of an alternative remedy. The Court quashed and set aside the assessment order and demand notice and remitted the matter to the respondent No.2 for fresh consideration, directing them to apply their mind to the method of accounting, consider the Supreme Court decision, and assign cogent reasons if they find the method of accounting to be non-compliant with Section 2(30)(c) of the GVAT Act. The respondent No.2 was also directed to rehear the petitioner and consider all relevant materials within eight weeks.

Facts

The petitioner, Malani Construction Company, a registered partnership firm engaged in civil and labour contracts, challenged an assessment order and demand notice for the financial year 2014-15, issued by the Assistant State Tax Commissioner, Rajkot. The petitioner argued that the assessment order and demand notice were illegal and passed in breach of natural justice, as they were issued without providing an adequate opportunity for hearing. The petitioner had filed annual self-assessment returns using the cost-plus gross profit method to determine taxable turnover. The respondent authority, however, proposed to reject this method and adopt the method provided in Section 2(30)(c) of the Gujarat Value Added Tax Act, 2003. A penalty notice was also issued without specifying the reasons for imposing a substantial penalty.

Key Issues

1. Whether the assessment order and demand notice dated 24.03.2019, passed by the Assistant State Tax Commissioner, Unit-89, Division-2, Rajkot, for the financial year 2014-15, are illegal and in breach of the principles of natural justice, specifically concerning the opportunity of hearing provided to the petitioner under Section 34(2) of the Gujarat Value Added Tax Act, 2003? 2. Whether the penalty notice in Form No.309, issued under Sections 34(7) and 34(12) of the Act, is sustainable when it fails to provide specific reasons for the proposed penalty? Petitioner's Arguments: The petitioner contended that the assessment order and demand notice were passed without affording a proper opportunity to explain why the cost-plus gross profit method adopted by them should not be disallowed. They also argued that the penalty notice was a cyclostyle format without specifying the instance or reason for imposing a penalty of Rs. 11,68,53,998. The petitioner relied on the Supreme Court decision in Gannon Dunkerly and Co. vs. State of Rajasthan. They further argued that a gross violation of natural justice principles, such as the absence of reasoned orders, makes the alternative statutory remedy unavailable. Revenue's Arguments: The respondent State argued that the petitioner should be relegated to exhaust the statutory remedy of appeal, as the writ application was not maintainable on merits.