M/S Devkabai Velji (Crusher Unit) Through Its Authorized Signatory Namely Nalini Kumar vs. The State Of Jharkhand Through The Secretary Commercial Taxes Deptt

Held

The Court held that the Assessing Officer's finding that the petitioner sold goods at a uniform rate of Rs. 660/- per metric ton was contrary to the records, specifically Annexure-3 series of the writ petition. The Court found the determination of "under valuation/underpricing" by the appellate court and Tribunal to be not tenable in law. The Tribunal's assertion of "underpricing" due to connivance between seller and purchaser was made without any supporting enquiry details in the order. The Court noted that the records did not show any enquiry by the AO to conclude underpricing before imposing tax and interest. It was difficult to assume that a purchaser would buy minerals at a lesser price under an invoice to evade tax, especially when entitled to ITC. The Court emphasized that recording satisfaction under the proviso to Section 35(7) is a prerequisite before initiating proceedings and cannot be dispensed with. The Assessing Officer is duty-bound to record reasons before initiating proceedings. The Court found that the requirement of law for initiating proceedings under Section 35(7) by recording reasons had not been fulfilled by the Assessing Officer. Therefore, the matter was remanded to the AO to comply with the provisions of Section 35(7) for initiating proceedings, if any evidence of goods being sold at a higher price than shown by the dealers is found. The Court consciously refrained from making observations on the merits of the levy of tax and interest, as the matter was remanded on the procedural point of recording satisfaction. The impugned orders of the Tribunal were quashed.

Facts

The petitioner, M/s. Devkabai Velji (Crusher Unit), is engaged in mining and trading iron ore. The petitioner sells "Run of Mines (ROM)" without processing facilities. The assessing officer imposed tax and interest under Section 35(5)(b) read with Section 40(1) of the JVAT Act, alleging concealment of Gross Turnover. The assessing officer determined the value of goods sold based on the average sale price of neighboring mines, specifically M/s. Rungta Mines Ltd., despite using the actual sale price from the petitioner's invoices. The petitioner's appeal to the JCCT (Appeal) was rejected. Subsequently, a revision petition and a review petition before the Commercial Taxes Tribunal, Jharkhand, Ranchi, were also dismissed, upholding the determination of sale price. The petitioner filed a writ petition before the High Court challenging these orders.

Key Issues

1. Whether the sale price of the petitioner's iron ore can be determined on the basis of the average sale price of neighboring mines (M/s. Rungta Mines Ltd.) without a finding that the petitioner sold goods at a price higher than reflected in its invoices, and if Section 35(7) of the JVAT Act, 2005, can be invoked in such circumstances? Petitioner's arguments: The petitioner contended that the Assessing Officer's finding of a uniform rate of Rs. 660/- per metric ton was perverse, as evidenced by the tax invoices (Annexure-3 series). They argued that Section 35(7) of the JVAT Act, 2005, which allows determination of market value, is only applicable if the assessing officer records a definite finding that the goods were sold at a price higher than shown in the invoice, which was not done. The petitioner also argued that the authorities failed to consider the definitions of "Sale" and "Sale Price" under Section 2 (xlvii) and 2 (xlviii) of the JVAT Act, which levy VAT on consideration received, not market value. The appellate court's finding of "under valuation" was deemed misconceived, as purchasers are entitled to ITC. No enquiry was conducted by the assessing officer to establish under-pricing. The petitioner relied on Supreme Court judgments in Morriroku U.T. Indians Pvt. Ltd. vs. State of U.P., State of Rajasthan vs. Rajasthan Chemists Assn., and M/s. Girdharilal Nanhelal vs. The Sales Tax Commissioner, M.P., and a Jharkhand High Court judgment in M/s. Devkavai Velji vs. State of Jharkhand &Ors.