According to JVAT Section 35(7), recording the reasons for starting the case is required

Fact and issue of the case

The instant writ petition has been preferred against the order dated 25th February, 2020 & 5th May, 2022 passed by the learned Commercial Taxes Tribunal, Jharkhand, Ranchi in Revision Case No. JR 40 of 2013, as well as Review Case No. JR 04 of 2021, respectively; whereby the revision petition and review petition of the petitioner have been rejected and the determination of sale price of Iron Ore sold by the petitioner on the basis of average rate of neighbouring mines in exercise of the powers under Section 35(7) read with Section 30(4) of the JVAT Act has been upheld

The brief facts of the case as pleaded by the petitioner is that the petitioner is engaged in the business of mining & trading of iron ore, and Iron ore extracted from mines is known as “Run of Mines (ROM)” which requires further processing and screening. Petitioner’s premise does not have processing and screening facility and thus, only ROM was being sold by the petitioner. ROM includes Fines & Lumps and the grade of minerals found in petitioner’s premises was between 50-65% Fe content, which would be evident from survey report as contained in Annexure- 1. The Assessment proceeding of the petitioner was completed wherein, in alleged exercise of power u/s 35(7) r/w Section 30(4) of the JVAT Act, tax and interest has been imposed upon the petitioner on the alleged ground that petitioner has concealed its Gross Turn Over (for short GTO). The assessing officer despite taking actual figure of sale price, has taken the value of goods sold on the basis of average sale price of nearby mines i.e., M/s. Rungta Mines Ltd

Being aggrieved by the assessment order, petitioner filed appeal before the JCCT (Appeal) being Appeal Case No. CB-VAT-A-09/2011-12. However, the learned appellate court rejected the appeal of the petitioner. Thereafter, the petitioner filed a revision petition being JR 40 of 2013 before the Commercial Taxes Tribunal, Jharkhand at Ranchi which was dismissed on 25th February, 2020 and thereafter, petitioner also filed Review Case No. JR 04 of 2021 before the learned Tribunal. The learned Tribunal also rejected the review petition preferred by the petitioner; hence this application

Learned counsel for the petitioner has taken us through the relevant provisions of JVAT Act, 2005 including Section 2 (xlvii) Sale and 2 (xlviii) sale price definition and in particular Section 35(7) and Section 40 relating to turn over escaping assessment. Learned counsel for the petitioner has, inter alia, questioned the impugned findings on two-fold legal issues: Whether sale price of the petitioner company can be determined on the basis of average sale price of neighbouring mines namely, Rungta Mines Ltd. without even recording any finding that petitioner has sold goods at a price higher than the price reflected in its invoices, and, under such circumstances, whether provisions of Section 35(7) of the JVAT Act, 2005 can be invoked by the Respondents? In support of the legal issues, following submissions have been made

Finding of AO that petitioner has sold goods at uniform rate @ 660/- per metric ton is perverse which is evident from tax invoices issued by petitioner at Annexure- 3 series

AO, in the order has not recorded its finding that petitioner has sold goods at a price higher than the price shown in its invoice and thus, no tax could have been levied to the petitioner under section 35(7) of the JVAT Act, 2005.

From bare perusal of Section 35(7) of the JVAT Act it would reveal that assessing authority is entitled to determine the market value of the goods sold by the petitioner only and only if the assessing officer comes to a definite finding that the goods have been sold at the rate higher than the rate shown by the petitioner and admittedly, in the instant case, no such finding has been recorded by assessing officer.

Thus, section 35(7) of the JVAT Act which permits the assessing officer to determine the market value of goods is not applicable to the facts of the present case

The State Tax authorities as well as the learned Tribunal has failed to take into consideration the definition of “Sale” and “Sale Price” as enshrined in Section 2 (xlvii) & 2 (xlviii) respectively of the JVAT Act which in substance provides that the VAT would be levied on the sale of goods and on the consideration received for such sale of goods and not on the basis of market value of the goods in question. Thus, they have failed to consider the aforesaid provisions of the JVAT Act at the time of deciding the issue of determination of goods sold by the petitioner

Further finding with respect to “under valuation” of the goods sold by the petitioner recorded by the appellate court is totally misconceived and not tenable in the eye of law. It is really un-understandable that why purchaser of petitioner would purchase minerals at a lesser price just in order to evade payment of tax especially when the said purchaser is entitled to avail ITC under the JVAT Act, 2005

Further, the lower court records itself demonstrates that no such enquiry whatsoever was conducted by the assessing officer to conclude under-pricing done by the petitioner

The quantity of goods sold has not been disputed either by the assessing officer or the learned appellate court or by the Further, nowhere the returns of the petitioner have been disputed by the Tax authorities or by the learned Tribunal. The assessment order should have only confined to the facts that whether petitioner has sold its goods at a higher price than shown in invoice. But the assessing officer has exceeded its jurisdiction and has determined the sale price of petitioner on the basis of sale price of neighbouring mines.

Further, in respect of other mines owner similar assessment order were passed by determining the market rate on the basis of average rate & neighbouring mines and IBM rate which has been set aside by appellate court

Observation of the court

At this stage it is further appropriate to observe that the condition of recording satisfaction under proviso to Section 35 (7) is a prerequisite before initiation of proceedings and cannot be dispensed with by the AO. In other words, the assessing officer is duty bound to record his reasons before initiating any proceeding. It appears that the petitioner had also specifically raised this plea before the AO before passing of the revised assessment order and also before the appellate authority thereafter at the second instance.

It is reiterated that recording of satisfaction is sine qua non before proceeding to impose tax and penalty upon the assessee under Section 35(7) of the JVAT Act. Any such satisfaction is to be based on tangible materials as are found by the AO as the provisions are penal in nature where an assessee is found to be indulging in tax evasion by suppression or concealment of actual sales or turnover by selling goods at a higher price than shown by him. Learned Tribunal has completely failed to consider that the requirement of law for initiating a proceeding under Section 35(7) by recording reasons has not been fulfilled by the Assessing Officer

The matter is therefore required to be remanded to the AO to comply the provisions of Section 35(7) of the Act for initiating the proceeding, if he finds any evidence that the goods have been sold at higher price than shown by the dealers.

On remand, the AO shall proceed strictly in accordance with law. The petitioner shall be at liberty to raise all the grounds available to him before the AO which shall be considered accordingly.

Before parting, it is made clear that though several contentions have been raised by the parties on the merits of the case regarding the levy of tax and interest but since the matter is being remanded to the AO on the point of recording of satisfaction under Section 35 (7) of the JVAT Act before initiation of the proceedings; we consciously refrain from making any observation on the merits of the case regarding the levy of tax and interest upon the petitioner under Section 35 (7) r/w Section 30 (4) of the JVAT Act. The judgment relied upon by the learned State counsel i.e. M/s VEENA THEATRE, PATNA and THE COMMISSIONER OF SALES TAX, MADHYA PRADESH (supra) relate to cases of best judgment assessment after the rejection of Books of Account of the Assessee. Since in the present case the requirement of law for initiation of the proceedings have not been fulfilled, these decisions are not of assistance to the present case

Having regards to the discussions made hereinabove, the impugned order dated 25th February, 2020, passed by the learned Commercial Taxes Tribunal, Jharkhand, Ranchi in Revision Case No. JR 40 of 2013 as well as order dated 5th May, 2022 passed in Review Case No. JR 04 of 2021, are quashed

As a result, W.P.(T) No. 3910 of 2022 is, hereby, allowed in the manner and to the extent indicated above on contest. Pending I.A., if any, is also disposed of