In W.P. (T) No. 3910 of 2022 – JHAR HC – Recording satisfaction is essential for imposing tax and penalty under Section 35(7) of Jharkhand Value Added Tax Act: Jharkhand High Court
Justice Rongon Mukhopadhyay & Justice Deepak Roshan [10-05-2023]

Read Order: M/s. Mishri Lal Jain & Sons v. The State of Jharkhand and Ors

Chahat Varma

New Delhi, May 31, 2023: The High Court of Jharkhand has ruled that recording of satisfaction is sine qua non before proceeding to impose tax and penalty upon the assessee under section 35(7) of the Jharkhand Value Added Tax Act (JVAT Act).

The instant writ petition was filed against the orders passed by the Commercial Taxes Tribunal in Jharkhand, Ranchi, whereby, the revision petition and review petition of M/s. Mishri Lal Jain & Sons (petitioner) had 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 had been upheld.

The division bench of Justice Rongon Mukhopadhyay & Justice Deepak Roshan noted that the proviso to section 35(7) of the JVAT Act required the prescribed authority to record the reasons for initiating the proceeding and to adhere to the principles of natural justice. The bench held that while the second ingredient of the proviso was fulfilled in the present case, there was no document indicating that the Assessing Officer (AO) had recorded the reason before initiating the proceeding.

The bench observed that the Tribunal in its impugned order had stated that ‘under-pricing’ of the petitioner had been occasioned due to connivance of the seller and the purchaser, however, no details of such enquiry had been mentioned in the order. The records did not show that any such enquiry was conducted by the AO to conclude under-pricing done by the petitioner before proceeding to impose tax and interest.

“In the absence of any tangible materials to support such a finding, it is difficult to assume that a purchaser of petitioner would purchase minerals at a lesser price under an invoice in order to evade payment of tax especially when the said purchaser is entitled to avail ITC under the JVAT Act, 2005. It is only after recording of reasons for initiation of proceedings under Section 35(7) the exercise for determination of value of goods at the time of sale and assessment of tax on such price is to be done by giving the dealer an opportunity of being heard,” said the bench.

The bench remanded the matter to the AO for compliance with the provisions of section 35(7) of the Act. The bench held that, if the AO found evidence that the goods had been sold at a higher price than shown by the dealers, the proceeding can be initiated accordingly.