The Madras High Court, in a recent ruling, held that information received from the Directorate of Revenue Intelligence (DRI) cannot be a basis for demanding tax under the provisions of the Tamil Nadu Value Added Tax (TNVAT) Act.
The Commercial Tax Officer, based on the information received from the Directorate of Revenue Intelligence, determined the turnover of the assessee at Rs.8 Crores.
The assessee explained that pointed out that as per Sales Taxes law, the sale price of any imported goods is based on the cost of imported goods, customs and other duties paid and gross profit. They claimed that the department has demanded tax by omitting customs duties payable for the imported goods and the cases are yet to be adjudicated by the Customs Department. According to them, the actual sales value cannot be determined without having the details of the customs duty assessed by the Department for the respective years, as customs duties paid is also component part to determine the taxable turnover under the Sales Tax law.
Accepting the contentions of the assessee, Justice T S Sivagnanam observed that the demand was solely based upon the information received from the DRI and no independent enquiry conducted by the Commercial Taxes Department.
The Court also noted that the impugned order was issued without following the principles of natural justice since the department failed to furnish the details sought by the petitioners.
Considering the fact that the basis for fixing the sale value of imported goods is yet to attain finality, the Court held that the impugned order is liable to be quashed.
The case is yet to be adjudicated and the duty liability is yet to be crystallized, unless and until the duty liability is crystallized, alleged sales suppression cannot be ascertained.”
“In my considered view, the averments in the counter affidavit filed by the DRI in the bail petition nor the averments which are set out in the show cause notice issued by the DRI dated 22.06.2016, can ipso facto be the basis for demand of sales tax. It is well open to the respondent to rely upon such material based on information received from the DRI. What is required to be done is to conduct independent enquiry for which the petitioner should be given opportunity of personal hearing. This can be done only after the DRI completes the adjudication of the show cause notice dated 22.06.2016, as all documents are in the custody of the DRI,” the Court said.
Read the full text of the Order below.
