SREE RAMACHANDRAN ENTERPRISES Vs. STATE OF KERALA

JUDGEMENT

(1.) Two questions are raised in the revision case filed by the petitioner-assessee as arising from orders of the VAT Appellate Tribunal confirming the monthly VAT assessments for the year 2005-2006. We have heard Adv. Sri. Jose Joseph appearing for the petitioner and Government Pleader Sri. Mohammed Rafiq appearing for the respondent-State. The assessee is engaged in purchase and sale of ready made garments and textiles in five shops at Trivandrum, one of which being the Head Office and the remaining being Branches. The assessee was filing monthly returns declaring turnover and remitting tax on the taxable turnover under the KVAT Act for the year 2005-2006. The Audit Wing of the Department conducted inspection on 31.12.2005 in all the shops and the finding is that except in one shop there was no physical stock of textiles in other shops and the stock of textile found in one shop was very low compared to the stock of ready made garments available there. In other words, the Audit Wing found that assessee's business was essentially in ready made garments and very little business in textiles was done only in one shop out of the five sops run by the assessee. On verification of the monthly returns, it was noticed that the assessee claimed exemption on substantial turnover declaring the same as sales turnover of textiles and tax was remitted only on small turnover of ready made garments declared in the returns. The Audit Officer found that the assessee was consciously misdeclaring turnover of ready made garments which is taxable under the Act, as turnover of textiles which was not taxable under the Act. The Assessing Officer issued notice dated 25.2.2006 to make assessment for the returned period based on details gathered on inspection. Assessee was also given opportunity of filing reply and hearing on 2.3.2006. The assessee had also filed a revised return for the two separate block periods of the year, first from April to October, 2005 and then from November 2005 to March 2006. Finally the assessments were completed by estimating 90% of the turnover as turnover representing sale of ready made garments and exemption was granted on balance 10% treating the same as turnover of textiles. On appeal filed before the Deputy Commissioner of Commercial Taxes, assessee was granted quantum relief by increasing the exempted turnover from 10% to 30% and refixing taxable turnover at 70% as against 90% fixed in assessment. On second appeal, the Tribunal confirmed the orders of the first appellate authority, against which this common revision is filed.

(2.) First question raised by counsel for the assessee is that separate monthly assessments completed for each month of the financial year 2005-2006 is against the mandatory provision of Rule 39(5)(iv) of the KVAT Rules which provides that audit assessment made after the close of the year should be through a single order. Admittedly the assessments completed in this case is through separate orders for each month, the validity of which is confirmed by the Tribunal holding that the same has not caused any prejudice to the assessee. Further, assessee does not appear to have raised any objection about the maintainability of monthly assessments while facing the assessment proceedings before the Assessing Officer. Government Pleader contended before us that the assessment proceedings as stated above were commenced soon after inspection in the financial year itself and so much so, assessments cannot be said to have been done after the expiry of the year in which the returned period falls in terms of the provision above stated. Rule 39(5)(iv) of the KVAT Rules is as follows:

(3.) The question whether assessment completed through separate orders is against the above provision of the Rule will depend upon the scope and meaning of the terms "where the best judgment assessment is done after the expiry of the year". The provisions relating to audit assessment which is the assessment involved in this case are contained in Section 24of the Kerala Value Added Tax Act. What is stated therein is that if as a result of audit inspection it is found that dealer has submitted incomplete return for any returned period or fails to make available any accounts or records required for audit in the business place or fails to prove claim of input tax credit etc., the Assessing Officer after conducting such enquiry as he may deem necessary, reject the returns for such return periods and complete the assessment to the best of judgment after affording the dealer an opportunity of being heard. The procedure provided for audit assessment under Section 24 above stated is mandatory which requires enquiry and giving of opportunity to the dealer. In other words, before completing the assessment, the officer should conduct enquiry, issue notice containing proposal for assessment, give opportunity to the dealer to file reply and of hearing before passing the assessment order. Therefore, making of an assessment requires certain procedure and duration of time and so much so, in our view, the reference of the words "where the best judgment assessment is done" in Rule 39(5)(iv) covers the entire procedure and process adopted by the officer. Admittedly in this case assessment proceedings started during the financial year to which the assessment relates and the final assessment for all the months ended up after the end of the financial year. Since assessment proceedings were initiated and were in fact half-way through during the financial year itself, it cannot be said that assessment is done after the expiry of the year in which the relevant return period falls. Even though counsel for the petitioner contended that assessment is done only when it is completed and signed, we do not think Rule 39(5)(iv) contemplates only finalisation of assessment, but the doing of an assessment which involves the entire procedure of assessment and completion of the same. So much so, in our view, a single assessment is called for in terms of the above Rule only when assessment is initiated after the expiry of the year to which the relevant return period falls. In other words, if the assessment is initiated for any return period in the financial year itself, Rule 39(5)(iv) does not apply and the assessment can be completed for such return period or return periods through separate orders for each return period. So much so, we do not find any merit in the challenge against the validity of the assessment on the ground that assessment is completed for each return period i.e. for each month by separate orders. There is also merit in the finding of the Tribunal that assessee having not raised any objection against single assessment during the course of assessment, cannot raise a technical objection after monthly assessments are completed through separate orders. We, therefore, answer this question in favour of the Revenue by upholding the validity of separate assessments and rejecting the contentions of the assessee to the contrary. The next question raised is only on the estimation of turnover made by the Assessing Officer which is essentially bifurcation of taxable and non-taxable turnover based on findings of facts during inspection. We notice that the first appellate authority has granted substantial relief by treating 30% of the turnover as non-taxable and retaining the assessment of turnover of ready made garments at 70% of the total turnover declared. The Tribunal also found that estimation modified by the appellate authority is quite reasonable. Since exempted goods namely, textile, on physical inspection was found only in one of the five shops, we feel the relief granted by the first appellate authority and confirmed by the Tribunal is reasonable and in any case it is not proper for us to interfere with the findings on facts, that too based on data gathered on inspection. We, therefore, do not find the second question raised is a substantial question of law warranting interference under the revisional jurisdiction under Section 63of the KVAT Act. We, therefore, dismiss the revision case filed by the assessee.