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Judgment
P. Jyothimani, J.—Heard Mr. A. Thiagarajan, learned senior counsel for the petitioner and Mr. R. Mahadevan, learned Additional
Government Pleader appearing for the respondents, who has also filed counter affidavit on behalf of the first respondent.
In this writ petition, the order which is challenged is the proposed revision dated 15.5.2009 passed by the first respondent by which the first
respondent by invoking the powers u/s 16(1) of the Tamil Nadu General Sales Tax Act, 1959 (for brevity ""the Act"") has reopened his earlier
decision dated 5.6.2007 accepting that the business of the petitioner is that of a dealer in ''Gutka'' which is classified as Item No. 2 in Part A of
Third Schedule and granting tax exemption.
It is seen that after the original order of exemption was passed on 5.6.2007, a pre-assessment notice was issued purported to be u/s 16(1) of
the Act stating that subsequently, on perusal of the assessment file and other connected records it is revealed that ''Gutka'' dealt by the petitioner
falls under Entry No. 15 of Eleventh Schedule and therefore, the proposal was to impose tax at the rate of 40% at the point of first sale. After
receiving that notice the petitioner submitted its objection on 18.4.2009 wherein it has clearly stated that what was prepared by it was only
''Gutka'' and not ''Pan Masala'' and that ''Pan Masala'' and ''Gutka'' cannot be treated as the same commodities and that while ''Pan Masala'' may
not be entitled to exemption, ''Gutka'' is entitled to exemption. It is thereafter the first respondent passed the impugned assessment order u/s 16(1)
of the Act.
While dealing with the objections raised by the petitioner, the impugned order of assessment passed by the first respondent states as if the
revision has been made as an escaped assessment by treating the commodity produced by the petitioner under Entry 15 of Eleventh Schedule so
as to impose tax at the rate of 40% at the point of first sale. The first respondent has taken such decision on the basis that ''Gutka'' prepared by the
petitioner is actually ''Pan Masala'', while in the packet it is printed as ''Gutka''. The portion of the said impugned assessment order which has made
the first respondent to come to a conclusion of imposing 40% of tax at the point of first sale is as follows:
The objections raised by the dealer have been carefully examined. The contention of the dealer that he sells only ""Gutka"" is not supported by any
documentary evidence. The goods is packed in small quantities and sold in the market for Rs. 2/- per packet. The ingredients of the pack as noted
in those packets is ""nut of areca, catechu broken and perfumed with lime or menthol or sandal oil or cardamom or any one or more of these
ingredients"". The above ingredients also forms part of the goods called Pan Masala that find place as entry No. 15 of Eleventh schedule, which is
taxable at 40 percent at the point of first sale. The name of Gutka is printed on the packets instead of Pan Masala. The entry 15 clearly says that
Pan Masala by whatever name called is taxable 40 percent. It is found that the dealer in order to evade payment of tax had got the words ""Gutka
printed on the packets. As the ingredients as per the packets and as per entry 15 of the Eleventh schedule are one and the same, the contentions
that it is only Gutka and not liable to tax is not acceptable. The objections raised are therefore overruled.
As correctly submitted by the learned senior counsel for the petitioner, while the first respondent on earlier occasion on 5.6.2007 has clearly
admitted the petitioner as a dealer in ''Gutka'', the notice purported to have been issued u/s 16(1) of the Act does not reveal that based on
materials or an appraisal of certain records the first respondent came to know that what is prepared by the petitioner is ''Pan Masala'' but sold as
''Gutka'' by printing the name as ''Gutka''. In the absence of such reason exposed in the notice issued by the first respondent while exercising the
power conferred u/s 16(1) of the Act, it is certainly not possible for the petitioner to explain its case to the effect that what is prepared by it is only
''Gutka'' and not ''Pan Masala''.
At this juncture it is apt to refer to Sections 16(1) and 16(2) of the Act, which are as follows:
Section 16. Assessment of escaped turnover.-
(1) (a) Where, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment to tax, the assessing authority
may, subject to the provisions of Sub-section (2), at any time within a period of five years from the date of order of the final assessment by the
assessing authority, determine to the best of its judgment the turnover which has escaped assessment and assess the tax payable on such turnover
after making such enquiry as it may consider necessary and after giving the dealer a reasonable opportunity to show cause against such assessment.
(b) Where, for any reason, the whole or any part of the turnover of business of a dealer has been assessed at a rate lower than the rate at which it
is assessable, the assessing authority may, at any time within a period of five years from the date of order of the final assessment by the assessing
authority, reassess the tax due after making such enquiry as it may consider necessary and after giving the dealer a reasonable opportunity to show
cause against such reassessment.
(2) In making an assessment under Clause (a) of Sub-section (1), the assessing authority may, if it is satisfied that the escape from the assessment
is due to wilful non-disclosure of assessable turnover by the dealer, direct the dealer, to pay, in addition to the tax assessed under Clause (a) of
Sub-section (1), by way of penalty a sum which shall be-
(a) fifty per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is not more than ten per cent of the tax
paid as per the return;
(b) one hundred per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is more than ten per cent but
not more than fifty per cent of the tax paid as per the return;
(c) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, if the tax due on such turnover is more
than fifty per cent of the tax paid as per the return;
(d) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, in the case of self-assessment referred
to in Sub-section (1) of Section 12:
Provided that no penalty under this Sub-section shall be imposed unless the dealer affected has had a reasonable opportunity of showing cause
against such imposition.
A reading of Section 16(1) of the Act makes it very clear that when the turnover of the business of a dealer has escaped assessment to tax for
any reason, it is open to the assessing authority to reassess within a period of five years but certainly it contemplates a reason that should expose
the basis on which the assessing authority has come to a conclusion that the turnover of the business of a dealer has escaped assessment to tax.
Certainly that reason has to be mentioned in the notice so as to enable the dealer to give his effective reply by way of defence.
The impugned order, operative portion of which is elicited above, has made it clear that the proposal is not to impose penalty u/s 16(2) of the
Act, which enables imposition of penalty in cases of wilful non-disclosure of assessable turnover by a dealer.
Admittedly, the first respondent/assessing authority under the impugned order has concluded that there is no wilful non-disclosure on the part of
the petitioner and in such circumstances, it is the duty on the part of the first respondent to disclose the materials which have made him to exercise
the power u/s 16(1) of the Act. In the absence of such reference to materials in the notice dated 13.3.2009, it is not possible to accept the
contention of the learned Counsel for the respondents that such materials could be inferred from the wordings of the notice. Such construction of
inference will only thwart the principles of audi alteram partem and the concept of natural justice.
While it is true that the assessing authority has right and jurisdiction u/s 16(1) of the Act, the same is expected to be exercised if the escaped
turnover has been found for any reason which is tangible and that reason has to be communicated to the dealer so as to enable him to defend
himself in the manner known to law.
On the factual matrix, when the first respondent himself in the year 2007 has declared the petitioner as a dealer in ''Gutka'' and when under the
impugned order he decides that in the name of ''Gutka'' the petitioner is selling ''Pan Masala'', which is assessable to tax at the rate of 40% at the
point of first sale, in all fairness the first respondent should have in the pre-assessment notice given a fair opportunity to the petitioner so as to
enable it to explain its case. In the absence of such materials, I am of the considered view that the impugned order of assessment has to be set
aside and accordingly, the impugned order stands set aside and the writ petition is allowed, however making it clear that it is open to the first
respondent to issue proper notice in accordance with law if it is decided to proceed u/s 16(1) of the Act and in such event, the petitioner shall be
given 15 days time to file its objection and thereafter, as per the requirement, the petitioner shall be given personal hearing on the date to be
decided by the first respondent. No costs. Consequently, M.P. No. 1 of 2009 is closed.