JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

 

Jhansi Sahkari Kraya Vikraya Samiti Vs. Commissioner of Sales Tax, U.P., Lucknow [1978] 042 STC 0454

M/s. Jhansi Sahkari Kraya Vikraya Samiti was assessed to sales tax ex Parte by an order. The assessment order was served on the co-operative society's accountant. Subsequently, the same assessment order was served on the secretary of the co-operative society. The society filed an appeal and raised an objection that the appeal was beyond time. The Judge (Appeals) held that service on the accountant was valid and dismissed the appeal as barred by time. The application for condonation of delay was also rejected. The assessee went up in revision but failed.

At the instance of the assessee, the Judge (Revisions) has submitted this statement of the case for the opinion of this court on the following questions of law:

               "(1) Whether the accountant of M/s. Jhansi Sahkari Kraya Vikraya Samiti is the applicant's agent within the meaning of rule 77(1(a) of the U.P. Sales Tax Rules?

               (2) Whether the service of the ex parte assessment order dated 3rd August, 1967, on the dealer's accountant on 13th October, 1967, is valid and legal service thereof having a binding effect upon the applicant?

               (3) Whether the institution of an appeal on 2nd February, 1968, was within the prescribed period of limitation in the circumstances of this case?"

               Rule 77(1) (a) of the Sales Tax Rules, as it stood in 1967, provided:

               "(1) The service of any notice, summons or order under the Act or the Rules may be effected in any of the following ways, namely:

 (a) by giving or tendering a copy thereof to the dealer or licensee, or his manager or agent; or".

               Rule 77-A provides:

               "Unless otherwise provided in the Act or the Rules anything which is by the Act or the Rules required or permitted to be done by a dealer, except when he is required to attend-personally for examination on oath or affirmation, may be done by a lawyer, an accountant or an authorized agent appointed by the dealer in writing in this behalf; and process served on or notice given to such lawyer, accountant or the authorized agent shall be as effectual as if the same had been served on or given to the dealer in person; and all provisions of the Act or the Rules relating to the service of process on or the giving of a notice to a dealer shall be applicable to the service of process on or the giving of notice to such a lawyer, accountant or the authorized agent."

Court held that accountant of the assessee was not its agent within the meaning of rule 77(1) (a), as it stood in the year 1967.Service of the assessment order on the accountant was not valid and legal service. Therefore, the appeal filed by the assessee was within time.

Follow Us on

    

JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

 

Srikanth Trading Company Vs. State of Andhra Pradesh [1998] 109 STC 0590

Petitioner is a dealer registered under the Andhra Pradesh General Sales Tax Act, 1957. It challenges the validity of the order of the Sales Tax Appellate Tribunal in as illegal and arbitrary. Question that arises for consideration is whether an auditor is an agent within the meaning of clause (a) of rule 58 of the Andhra Pradesh General Sales Tax Rules, 1957.

Andhra Pradesh High Court held that”8. A plain reading of the rule, extracted above, shows that service on the dealer of any notice, summons, order or proceedings under the Act or under the Rules may be effected in any one of the ways mentioned in clauses (a) to (d). Clause (a) speaks of giving or tendering it to such dealer, or his manager or agent. What is contended here is that no notice was tendered to the dealer or to the manager, it was tendered to the auditor, who does not come either within the meaning of manager or agent. The learned Special Government Pleader, however, relies on section 35(a) of the Act to show that the auditor falls within the meaning of agent. Section 35 deals with appearance before any authority in proceedings. It is in the following terms:

               “35. Appearance before any authority in proceedings.-Any person who is entitled to appear before any authority other than the Special Appellate Tribunal in connection with any proceedings under this Act, may be represented before such authority                (a) by his relative or a person regularly employed by him, if such relative or person is duly authorized by him in writing in this behalf; or

               (b) by a legal practitioner; or

               (c) subject to such conditions as may be laid down by the rules in that regard by a chartered accountant within the meaning of the Chartered Accountants Act, 1949 or by a person who was enrolled as a sales tax practitioner by such authority on payment of such fees and possessing such qualifications as may be prescribed if such accountant or sales tax practitioner is duly authorized in writing in this behalf.”

               It must be pointed out here that service of notice on persons as contemplated under rule 58 is entirely different from appearance of the persons under section 35 of the Act. Merely because under section 35 the chartered accountant is entitled to appear in the proceedings before the authorities under the Act, it cannot be held that the chartered accountant is an agent for purposes of receiving pre-assessment notice. Receiving of notice during the pendency of any proceedings where chartered accountant is appearing cannot be equated with receiving of pre assessment notice for and on behalf of a dealer. There is nothing on record to show that the auditor appeared before the Commercial Tax Officer pursuant to the notice in the assessment proceedings. In the absence of such material, in our view, service of show cause notice on the auditor who happened to appear subsequently in penalty proceedings cannot be taken as sufficient notice. In this view of the matter, the impugned order of assessment is set aside. The assessing authority is at liberty to issue fresh show cause notice and proceed with the assessment, in accordance with law.”

Follow Us on

    

JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

 

Assam Drug Dealers Association and another Vs. State of Assam and others [2006] 143 STC 0084

This is an application filed by the Assam Drug Dealers Association for review of the order dated September 13,2002 passed in W.P.(c) No. 2877 of 2000 [Indian Oil Corporation Ltd. v. State of Assam [2002] 128 STC 537 (Gauhati)] and other similar matters. In the above batch of writ petitions, it was held that the audit made by the concerned auditor under the Income-tax Act, if any, shall be deemed to be sufficient compliance of section 10A of the Assam General Sales Tax Act, 1993 and the audit report under rule 19A.

Dr. Saraf has submitted that the petitioners have no grievance and no appeal has been filed by the either parties against the said order. However, in the impugned judgment, it was further pro-vided that a report in forms XXXI and XXXI-A as required under rule 19A be furnished along with the said report. It is, therefore, submitted that it needs to be clarified. In view of finding that the audit report under the Income-tax Act shall be deemed to be an audit report under the General Sales Tax Act, the certificate in forms XXXI and XXXI-A will not be required to be given by the accountant/auditor and required information in form XXXI-A may be allowed to be given by the dealer. I find that the impugned judgment was passed reading down section 10A, so that it does not burden the dealers for under going audit of their accounts twice, once for the purpose of income-tax and again for the purpose of General Sales Tax Act.

 In view of the above decision, it is provided that the form XXXI-A shall be furnished by the dealer. So far form XXXI is concerned the audit report/certificate given by accountant shall be sufficed. The concerned Sales Tax Department may take steps for modification of the form.

Bal Chand Pardeep Kumar Vs. State of Punjab and another [2009] 025 VST 0420

The assessment of the petitioner-dealer in respect of the year 1991-92 was framed on September 17, 1993. On September 26, 1995, a notice was issued by the revisional authority under section 21 of the Punjab General Sales Tax Act, 1948 on the basis of an audit objection but no action was taken. On June 18, 1996, the Assessing Authority intimated the petitioner-dealer that definite information was in his possession leading to the belief that the turnover of his business was liable to reassessment and a reassessment order was passed on April 23, 2001 raising an additional demand under section 4B of the Act. Petitioner filed a writ on this issue.

Punjab and Haryana High Court held that the assessment in respect of assessment year 1991-92 attained finality on September 17, 1993, when the initial assessment was framed. The petitioner-dealer filed its return in accordance with the law as it stood at the relevant time. The change of law subsequent to the finalization of assessment on September 17, 1993 would not constitute a basis for framing reassessment. The law did not permit reassessment on the ground that an audit objection had been raised and such an objection would not constitute "definite information" within the meaning of section 11A of the Act. Reassessment under section 11A of the Act was also not permissible on the basis of a subsequent interpretation by the court.

Follow Us on

    

JUDICIARY ON GST AUDIT

 

B.P. Enterprises Vs. State of Orissa and others [2008] 018 VST 0405

Petitioner was a registered dealer under the provisions of the Orissa Goods and Service tax Act, 2004. Petitioner's business was audited under the Orissa Goods and Service tax Act, 2004 and a notice dated November 22, 2006 was served calling upon the petitioner to appear for hearing for the purpose of assessment on the basis of the audit report. The petitioner was heard and an assessment order dated July 3, 2007 was passed directing the petitioner to make certain payment in accordance with terms and conditions of the demand notice. He file a writ petition challenging the order dated July 3, 2007 on the ground that the only authority competent to assess the petitioner was the assessing authority of the range and that therefore the order passed was null and without jurisdiction:

Orissa High Court held that rule 49(3) of the Orissa Goods and Service tax Rules 2005, provides that if an application on the part of the dealer is moved raising the issue of jurisdiction before the assessing authority, in view of the provisions of rule 49(4) of the Rules, 2005 the assessing authority is bound to deal with the objection before proceeding for assessment. However, the petitioner neither considered it proper to challenge the notice dated June 16, 2007 nor filed any objection under rule 49(3) of the Rules, 2005 before the authority. As writ is a discretionary relief it should not be granted in favour of a person like the petitioner who just wanted to buy time and withheld public money adopting such dilatory methods.

Orissa High Court held that “In the fitness of the case, petitioner ought to have approached the appellate forum. However, in order to avoid the pre-deposit condition of20 per cent of the assessed amount, he approached this court directly. Thus, to meet the ends of justice, it is desirable that the petitioner be asked to deposit 20 per cent of the assessed tax and interest before the assessing authority, Range, Cuttack within a period of four weeks from today. The assessing authority, range shall issue a fresh notice for making a fresh audit assessment and shall complete all proceedings within a period of three months from the date of issuance of notice. However, it is clarified that any obserGSTion made herein shall not prejudice the case of either side.

               Petition succeeds and allowed and the order of assessment dated June16, 2007 is set aside. The aforesaid direction shall be carried out.

               Before parting with the case, we would like to point out that every day we are facing the assessment orders, in respect of the TIN dealers, passed by the assessing authority, circle, though such assessment orders are in violation of the statutory provisions as can be passed only by assessing authority, range. Even if the dealer does not take any objection in this regard, it becomes the duty of the assessing authority himself to keep the jurisdictional issue in mind.”

Follow Us on

    

JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

Abhay Kumar and Company and Others Vs. Union of India and Others [1986] 063 STC 0203

The petitioners by a writ petition challenged the validity of sections 44AB and 271B of the Income-tax Act, 1961, providing for auditing of accounts by chartered accountant for businessmen and professionals having turnover and gross receipts more than Rs. 40 lacs and Rs. 10 lacs respectively.

The grounds placed by petitioners were:

• This provision is arbitrary and discriminatory and violative of article 14 of the Constitution,
• the obligation of submission of audit report imposed unreasonable restriction on the petitioners' business and thus violative of article 19(1)(g),
• Submission of audit report would amount to abdication of the discretion exercised by the ITO to the chartered accountant

Rajasthan High Court held that submission of audit report of the accounts of the persons whose turnover is more than Rs. 40 lacs and professional income is Rs. 10 lacs is reasonable restriction and as such cannot be said to be violative of article 19(1)(g) of the Constitution.

The discretion of the Income-tax Officer will not be abdicated simply because the assessee is required to submit audit report rather on the contrary it will be more useful and it will assist the Income-tax Officer in order to arrive at his decision expeditiously and that will be for the benefit of the administration.

Nayak Variety Store Vs. Commissioner of Sales Tax, Orissa [2008] 018 VST 0500

Notice dated July 16, 2008 was issued under rule 44(2) of the Orissa Goods and Service tax Rules, 2005 for the purpose of conducting tax audit under the Orissa Goods and Service tax Act, 2004 for the period from April 1, 2005 till the date of audit visit. Writ petition was filed challenging the notice on the ground that the audit assessments for the period from April 1, 2005 to March 31, 2006 and April 1, 2006 to October 31, 2006 were already completed earlier under section 42 of the Goods and Service tax Act by assessment orders dated December 2, 2006.

Orissa High Court stated that Orissa Goods and Service tax Act and the Orissa Goods and Service tax Rules framed thereunder have taken care of the situation where a dealer is under-assessed or its turnover has escaped assessment while making audit assessment under section 42 of the Act. The interest of the Revenue is well protected under section 43 which provides a longer period of limitation of five years to take action under that section, where audit assessment under section 42 of the Act had been completed. Thus there being adequate safeguard provided in the statute for assessing the undisclosed/escaped turnover/under-assessments for different reasons as contained in section 43, resorting to repeated tax audits and audit assessments is wholly unjustified, arbitrary and illegal. The Legislature never intended to have repeated tax audits and audit assessments for the same tax period(s) because such an interpretation would render the provisions contained in sub-sections (6) and (7) of section 42 redundant, as the Department in case of failure to complete an audit assessment within the time prescribed can always start a new audit for fresh audit assessment and thereby it will become a never-ending process.

Orissa High Court held that “        Besides, once audit assessment under section 42 is completed for a particular period, the assessing officer becomes functus officio for the same period so far second and subsequent assessment under that section is concerned. But there is no embargo for reopening the audit assessment earlier made, under section 43 of the OGST Act.

               In view of the above, the present notice issued vide annexure 1 for tax audit for the period from April 1, 2005 till the date of audit visit is bad in law and liable to be quashed.

               With the above obserGSTion, the writ petition is allowed and the notice under annexure 1 is quashed.”

Follow Us on

    

JUDICIARY ON GST AUDIT

JUDICIARY ON GST AUDIT

[2002] 119 STC 0460W Patna High Court

M/s. Eureka Forbes Ltd., petitioner, a limited. Petitioner has challenged notices issued by the respondent-Deputy Commissioner of Commercial Taxes, Jamshedpur, under section 19(1) read with section 17(2) of the Bihar Finance Act, 1981; orders of reassessment and orders passed in revisional applications by the Commissioner of Commercial Taxes, Patna, by which the orders of reassessment have been upheld and the revision petitions have been dismissed.

It was under impugned notices issued on different dates in the year, 1993, issued under section 19(1) read with section 17(2) of the Bihar Finance Act, 1981, the petitioner was asked by the respondent-Deputy Commissioner, Commercial Taxes, Jamshedpur as to why reassessment for the aforesaid periods be not done. The petitioner filed reply objecting the reassessments stating therein that the reassessments were not permissible, as it amounted to review of earlier assessment, merely on the basis of change of opinion and not on the basis of any information and/or other documents.

At this stage it is to be taken into note that the reassessments in these cases for the aforesaid period have been made by the respondent-Deputy Commissioner, Commercial Taxes, solely on the basis of an "audit report". In the State of Bihar, the respondent-State has levied tax at the rate of 8 per cent with regard to the "machineries"; whereas 12 per cent of tax is levied with respect to "electrical goods". The vacuum cleaners, which were originally assessed at the rate of 8 per cent by the assessing authority, were so assessed treating the same as "machineries". Subsequently the audit party while submitting audit report gave its opinion that the vacuum cleaners are "electrical goods" and for that the assessment should have been done at the rate of 12 per cent instead of 8 per cent, as has been done in the case of the petitioner. It was on the basis of such opinion of the audit party as mentioned in the audit report orders of reassessment have been passed, which have been confirmed by the revisional authority.

Counsel for the petitioner challenged the reassessment and thereby the impugned orders on different grounds, as enumerated below:

               (i) Audit report cannot constitute information, as enumerated under section 19(1) of the Bihar Finance Act, 1981 and on that basis, no proceeding for reassessment can be initiated;

               (ii) There is no new material on the record to make reassessment in terms with section 19(1) of the Act aforesaid;

               (iii) Mere change of opinion, as has been made by the audit party and/or by the Deputy Commissioner, Commercial Taxes, Jamshedpur, cannot be a basis for reassessment in terms with section 19(1) of the aforesaid Act; and

Patna High Court decided that

               (i) A mere change of opinion and/or second thought by any authority on the same set of facts and materials on record would not constitute "information" under section 19(1) of the Bihar Finance Act, 1981;

               (ii) There must be some material and/or facts on the record which had not been taken into account at the time of original assessment, to make reassessment in terms with section 19(1) of the Bihar Finance Act, 1981; and

               (iii) "Audit report" cannot constitute information", as enumerated under section 19(1) of the Bihar Finance Act, 1981, for the purpose of reopening of assessment.

Follow Us on

    

JUDICIARY ON GST AUDIT

Indian Oil Corporation Ltd. and others Vs. State of Assam and others [2002] 128 STC 0537 Gauhati High Court

Section 10A of Assam General Sales Tax Act, 1993

“Audit of Accounts of certain dealers

Every dealer whose gross turnover in a year exceeds rupees forty lakhs, shall get his accounts audited by a Chartered Accountant and shall submit a copy of the audited statement of account and certificate in such manner as may be prescribed.”

Rule 19A of Assam General Sales Tax Rules, 1993

The Certificate of audit of the accounts of a dealer required to be furnished under section 10A shall be in Form XXXI accompanied by a statement of particulars in Form XXXI-A and shall be furnished to the Assessing Officer on or before the 31st October of the year succeeding the year to which it relates.

In this batch of writ petitions, petitioners challenged the validity and legality of the provisions of section 10A of the Assam General Sales Tax Act, 1993, and provisions of rule 19A of the Assam General Sales Tax Rules, 1993, which were incorporated by the amending Act of 1999 and made applicable with effect from June 1, 1999.

Gauhati High Court stated that the provisions of Act can’ be quashed on the ground that they were incorporated only at the request of a particular group, association or organization unless these were beyond the competence of the Legislature or ultra vires in view of the provisions of the Constitution of India

It also stated that section 11 of the Assam General Sales Tax Act, 1993 provides for compulsory registration of dealers who are liable to pay tax. However, this does not mean that the dealers who are not liable to pay tax under the Act are not required to register. Thus, it cannot be said that the provisions of the Act are limited or covers the dealers who are liable to pay tax only and the requirement of compulsory audit under section 10A of the Act on the basis of gross turnover is alien to the provisions of the Act. The submission has got no basis.

Gauhati High Court held that “15. On perusal of the above, it may be seen that the dealer who is covered by section 10A of the Act will also stand covered under section 44AB (b) of the Act. The submission on behalf of the petitioner therefore is that in the Act there is no provisions similar to proviso (ii) of section 44AB as quoted, as a result of which, an extra burden has been imposed on the dealer to get their accounts audited twice, one for the purpose of Income-tax Act and the other for the purpose of Sales Tax Act. I find sufficient force in the above submission as the proviso (ii) of the Income-tax Act provided that if the accounts are already audited under any other provisions of law, no separate audit under section 44AB(a), (b) is required. The basic idea is that two separate audits will not serve any purpose, at best, the same auditors may be asked to provide further information as per rule 19A if required by the sales tax department. The provision of section 10A is also required to be modified to that extent so that the dealers are not, burdened unnecessarily. However, we do not propose to strike the provisions but read down the same by providing that an audit made by the concerned auditor under the Income-tax Act shall be deemed to be sufficient compliance under the provisions of section 10A of the Act provided a further report in forms XXXI and XXXI-A as required under rule 19A is furnished along with the said audit report.

               ……………………

17. Dr. Saraf has further submitted that in absence of any similar or identical provisions under the Act, the authorities are unable to take any action against the dealers who refuse or fail to submit the returns as the assessing authority is bound to make assessment with or without the audit report and in that sense the provisions of section 10A of the Act have become optional, that is, at the discretion of the dealers. The respondent-authority must examine this aspect of the matter and take necessary action. However, the question before this Court is whether in absence of any penal provision, the section 10A and rule 19A can be quashed. In our opinion, the impugned provision cannot be thrown out on that count.
18. In the result, the writ petition stands disposed as stated above.”

Follow Us on

    

ILLUSTRATIONS ON GST ACCOUNTING

Illustration 3

On 1 June, 2010, a dealer purchases one machine in a State for the total cost of Rs. 66,45,600 which includes input tax of Rs. 2,55,600. As per the State GST laws, input tax paid on purchase of machinery is adjustable as GST credit over 36 equal monthly installments beginning July 1, 2010. Till the end of the year, the dealer has not utilised the GST credit available on the machine.

Accounting Entries

Purchase of machinery Machinery A/c             Dr. Rs. 63,90,000 GST Credit Deferred (Capital Goods) A/c                   Dr. Rs. 2,55,600                         To Bank A/c Rs. 66,45,600 (Being machinery purchased and input tax paid)

Entry for Input Tax Credit GST Credit Receivable (Capital Goods) A/c                              Dr. . Rs. 7,100                 To GST Credit Deferred (Capital                 Goods) A/c            Rs. 7,100 (Being a portion of GST credit on purchase of machinery becoming available)

Dealer shall charge depreciation on the cost of machinery excluding GST credit (i.e., Rs. 66,45,600– Rs. 2,55,600 = Rs. 63,90,000).

Illustration 4

ABC Ltd. sold goods on 28th October,2009. He sells 710 units of product ‘X’ to Mr. Pranav for Rs. 71 per unit plus 12.5% GST. On 30th June, 2010, Mr. Dharam becomes insolvent. As per the relevant State GST laws, in this situation, ‘ABC’ Ltd. is not liable to pay GST.

Accounting Entries

Sale of Goods B A/c                               Dr. Rs. 79,875 To Sales Rs. 71,000 To GST Payable Account Rs. 8,875 (Being sale of goods on credit to ‘Mr. Pranav’)

Mr. Dharam becomes insolvent GST Payable A/c                      Dr. . Rs. 8,875 Bad Debts A/c                           Dr. Dr Rs. 71,000 To Mr. Dharam Rs. 79,875 (Being bad debts written off on Mr. Dharam becoming insolvent)

Follow Us on