Jharkhand High Court Asserts Assessment Finality under JVAT Act, Rejects Repetitive Reassessments Based on Audit Findings [Read Order]

The High Court of Jharkhand has upheld the principle of assessment finality and barred repetitive reassessments based solely on audit findings. The judgment emphasised the need for a conclusive assessment process in taxation matters.

The case revolved around M/s. Rungta Mines Limited, a company registered under the Companies Act, 1956, engaged in the manufacturing of Sponge Iron, M.S. Billets and TMT Bars. The petitioner company, represented by its Authorised Signatory, Sakaldev Kumar, challenged the re-assessment orders for two consecutive assessment years, 2014-15 and 2015-16, passed by the Deputy Commissioner of Commercial Taxes, Chaibasa Circle, Jharkhand.

The re-assessment orders were issued in response to the audit objections raised by the office of the Accountant General, Jharkhand. These objections were grounded in Rule 25(4) of the Jharkhand Valued Added Tax (JVAT) Act, 2005, which suggested that if a dealer sold goods below cost price, the differential amount, representing the loss, would be subject to tax at the applicable rate.

The petitioner, represented by Mr. Sumeet Gadodia, Mrs. Shilpi Sandil Gadodia and Mr. Ranjeet Kushwaha contended that the re-assessment orders exceeded the statutory period of limitation prescribed under the JVAT Act and questioned the application of Rule 25(4) to its manufacturing business.

It was also argued that the state government could only levy tax on the actual sale consideration received, even if a loss was incurred during the sale of goods.

The respondent revenue, represented by Mr. Rajiv Ranjan, and Mr. Ashok Yadav argued that the re-assessment orders were valid and within the statutory framework of the JVAT Act.

It was also contended that audit objections justified the re-assessments and that Rule 25(4) applied to the petitioner's case, allowing taxation on losses incurred during the sale of goods below cost price.

The Jharkhand High Court focused on the jurisdictional question of whether these re-assessment orders were passed within the statutory limitations prescribed by the JVAT Act, 2005.

The bench clarified that while the alternative remedy of appeal was available, a writ petition challenging re-assessment orders was maintainable. It sited the decision in State of Punjab & Ors. vs. Bathinda District Cooperative Milk Producers Union Ltd. (2007) 11 SCC 363 emphasising the availability of a judicial review mechanism for assessing the legality of tax orders.

The bench clarified that there should be finality to the assessment process and repeated reassessment proceedings based on audit objections should not be allowed.

The bench deemed the jurisdictional issue of limitation as a critical aspect and restrained from delving into the wider debate concerning the leviability of tax on losses incurred during the sale of goods.

The court highlighted that Section 42(3) of the JVAT Act, 2005 which was invoked for these re-assessments, only provided circumstances under which re-assessment proceedings could be initiated.

The division bench comprising Justice Rongon Mukhopadhyay and Justice Deepak Roshan clarified that the enabling provision for re-assessment proceedings was found in Section 40, read with Section 40(4) of the JVAT Act, 2005 which prescribes a limitation of five years. Therefore, since the re-assessment orders were passed beyond this statutory period, they were declared void for want of jurisdiction.

The ruling stressed the importance of finality in tax assessments and aims at curbing repetitive reassessments prompted by audit findings. It not only provides clarity on the interpretation of relevant provisions of the JVAT Act but also safeguards the rights of taxpayers against undue tax liability arising from reassessments.

To Read the full text of the Order CLICK HERE

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