AO Not Bound By Observations of First Appellate Authority during De Novo VAT Assessment: Madras HC Upholds Sales Tax Tribunal Decision [Read Order]

The Madras High Court recently shed light on the independent authority exercisable by an Assessing Officer (AO) during de novo proceedings under the Tamil Nadu Value Added TaxAct, 2006, confirming that the AO is not bound by the observations of the first appellate authority while conducting a reassessment.

The dispute arose out of a challenge by the Commercial Taxes Department against the order of the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Chennai, which related to the assessment year 2013-14 regarding the financials of Tvl. Aro Granite Industries Ltd (Aro Granite).

-An assessment of the financials of Aro Granite was completed by the AO on 7 March 2017, in which the turnover from the sale of plant and machinery, furniture, electrical and office equipment, as well as profit on the sale of such items and buildings, and the sales turnover on old and used vehicles were all brought to tax.

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Consequently, Aro Granite was slapped with a Penalty under Section 27(3) of the Tamil Nadu Value Added Tax Act, 2006.

The Assessee contested this assessment, contending that the sale of ‘Unit 1 at the Sipcot Industrial Complex, Hosur, was a slump sale to S.V.G. Exports Private Limited on an ‘as is where is basis’ and therefore, the turnover ought to be assessed as from the sale of one complete business sale and not as separate taxable sales of various assets.

In appeal, the first appellate authority recognized the need to determine whether the transaction constituted a slump sale and remanded the matter to the AO for a fresh assessment, instructing the AO to examine the agreement to ascertain the parties' intention.

However, the Commercial Taxes Department was of the opinion that certain observations made by the first appellate authority in the remand order would prejudice the discreiotn exercised by the AO in remand and thus preferred the present Tax Case before the Madras High Court.

The State, represented by V. Prashanth Kiran challenged the Tribunal's confirmation of the remand order. It was submitted that the State is not per se aggrieved with the remand, but only by the observations made by the first appellate authority while remanding the matter which may stand in the way of the Assessing Authority in determining the issue properly and afresh.

Meanwhile, Aro Granite, was represented by Saravana Selvi

The Division Bench of Justice Anita Sumanth and Justice N. Senthilkumar considered these submissions and observed that, during de novo assessment proceedings, the AO must independently apply his mind to all facts and circumstances of the case, strictly in accordance with law; and should not be constrained by the observations of the appellate authority in the preceding stage.

The Court clarified that while the order of remand was to be followed, any findings or comments made by the first appellate authority in the remand order would not limit the AO’s scope or authority during reassessment.

Given the circumstances, the High Court deemed it unnecessary to answer the substantial question of law and proceeded to confirm the order of remand with the directions as given.

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