Kochi, April 28 The Kerala High Court has pulled up the assessment authorities engaged in taxation laws for passing orders mechanically without giving reasons for how the taxable event occurred or why the claim of an assessee was being denied for exemption or deduction.
A division bench of the Court pointed out that the assessment authority should apply its mind while determining whether a taxable event exists for demanding from an assessee more tax than what has been admitted as payable.
"We deem it appropriate to observe that in matters of assessment under a taxing statute, the requirement of fairness, that is an integral aspect of the rule of law in our country, mandates that an assessing authority should apply its mind to the various factors that influence an assessment and give a sufficient indication in the assessment order of having done so," said the court.
"The right of an assessee to seek justification of state action would mandate that this court step into correct unreasonable orders of assessing authorities so as to uphold the culture of justification that legitimizes state action," added the court.
The court said this while considering appeals filed by Prodair Air Product India Private Limited (Prodair Limited) challenging the order of the assessment authority under the Kerala Value Added Tax Act (KVAT Act) imposing a penalty on it under the KVAT Act for two assessment years.
Prodair Limited is a private limited company involved in the production and sale of industrial gases such as Hydrogen, Nitrogen, and HP steam.
Bharat Petroleum Corporation Limited (BPCL) found it necessary to ensure a continuous and reliable supply of Hydrogen, Nitrogen, and HP Steam of particular specifications so as to increase the production of their petroleum products.
Therefore, Prodair Limited and BPCL entered into a contract for supplying the said gases.
According to the appellant, its obligations under the contract were to build, own, operate (BOO) and maintain a Hydrogen and Nitrogen manufacturing plant at its own cost and expenditure on the land to be allocated by BPCL on lease basis, with the objective of ensuring exclusive and uninterrupted supply of Hydrogen, Nitrogen and HP Steam to BPCL at competitive prices.
In the contract between the parties, the price of the gases comprised fixed monthly charges as well as variable charges.
The contract gave BPCL an option to take over the production plant if the agreement is not renewed upon completion of its initial term of 15 years from the date of commencement of the supply of gases to BPCL.
However, when the assessment authority completed the assessment for two assessment years, it imposed a penalty on the appellant under the KVAT ACT.
This prompted the appellant to approach the High Court.
The court after careful examination of the contract between the parties said that the appellant will build, own and operate a plant on land leased from BPCL for the purposes of supplying specified gases to BPCL, and there is no transfer of the property in the plant or any part of it, to BPCL as assumed by the assessment authority.
Therefore, the court allowed the appeals and pulled up the assessment authorities under taxation laws for passing orders mechanically without giving reasons for how the taxable event occurred or why the claim of an assessee was denied for exemption or deduction.
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