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Larsen & Toubro Ltd. v. State of Jharkhand

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 5390 of 2007)Decided 21 Mar 2017
Civil Appeal No. 5390 of 2007
Justice Madan B. Lokur · Justice R.K. Agrawal

Background

Larsen & Toubro, a construction company executing works contracts for Tata Iron & Steel Company (TISCO), had its 1991-92 sales tax assessment reopened years later after an Auditor General's audit flagged that the company had been exempted from tax on certain consumed goods (valued over Rs. 3.12 crore) without producing a mandatory tax-paid declaration (Form IX-C). The Deputy Commissioner issued a re-assessment order in 2006 creating an additional tax demand of about Rs. 35.72 lakh, and the Jharkhand High Court upheld this re-assessment, dismissing the company's writ petition. The company appealed to the Supreme Court, arguing the re-assessment itself was invalid.

Decision Breakdown

The core legal question was whether the Assessing Officer had genuinely formed an independent "reasonable belief" that income had escaped assessment (as required under Section 19 of the State Act) before reopening the case, or had merely acted on the audit party's direction without personal satisfaction. On examining the audit report itself, the Supreme Court found that the Assessing Officer's own recorded opinion was that the goods in question had been consumed, not transferred, and therefore fell outside the scope of taxation, meaning the officer was not actually satisfied that any turnover had escaped assessment, and only issued the notice because the audit party directed it. Since reopening an assessment on a mere audit directive, without the assessing authority's own independent satisfaction, is not permissible in law, the Court held the re-assessment order was without jurisdiction, allowed the appeal, and set aside both the Deputy Commissioner's order and the High Court's judgment upholding it, with each side bearing its own costs.

Lesson Learnt

A tax authority cannot reopen a completed assessment merely because an audit team directs it to: the law requires the assessing officer to independently and personally form a reasonable belief that income has escaped assessment; acting purely on an auditor's instruction, without that independent satisfaction, makes the reassessment invalid.

Official source (sci.gov.in)View Judgment (PDF)

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