The Hindu Business Line : Auditors can soon get neck-deep in legal lagoons

Likewise, law is too important to be left to the lawyers, so accountants, willy-nilly get neck-deep into law. Take, for instance, the latest annual report of Ashok Leyland Ltd for the year ended March 31, 2004. Among the notes to the accounts is a section that deals with the company's tussle in the courts.

"In respect of branch transfer of chassis from Tamil Nadu and subsequent sale in other States, Government of Tamil Nadu has demanded sales tax on such branch transfers even though these chassis sales have suffered sales tax in other States," begins the note, and discusses a verdict of the apex court delivered a couple of months before the accounting year closed.

ABCs of Form F

From the text of the decision running to about 40 pages, and carried in volume 2 of Supreme Court Revenue Cases, you'd learn that the company's despatches of chassis, spare parts, and so on, to sales depots were "supported by stock transfer invoices, transport details, and Form F."

If you want to know how Form F looks like, the format is shown in the decision, and it has lines that are easily comprehensible — such as description of goods, quantity or weight, value of goods, invoice reference, name of railway station of despatch, transporter documentation reference, and so on.

What is the purpose of verification of the declaration made in Form F? The decision explains it as to check if "the branch office acted merely as a conduit, or the transaction took place independent to the agreement to sell entered into by and between the buyer and the registered office of the company situated outside the State."

No reopening, please

Resuming the story, timeline 1990, Form F filed by the company got accepted and exemption granted, but then a demand for tax sprung up that baffled the company.

The Madras High Court, deciding the dispute, upheld the jurisdiction of the Tamil Nadu authorities to "reopen an assessment completed despite acceptance of declaration in Form F".

The case then moved on to the apex court. Thus, in 1997, a two-judge Bench of the Supreme Court, among other things, held that it is permissible to reopen an assessment.

Referring to the judgment, the note in the company's annual report reads thus: "In its order dated February 20, 1997, the Supreme Court held that the assessing officer has power to reopen the assessment accepting Form F declaration, but observed that single sale transaction shall not suffer sales tax twice."

`Overruled'

But then, this verdict got `overruled' by the 2004 judgment of a three-judge Bench. "Mere change in the opinion of the assessing authority" cannot be a ground for reopening an earlier order, said the court.

The one exception would be where the order is found to be "illegal or void ab initio or otherwise voidable". It cited a 1959 decision in the Amritlal Bhogilal case: "There is no law that only because no appeal is provided the order would not attain finality."

What does the note in the annual report say on the 2004 decision? "The Supreme Court confirmed, by its judgment dated January 7, 2004, that an order accepting Form F is conclusive and cannot be reopened by revisional powers of the assessing authority except when there is commission of fraud, collusion, misrepresentation or suppression of material facts or giving or furnishing false particulars is/are suspected."

While the view on finality would come as great respite to companies that are burdened with litigation, Mr N. C. Mehta, a CA specialising in sales tax, writes in The Bombay Chartered Accountant Journal that there could now be reluctance in the minds of assessing authorities to accept Form F declarations.

They cannot reject the same once accepted, "except in the case of fraud or collusion," as the apex court would stipulate. "What about non-acceptance of the Form F?" Mr Mehta asks, wondering if there could be appeal against such refusal.

Cost of litigation

This is only one glimpse of the long judgment that merits a detailed study. That the matter is not over would be evident from the elaborate note in the annual report. The apex court has directed the company to file a writ petition before the Madras High Court or the Central Sales Tax Appellate Authority, a body that needs activation through a notification by the Central Government.

The company has filed writ petitions "against other State Governments for refund of the tax paid, where appropriate". What is the money at stake? The report speaks of demand and penalty for various assessment years (see Table). In many instances, demand is in one State but the company has paid tax in other States.

Well, costing of legal tussles is not something one learns in CA. Ashok Leyland is but one of the many instances of how the exercise of drawing up financial statements has to factor in many court decisions.

Quite logically, this imposes an obvious cost on the assessees. In the interest of due care and diligence, it becomes necessary for auditors too to wade through legal labyrinth, rather than merely relying on opinions obtained by clients from law firms.

In the case of Ashok Leyland, this could be an ordeal that would be all the more tough for the CA firm Deloitte Haskins & Sells, filling in this year the slot created by PriceWaterhouse's dropping out as joint auditors.

AccountSpeak@TheHindu.co.in

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