J.K. Lakshmi Cement Limited v. State Of Rajasthan
Neither the survey report nor the show cause notices amount to a decision, since the report only recommends an inquiry and the notice calls for an explanation; the Act of 2003 has no bar on reopening a completed assessment where the officer has reason to believe tax was not paid in accordance with law; there was no change of opinion without an earlier categorical view; and a writ is not the remedy against a show cause notice when an appeal lies against the assessment order.
By CA Nikhil Gupta · Reviewed against the retained judgment 2026-10-16
The Department treated the supply of diesel by J.K. Lakshmi Cement to contractors, in return for lower work rates, as a sale of diesel and called on the company to explain why tax, cess, interest and penalty should not be assessed for 2015-16. The Division Bench left the question of liability to the assessing authority.
What happened
J.K. Lakshmi Cement Limited makes cement and clinker at Sirohi, Rajasthan, with its own limestone mines, and buys High Speed Diesel from outside the State against Form C under the Central Sales Tax Act, using it for mining and plant work done by contractors. On 5 September 2019 the Commissioner ordered a survey, which was conducted on 6 September 2019, and a report dated 18.02.2020 concluded that diesel issued to the contractor National Transport Company in lieu of a higher payment was a sale under the Rajasthan Value Added Tax Act, 2003, relying on a letter of 15 April 2013 showing lower rates where diesel was supplied and higher rates where it was not. Show cause notices of 5 March 2020 and 6 June 2020 asked why Rs. 11,35,90,985 should not be treated as taxable turnover for 2015-16 and why tax, cess, interest and double penalty should not be imposed. The company said there was no sale as no consideration was received, that the assessment for the year was complete so the action was a change of opinion, the notices were pre-decided and the survey was a roving inquiry. A Single Judge had stayed the notices by an interim order of 24 July 2020 and refused to vacate it on 2 March 2021. The State said the writ was premature.
Questions before the court
- Can the High Court quash a survey report and show cause notices on the allegation that issuing diesel to contractors is a taxable sale, or must the company reply in the inquiry?
Why the court ruled this way
The report records the letter of 15 April 2013 signed by the contractor and the table of rates with and without diesel, and the contractor's invoices for jobs where diesel was not supplied, so there was tangible material, and the report only proposed an inquiry without determining any demand (paragraphs 8 to 11, 19, 20 and 22). The Commissioner who ordered the survey was not made a party and the order of 5 September 2019 was not placed on record, leaving a gap (paragraph 10). Section 25(1) allows the assessing authority to determine taxable turnover on which tax has not been paid 'at any time and for any period' and nothing bars reopening a completed assessment, so awareness of the arrangement over the years does not matter (paragraphs 15 to 17). The company showed no earlier categorical opinion on the same matter, so Commissioner of Income Tax v. Kelvinator of India does not help (paragraph 25). The reference in the notices to later agreements of 2017 and 2019 does not invalidate them (paragraph 21). The earlier interim order was prima facie and gave no finding on sale, so res judicata does not bar the State, and the Bench respectfully differed from the Single Judge's prima facie view that the material was not cogent (paragraph 26). None of the exceptions in Radha Krishan Industries v. State of Himachal Pradesh applies, as the notice is not wholly without jurisdiction and an appeal lies under sections 82 and 86 against an assessment order (paragraphs 27 and 28).
Controlling point
The survey report and show cause notices are not liable to be quashed and the company should participate in the inquiry; the Court gave no view on whether the diesel supply was a sale.
Order and next steps
The petitioner is relegated to the inquiry before the Assistant Commissioner to present its explanation with supporting documents; the Assistant Commissioner is to intimate a fresh date and time for hearing; and if aggrieved by his decision the petitioner may avail the remedy under law.
Practical implications
A dealer who receives a show cause notice proposing a tax demand on a supply to its contractors should reply with documents in the inquiry and appeal the assessment order if need be, rather than file a writ against the notice.
Limits of this ruling
- The Court refrained from expressing any opinion on the remaining contentions, including whether issuing diesel is a sale under the Act of 2003 or leviable to cess, and its view of the earlier interim order was a prima facie expression of difference on the material then before it.
Law and judgment source
- Rajasthan Value Added Tax Act, 2003, sections 4, 25, 26, 55, 61, 82, 86 and 91
- Central Sales Tax Act, 1956
- Constitution of India, article 226
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Source checked: 2026-10-16 · Judgment paragraphs: paragraphs 1-33 · Later case history: not verified. Verify appeals, stays and subsequent orders before reliance.
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