2011 (9) TMI 888 - HC - VAT and Sales Tax

Orissa High Court's Ruling on Tax Notices: Procedural Requirements and Natural Justice

The Orissa High Court quashed the notices for less payment of tax in form E24 and demand notice in form E8, allowing the assessing officer to take ... Whether both the notices have been issued directing the petitioner to pay ₹ 13,33,115 along with interest at the rate of two per cent for the period from January 1, 2010 to the date of payment of the amount as directed in form E24 without application of mind and misconstruing the above provisions of the OET Rules? Held that:- The petitioner-dealer has filed its nil return for the period under consideration. Since it is not the case of the assessing officer that the dealer has admitted certain amount towards its tax liability in the return and made less payment than the amount admitted to be payable by him in its return, he is not justified to issue notice in form E24 and consequently demand notice in form E8 raising demand of ₹ 13,33,115. According to the assessing officer, as per the figures furnished in the return, the tax due for the period under consideration comes to ₹ 13,33,115 as various deductions claimed by the dealer, according to the assessing authority, is not admissible/allowable. In that event, the assessing officer shall, issue a show cause, asking the dealer to pay the amount due on the return in forms E22 and E23 as provided under rule 10(5). Thus the notice issued in form E24 and demand notice in form E8 under annexure 3 series are quashed. Liberty is given to the assessing officer to proceed against the petitioner in accordance with law, if he is of the opinion that the tax due on the return as furnished by the petitioner is not paid by it due to wrong/excessive claim of deduction(s) in the return. Appeal allowed. Issues:Challenge to notices for less payment of tax in form E24 and demand notice in form E8 under the Orissa Entry Tax Rules, 1999.Detailed Analysis:1. Challenge to Notices for Less Payment of Tax:The petitioner, a registered dealer under the VAT Act and Entry Tax Act, challenged notices for less payment of tax in form E24 and demand notice in form E8. The petitioner contended that the notices were issued without proper application of mind, as it regularly filed quarterly returns showing nil turnover of goods subject to entry tax. The petitioner argued that no assessment could be made under section 9A read with rule 15A of the OET Rules. Additionally, the petitioner raised constitutional issues regarding the levy of entry tax on goods imported from foreign countries and claimed that deductions had been made illegally. The Commercial Taxes Department defended the notices, stating that the assessing officer rightfully issued the notices based on discrepancies in the deductions claimed by the petitioner.2. Interpretation of Rule 10(6)(b) of the OET Rules:The central question before the court was whether the assessing officer could unilaterally determine the tax due from the dealer under clause (b) of sub-rule (6) of rule 10. The court analyzed the provisions of rule 10(6)(b), emphasizing that the assessing officer's power was limited to directing the dealer to pay the differential amount between the tax payable as per the return and the tax paid. The court highlighted that the rule did not provide for a hearing before issuing notice in form E24, as the assessing officer was only required to ask the dealer to pay the differential tax amount. The court rejected the argument that the assessing officer could unilaterally disallow deductions without providing a hearing, as it would violate principles of natural justice.3. Compliance with Procedural Requirements:The court examined various clauses of rule 10 under the OET Rules related to the submission of returns, payment of taxes, issuance of notices for tax defaults, and imposition of penalties for non-compliance. It clarified that if a dealer failed to pay the tax due as per the return, show-cause notices and penalties were to be issued as per the provisions of the rules. In the present case, since the dealer had filed a nil return and not admitted any tax liability, the assessing officer was not justified in issuing notices for the tax amount claimed to be due based on disallowed deductions.4. Conclusion and Judgment:The court quashed the notices issued in form E24 and demand notice in form E8, granting liberty to the assessing officer to take appropriate action if there were genuine concerns about tax payment due to wrong or excessive deductions claimed by the petitioner. The writ petition was allowed, and the judgment was delivered by V. Gopala Gowda, C.J., with agreement from another judge.This detailed analysis of the legal judgment from the Orissa High Court provides a comprehensive overview of the issues raised, the arguments presented by both parties, the court's interpretation of relevant rules, and the ultimate decision reached by the court.