2011 (1) TMI 1511 - HC - VAT and Sales Tax

Court upholds constitutionality of tax audit provisions, directs fresh assessment

The Court upheld the constitutionality of Section 4(1) of the OVACT Act and Rule 41(1) of the Orissa Value Added Tax Rules, 2004, emphasizing the ... - Issues involved: Challenge to the legality of Section 4(1) of the OVACT Act and Rule 41(1) of the Orissa Value Added Tax Rules, 2004 on grounds of being illegal, invalid, and ultra vires the Constitution of India.Summary:Issue 1: Legality of conducting frequent audits without specifying audit cycle in the RulesThe petitioner, a registered dealer under the Orissa Value Added Tax Act, challenged the legality of repeated audits conducted by taxing authorities without a defined audit cycle in Rule 41. Allegations of harassment and abuse of power under Section 41 and Rule 41 were made, contending violation of Articles 14 and 19 of the Constitution. The Revenue authorities argued that the power for conducting audits is essential to prevent tax evasion and ensure tax compliance. The Court examined the provisions of Section 41 and Rule 41, concluding that the Act and Rules empower the Commissioner to select dealers for tax audit based on risk analysis or objective criteria, not violating the Constitution.Issue 2: Constitutionality of Section 41 and Rule 41 of the Act and RulesThe Court found that the provisions of the OVAT Act and Rules enable the Commissioner to conduct tax audits to prevent tax evasion, enacted by the State Legislature within statutory power. The Court upheld the constitutionality of the provisions, emphasizing the importance of preventing tax evasion in the country. The argument against the provisions was deemed unfounded, and the Revenue's stance was accepted. The Court directed fresh assessment proceedings and quashed Annexure-1, allowing the petitioner to present factual aspects in response to the show cause notice.Separate Judgement:No separate judgment was delivered by the judges in this case.