Court quashes audit order under Tamil Nadu VAT Act due to lack of natural justice compliance

The court dismissed the Revenue's writ appeal and quashed the Commissioner's order dated 16.05.2014 for directing audits under Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006. The court held that the order lacked compliance with natural justice principles and did not meet the statutory requirements. It emphasized the necessity of individual audit orders, proper authorization, and adherence to principles of natural justice.

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Issues Involved:
1. Legality of the Commissioner's order directing audit under Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006.
2. Authority and delegation of power to order audits.
3. Compliance with principles of natural justice.
4. Validity of general orders for audit of multiple dealers.

Detailed Analysis:

1. Legality of the Commissioner's Order Directing Audit:
The learned Single Judge held that the order of the Commissioner of Commercial Taxes directing an audit of the business of the assessee dealer was not sustainable. The order did not satisfy the conditions and criteria laid down in Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006. The Commissioner failed to issue an individual order for the audit of the respondent dealers, and the Joint Commissioner, a lower authority, was not empowered to order such an audit without proper authorization or delegation by the Commissioner.

2. Authority and Delegation of Power to Order Audits:
The Revenue contended that there was a proper authorization for the audit under Section 64(4) of the Act by the Commissioner. The Commissioner had selected registered dealers based on specific parameters for conducting VAT audits by Enforcement Wing officials. However, the learned counsel for the Assessee argued that the Commissioner could not delegate the power to order an audit to any lower authority, including the Joint Commissioner. The Commissioner himself must apply his mind to the criteria enumerated under Section 64(4) of the Act for each individual dealer.

3. Compliance with Principles of Natural Justice:
The court emphasized that the order under Section 64(4) of the Act must comply with the principles of natural justice, including giving notice and an opportunity of hearing to the assessee concerned. The Commissioner must record his opinion about the default by the particular assessee and the need for an audit. The court held that the order dated 16.05.2014 did not meet these requirements of law and was thus unsustainable.

4. Validity of General Orders for Audit of Multiple Dealers:
The court noted that Section 64(4) does not empower the Commissioner to pass an omnibus or general order for the audit of multiple registered dealers. The order must be an individual order showing the application of mind to the facts and circumstances of each case for each period. The court found that the order dated 16.05.2014, which laid down certain criteria and left it to the Joint Commissioner to authorize officers for the audit, was wholly untenable and unsustainable.

Conclusion:
The court dismissed the writ appeal filed by the Revenue and quashed the order dated 16.05.2014 passed by the Commissioner. The court held that the order did not comply with the principles of natural justice and was not in accordance with the provisions of Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006. The court emphasized the need for individual orders for audits, proper authorization, and compliance with natural justice principles.

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