Court quashes demand notice for lack of Auditor General's Report, upholds natural justice principles

The court quashed the demand notice issued without providing the Auditor General's Report and other requested documents, citing a violation of natural justice principles. The respondents were given the liberty to raise demands upon receipt of the final Auditor General's Audit Report if statutory violations were proven. The direction to the Sub-Registrar under the impugned demand was also quashed. The writ petition was disposed of without costs, highlighting the significance of upholding natural justice principles and providing essential documentation to substantiate tax demands.

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Issues:
Challenge to impugned demand notice based on Auditor General's Audit Report without furnishing a copy, Violation of principles of natural justice in issuing demand notice.

Analysis:
The petitioner challenged the demand notice issued by the second respondent based on the Auditor General's Audit Report dated 14.09.2016. The petitioner claimed to have availed Sales Tax Waiver Scheme and Interest Free Sales Tax Deferral Scheme, complying with all requirements and submitting returns without suppression. However, the second respondent demanded payment of Rs. 92,20,930 without providing the requested documents like waiver agreement, assessment orders, and eligibility certificates. The petitioner argued that after years of compliance, sudden demands without sharing the audit report violated principles of natural justice.

The second respondent, in their counter affidavit, acknowledged being audited by the Accountant General Office and the Comptroller and Audit General of India. They admitted audit objections regarding excess waiver allowed to the petitioner without protecting the revenue based on 'Base Protection Volume.' Despite objections, the Joint Commissioner later clarified the misconceptions regarding the waiver schemes before the Public Accounts Committee.

During the hearing, it was noted that the petitioner had paid taxes as per the waiver scheme and the returns submitted were accepted by the respondent. The demand made in 2016 was based on audit objections without providing a copy of the draft CAG report. The court observed that demands must comply with statutory provisions and be supported by relevant documents.

The court found that the respondent's failure to furnish the Auditor General's Report and other requested details violated natural justice. Consequently, the demand notice was quashed, but the respondents were granted liberty to raise demands if statutory violations were proven post-receipt of the final Auditor General's Audit Report. The direction to the Sub-Registrar under the impugned demand was also quashed.

In conclusion, the writ petition was disposed of without costs, emphasizing the importance of adhering to principles of natural justice and providing necessary documents to support any tax demands.

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