2021 (2) TMI 759 - HC - VAT and Sales Tax

Court upholds VAT audit under TNVAT Act, dismisses challenge. Respondents directed to complete proceedings within 6 months.

The court concluded that the VAT Audit was authorized by the Commissioner in compliance with Section 64(4) of the TNVAT Act, 2006. Procedural ... Jurisdiction - Validity of impugned VAT Audit Report - challenge on the ground that the VAT Audit was conducted by the second respondent Commercial Tax Officer/Senior Audit Officer, Enforcement (North), Chennai, based on an authorization of the first respondent Joint Commissioner (CT), Enforcement-I, Chennai which is impermissible under Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006 - HELD THAT:- It is noticed that by a communication dated 21.08.2013, the Commissioner of Commercial Taxes has identified the dealers whose business were to be audited and common letter was addressed to all the Joint Commissioners (CT), Enforcement. The Commissioner has sent a list of dealers whose business were to be audited in terms of Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006. The VAT Audit was carried out by the first respondent in presence of a Commercial Tax Officer as is evident from the signature and seal in the VAT Audit Report. The Commercial Tax Department depends on officers to conduct the Audit. It cannot mean that Audit has to be personally carried out by an officer not below the rank of Deputy Commercial Tax Officer. The fact that the statements were recorded in the presence of a Commercial Tax Officer, by itself, will not mean that there is violation of Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006. It merely explained that a Commissioner may order for audit of the business of any registered dealer by an officer not below the rank of Deputy Commercial Tax Officer. In this case, authorization to conduct the Audit was based on the order of the Commissioner of Commercial Taxes to all the Joint Commissioners (Enforcement). The first respondent had in turn conducted the Audit with the help of the second respondent. Merely because the statements were recorded in front of the second respondent, by itself, will not mean that the Audit was carried out by the second respondent in contravention of 64(4) of the Tamil Nadu Value Added Tax Act, 2006 - In any event, no prejudice or harm will be caused to the petitioner merely because the Audit Report was generated after an Audit held on 14.03.2014. After the Audit is completed, a notice is to be sent for revision of assessment under Section 27 of the Tamil Nadu Value Added Tax Act, 2006. It is therefore not open for the petitioner to disown and distance itself for the liability that may be eventually fastened under Section 27 of the Tamil Nadu Value Added Tax Act, 2006. The respondents are directed to issue appropriate Notice in accordance with law and complete the proceedings and pass appropriate order, within a period of six months from the date of receipt of a copy of this order - petition disposed off. Issues Involved:1. Jurisdiction and authorization under Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006.2. Validity of VAT Audit conducted by the second respondent.3. Compliance with principles of natural justice.4. Authority of the Commissioner to delegate audit powers.5. Impact of procedural irregularities on the validity of the audit report.Detailed Analysis:1. Jurisdiction and Authorization under Section 64(4) of the Tamil Nadu Value Added Tax Act, 2006:The petitioner challenged the VAT Audit Report dated 14.03.2014, arguing that the audit was conducted by the second respondent based on the authorization of the first respondent, which was impermissible under Section 64(4) of the TNVAT Act, 2006. The petitioner cited a decision from W.P.No.7564 of 2015, where it was held that the Joint Commissioner’s authorization for audit was not stipulated under Section 64(4). The provision specifies that the Commissioner may order an audit by an officer not below the rank of Deputy Commercial Tax Officer, indicating that the Commissioner himself must apply his mind and cannot delegate this power.2. Validity of VAT Audit Conducted by the Second Respondent:The petitioner argued that the second respondent's audit was without jurisdiction and contrary to Section 64(4). The petitioner relied on a Division Bench decision in W.A.No.1757 of 2019, which underscored that the Commissioner must apply his mind and pass a quasi-judicial order for each individual case, and cannot issue a general order for a group of dealers. The audit must comply with principles of natural justice, including notice and an opportunity of hearing.3. Compliance with Principles of Natural Justice:The Division Bench in W.A.No.1757 of 2019 emphasized the necessity for a quasi-judicial order by the Commissioner, requiring prior notice and a reasoned order. The petitioner contended that the impugned audit did not comply with these principles, as it was based on an unauthorized delegation.4. Authority of the Commissioner to Delegate Audit Powers:The respondents argued that the Commissioner’s authorization merely identified officers to carry out the audit and did not delegate the power itself. The Commissioner’s letter dated 21.08.2013 instructed Joint Commissioners to arrange for VAT audits, identifying specific dealers. The respondents contended that this was within the Commissioner’s administrative powers and did not contravene Section 64(4).5. Impact of Procedural Irregularities on the Validity of the Audit Report:The Government Advocate cited several cases, including M/s.Devashi Enterprises and M/s.Empress Audio, to argue that procedural irregularities do not invalidate an audit if the Commissioner authorized it. In Pooran Mal Vs The Director of Inspection (Investigation), the Supreme Court held that even if procedures were violated, the findings remain valid. The respondents argued that the audit was authorized by the Commissioner and conducted with the help of the second respondent, thus complying with Section 64(4).Conclusion:The court concluded that the VAT Audit was authorized by the Commissioner and conducted in compliance with Section 64(4). The audit’s procedural aspects did not invalidate it, as the Commissioner had identified the dealers and authorized the audit. The petitioner’s challenge was dismissed, and the respondents were directed to issue a notice and complete proceedings within six months, ensuring the petitioner had an opportunity to be heard. The petitioner was instructed to respond within 30 days of receiving the notice. The Writ Petition was thus disposed of with no costs.