2021 (5) TMI 706 - HC - VAT and Sales Tax

Court Allows Writ Petitions: Notices Time-Barred & Lack Jurisdiction

The court entertained the writ petitions despite the availability of an alternative remedy, as the impugned notices and orders were beyond the period of ... Maintainability of petition - availability of efficacious remedy of appeal - fraud in depriving the respondents of their due revenue or not - invocation of jurisdiction under section 58 of the VAT Regulations - Validity of orders and audit reports - time limitation - challenge has been made primarily on the ground that such audit report / order is basically re-assessment but the time limit for assessment and re-assessment is four years as per section 34 of the VAT Regulations. Whether the petitioners committed fraud in depriving the respondents of their due revenue thereby enabling the respondents to invoke the jurisdiction under section 58 of the VAT Regulations unfettered by any limitation? - HELD THAT:- This Court referred to the decision of the Supreme Court in HARJAS RAI MAKHIJA (D) THR. L. RS. VERSUS PUSHPARANI JAIN AND ORS. [2017 (1) TMI 1736 - SUPREME COURT] which decision highlighted that there must be a specific allegation of fraud. When there is an allegation of fraud, it must be enquired into. It is only after evidence is led coupled with intent to deceive that a conclusion of fraud can be arrived at. A mere concealment or non-disclosure without intent to deceive or a bald allegation of fraud without proof and intent to deceive would not render a decree obtained by a party fraudulent. Fraud has a definite meaning in law. It must be proved and not merely alleged and inferred - this Court held that to constitute fraud there must be an intent to deceive. When an allegation of fraud is made, it must be enquired into. Enquiry would necessarily mean granting reasonable opportunity of hearing to the party accused of committing fraud. Evidence must be led and thereafter fraud must be proved. No conclusion of fraud can be drawn on mere allegation and by way of inference. Takeaway from the above decision is that to constitute fraud there must be an intent to deceive. When an allegation of fraud is made, it must be enquired into. Enquiry would necessarily mean granting reasonable opportunity of hearing to the party accused of committing fraud. Evidence must be led and thereafter fraud must be proved. No conclusion of fraud can be drawn on mere allegation and by way of inference.” From a careful perusal of the audit report / order of audit, we find that though the Deputy Commissioner stated that there were differences in the data received from the refineries and returns filed by the retailers leading to tax deficiency, no allegation of fraud is discernible; not to speak of any finding that petitioner had committed fraud thereby causing loss to Government revenue - When the impugned notice did not allege fraud and no such finding of fraud being discernible in the order of audit, it is not open to the respondents to make such sweeping allegation of fraud in the oral hearing which is not backed up by adequate pleadings. Violation of principles of natural justice - HELD THAT:- It is evident from a perusal of the impugned order of audit that it was based on the information furnished by the oil companies through email dated 11.08.2020. Therefore, it was imperative on the part of the Deputy Commissioner to have furnished copy of the said email to the petitioner or at least the material information which would have enabled the petitioner to have properly defended its case. Failure to do so has resulted in violation of the principles of natural justice. Time limitation - HELD THAT:- There is a clear bar of limitation in making assessment or re-assessment. No assessment or re-assessment shall be made after expiry of four years from the date on which the return is furnished by the registered dealer under section 26 or under sub-section (1) of section 28 or the date of making of assessment under section 32, whichever is earlier. As per the proviso, where the Commissioner has reason to believe that tax was not paid by reason of concealment, omission or failure to disclose material particulars on the part of the concerned person, the assessment or re-assessment may be made within six years from the dates as specified in sub-section (1). Therefore, what the proviso says is that in a case of concealment or omission or failure to disclose material particulars on the part of the concerned person, the limitation of four years gets extended by another two years, to six years. In the instant case, the notice of audit pertains to three years i.e., 2010-11, 2011-12 and 2012-13. We find that for these years the assessments were already made on 25.10.2013. As per section 34, limitation period is four years from the date of filing the return or from the date of assessment, whichever is earlier, which is extendable for a further period of two years in a case of concealment or omission or failure to disclose material particulars. Since the assessments were made on 25.10.2013, certainly the returns were filed much before this date, and it is the earlier date, which is to be taken into consideration for determination of limitation - The impugned notice of audit under section 58 of the VAT Regulations is dated 25.09.2020 which is certainly beyond the period of limitation. It goes without saying that when the notice is barred by limitation, any proceeding or order pursuant to such time barred notice would also be barred by limitation. The impugned notices dated 25.09.2020 and the consequential orders of audit dated 12.10.2020 and 13.10.2020 are beyond the period of limitation and are thus without jurisdiction. Alternative remedy - HELD THAT:- The impugned orders of audit were passed in violation of the principles of natural justice. The impugned notices and the consequential orders of audit are barred by limitation and thus without jurisdiction. In such circumstances, question of relegating the petitioners to the appellate remedy simply does not arise. This issue is answered accordingly. Petition allowed. Issues Involved:1. Whether the writ petitions should be entertained in view of the availability of an alternative remedy.2. Whether the petitioners committed fraud in depriving the respondents of their due revenue, thereby enabling the respondents to invoke the jurisdiction under section 58 of the VAT Regulations unfettered by any limitation.3. Whether the impugned orders of audit dated 12.10.2020 and 13.10.2020 are in violation of the principles of natural justice.4. Whether the impugned notices dated 25.09.2020 and the consequential orders of audit dated 12.10.2020 and 13.10.2020 are beyond limitation and thus without jurisdiction.5. Whether the impugned notices dated 25.09.2020 and the consequential orders of audit dated 12.10.2020 and 13.10.2020 are liable to be interfered with by this Court or not.Issue-wise Detailed Analysis:1. Alternative Remedy:The respondents contended that the writ petitions should not be entertained due to the availability of an alternative remedy under section 74 of the VAT Regulations, which provides for an appeal. However, the court held that the impugned notices and orders were beyond the period of limitation and thus without jurisdiction. It is a settled proposition that the question of limitation involves a question of jurisdiction. The court referred to the Supreme Court's decision in *Whirlpool Corporation Limited Vs. Registrar of Trade Marks* and held that the alternative remedy does not operate as a bar in cases where the order or proceedings are wholly without jurisdiction. Thus, the court decided to entertain the writ petitions despite the availability of an alternative remedy.2. Fraud:The respondents alleged that the petitioners committed fraud by evading tax, which justified invoking section 58 of the VAT Regulations without any limitation. However, the court found that the impugned notice dated 25.09.2020 did not allege fraud, and no such finding was discernible in the audit report/order dated 12.10.2020. The court referred to the Supreme Court's decision in *Geo Tech Foundations and Construction* and held that an allegation of fraud must be specifically made in the original notice and cannot be introduced in subsequent proceedings. Therefore, the court rejected the respondents' contention of fraud.3. Natural Justice:The court found that the principles of natural justice were violated as the respondents did not provide the petitioners with the information received from the oil companies, which formed the basis of the audit notice and orders. The court referred to the Supreme Court's decision in *Dhakeshwari Cotton Mills Limited* and held that it is imperative to furnish the materials relied upon against an affected party to enable them to put up an effective defense. The failure to do so resulted in a violation of the principles of natural justice.4. Limitation:The court held that the impugned notices and orders were beyond the period of limitation prescribed under section 34 of the VAT Regulations. The assessments for the years 2010-11, 2011-12, and 2012-13 were made on 25.10.2013. The limitation period of four years expired on 25.10.2017, and the extended period of six years expired on 25.10.2019. The impugned notice dated 25.09.2020 was issued beyond this period. The court referred to the Supreme Court's decision in *Shreyans Industries Limited* and held that once the period of limitation has expired, the right to make an assessment gets extinguished, and any proceeding or order pursuant to such a time-barred notice would also be barred by limitation.5. Relief:Based on the findings on the issues of fraud, natural justice, and limitation, the court concluded that the impugned notices dated 25.09.2020 and the consequential orders of audit dated 12.10.2020 and 13.10.2020 were wholly unsustainable in law. The court set aside and quashed the impugned notices and orders, allowing all the writ petitions. However, there was no order as to costs.