2023 (12) TMI 898 - HC - VAT and Sales Tax

Writ petition dismissed as assessment order based on audit report despite quashed circular under OVAT Act

The HC dismissed a writ petition challenging a circular and subsequent assessment proceedings under the Odisha Value Added Tax Act, 2004. The petitioner ... Validity of Circular No.VII-12-1-2016-Rev-Sec-CCT-17265/CT dated 16.11.2016 under Annexure-8 issued by Commissioner of Commercial Taxes, Government of Odisha, Cuttack - circular was within authority or not - challenge to audit visit report in Form VAT-303, notice in Form VAT-306 for assessment under Section 42 of the Odisha Value Added Tax Act, 2004, order of assessment in Form VAT-312 which is the result of aforesaid circular dated 16.11.2016 issued by the Commissioner of Commercial Taxes, Government of Odisha, Cuttack - HELD THAT:- The assessment order has been passed on 29.06.2017 under Section 42 of the OVAT Act, 2004 for the periods from 01.04.2014 to 30.09.2015 which was based on Audit Visit Report restricting tax periods prior to aforesaid amendment. Though aforesaid circular has been quashed by this Court, the assessing authority while passing the final order of assessment has taken into account the Audit Visit Report submitted restricting the period till 30.09.2015 by issue of intimation vide Annexure-2. Thus, in the fact situation, it appears, the circular dated 16.11.2016 had no impact on the assessment order dated 29.06.2017 passed under Section 42 of the OVAT Act for the tax periods from 01.04.2014 to 30.09.2015. This Court finds no infirmity in amending the impugned notice dated 26.09.2016 vide Annexure-1 wherein the authority rectified the notice limiting the tax periods for tax audit from 01.04.2014 to 30.09.2015 instead of 01.04.2014 to 31.03.2016. In consequence thereof such tax audit being conducted and the assessing authority having passed assessment order under Section 42 of the OVAT Act for the tax periods from 01.04.2014 to 30.09.2015, this Court is not inclined to entertain this writ petition. However, if the Petitioner is so advised, may avail the remedy available under the OVAT Act. The writ petition stands disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether the Circular issued by the Commissioner of Commercial Taxes directing limitation of tax-audit periods (thereby instructing re-opening or re-assessment under pre-amendment provisions) was issued without authority and vitiates subsequent assessment proceedings. 2. Whether an audit visit notice or intimation limiting the tax periods for audit (from a broader period to a narrower pre-amendment period) can be rectified or amended by the Assessing Authority under Section 81 of the OVAT Act, notwithstanding subsequent judicial invalidation of the impugned Circular. 3. Whether an assessment order passed under Section 42 of the OVAT Act for tax periods falling prior to the effective date of the OVAT (Amendment) Act, 2015 is infirm because the Audit Visit Report and assessment were influenced by the Circular. 4. Availability of alternative remedies under the OVAT Act (specifically Section 77) as a bar to writ interference with an assessment order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity and effect of the Commissioner's Circular limiting audit periods Legal framework: The power of the Commissioner to issue administrative circulars and the effect of such circulars on assessment proceedings under the OVAT Act. Precedent Treatment: The Court noted that the same Circular had been quashed in a separate petition, but considered whether that invalidation necessarily vitiated the assessment in the present facts. Interpretation and reasoning: The Court examined the sequence - initial audit notice covering a broader period; subsequent intimation issued by the Audit Officer limiting the audit period pursuant to the Circular; and the final assessment under Section 42 limited to the pre-amendment period. The Court held that even if the Circular was quashed elsewhere, the assessing authority, in passing the final order, relied upon an Audit Visit Report that confined periods to dates prior to the amendment's effective date. Thus the Circular had no operative effect on the content of the assessment order, because the assessment addressed periods that legitimately fell under pre-amendment provisions. Ratio vs. Obiter: Ratio - A circular's invalidation elsewhere does not automatically vitiate an assessment that is in substance confined to periods legitimately assessed under pre-amendment law; the real question is the operative basis of the assessment order. Obiter - observations on the broader scope of the Commissioner's power to issue circulars were not necessary beyond the facts considered. Conclusions: The Court found no infirmity in the assessment attributable to the Circular in the factual matrix where the assessment exclusively covered pre-amendment periods. Issue 2 - Competence to amend or rectify an audit notice/intimation under Section 81 Legal framework: Section 81 of the OVAT Act permits amendment of clerical mistakes or errors apparent on the face of the record by the Assessing Authority, the Appellate Authority, the Revisional Authority or the Tribunal. Precedent Treatment: The Court relied on its earlier decision (Kanakdhara Mining) where it sanctioned rectification of an audit notice under Section 81 and rejected challenge to such corrigenda. Interpretation and reasoning: The Court treated the intimation limiting the audit period as a rectification of the initial audit notice rather than a substantive change that would violate statutory safeguards. Given Section 81's express provision for correction of clerical or apparent errors, the authority's amendment of the notice to limit the tax periods for audit was permissible. The Court emphasized that such amendment is valid when it corrects an error apparent on the face of the record and is effected by the competent authority. Ratio vs. Obiter: Ratio - The Assessing Authority is entitled to correct notices under Section 81 where the change constitutes rectification of a clerical or apparent error; such rectification does not invalidate subsequent audit or assessment based solely on the amended notice. Obiter - no extended principle on limits of Section 81 beyond the factual correction was laid down. Conclusions: The Court found no infirmity in amending the impugned audit notice to limit the audit period to 01.04.2014-30.09.2015 under Section 81 of the OVAT Act. Issue 3 - Validity of assessment under Section 42 for periods prior to the Amendment's effective date Legal framework: Section 42 prescribes audit-assessment procedure under the OVAT Act; the OVAT (Amendment) Act, 2015 changed assessment provisions with effect from 01.10.2015. Precedent Treatment: The Court considered the consequence of conducting audit and passing assessment for periods antecedent to the amendment's effective date, and whether reliance on an intimation pursuant to a Circular infects the assessment. Interpretation and reasoning: The assessment in question was confined to periods ending 30.09.2015 - i.e., before the amendment's operative date. The Audit Visit Report and final order addressed those pre-amendment periods; accordingly, the assessment was validly carried out under the law as it then existed (pre-amendment). The Court distinguished the fact of the Circular's existence from the operative legal basis of the assessment: the latter rested on assessment provisions applicable to the periods assessed, not on the Circular's directive per se. Ratio vs. Obiter: Ratio - An assessment under Section 42 for periods falling before the amendment's effective date is not vitiated merely because an internal circular influenced the temporal scope of the audit, provided the assessment itself is based on pre-amendment law. Obiter - observations about the propriety of policy directives via circulars were ancillary. Conclusions: The Court concluded that there was no infirmity in the assessment order dated 29.06.2017 insofar as it applied Section 42 to the tax periods 01.04.2014-30.09.2015. Issue 4 - Availability of alternative statutory remedy under Section 77 and suitability of writ jurisdiction Legal framework: The OVAT Act provides statutory remedies, including revision/appeal provisions (referenced Section 77 as an alternative remedy). Precedent Treatment: The Court observed the presence of statutory remedies as relevant to the exercise of writ jurisdiction. Interpretation and reasoning: The Court noted that an alternative remedy under the OVAT Act remained available to challenge the assessment. Given that the assessment was confined to pre-amendment periods and could be challenged through statutory channels, the Court declined to interfere by writ with the assessment order, while expressly granting liberty to pursue remedies under the OVAT Act. Ratio vs. Obiter: Ratio - Where a statutory remedy is available to challenge an assessment under the tax statute, writ interference is not warranted in the absence of exceptional circumstances; litigants should ordinarily resort to the remedy provided by the Act. Obiter - no categorical bar to writ relief in all tax disputes was asserted. Conclusions: The writ petition challenging the assessment was not entertained; the petitioner was left free to pursue remedies available under the OVAT Act. Cross-references and final synthesis Interrelation of issues: Issues 1-3 are interrelated - the Court assessed whether the Circular's directive, the amendment of the audit notice under Section 81, and the temporal application of Section 42 cumulatively rendered the assessment void. The Court concluded that (a) rectification of the audit notice under Section 81 was permissible; (b) the assessment applied only to pre-amendment periods and thus rested on valid legal provisions; and (c) the Circular's prior or subsequent quashing elsewhere did not, on these facts, invalidate the assessment.