2024 (2) TMI 949 - HC - VAT and Sales Tax

VAT demand orders quashed for violating natural justice principles without proper reassessment procedures under Regulation 58(4)

The Bombay HC quashed VAT demand orders dated 2 September 2020 issued by Deputy Commissioner (VAT) for violating natural justice principles. The ... Jurisdiction - violation of principles of natural justice - whether the authority did not have jurisdiction to make a demand in the teeth of the assessment order by which the assessment for the financial year was already made? - reassessment made without a show cause notice or an opportunity of a hearing being granted to the petitioner - HELD THAT:- There is much substance in the contentions as urged on behalf of the petitioner, namely that at the hands of the Deputy Commissioner (VAT) / respondents, an assessment order was passed on 1 September 2018 whereby taking into consideration the declaration of forms namely C, F & H forms and the amounts as involved, the Tax liability was calculated at Rs. 1252/- for non-submission of C & F forms. The said amount was admittedly paid. Once such assessment stood finalised in terms of the order dated 1 September 2018, the only course of action available to the department was to reopen such assessment as the law would mandate. Also the department could have taken recourse to the provisions of Regulation 58(4) of the 2005 Regulation which pertains to “reassessment”. It is quite clear that such procedure as the law would recognize was not followed by the Deputy Commissioner in issuing the impugned communication. Thus, an incongruous position is reflected by the record of the department namely, on one hand an assessment order which is not set aside or invalidated in any manner known to law has remained to operate and on the other hand, in the course of processing of the refund application the impugned demand has been raised without any re-assessment of the assessment order and/or invalidating the returns filed by the petitioner as per the procedure the law would mandate the department to follow. This apart, the basic requirement in law of the department following the principles of natural justice, has also been overlooked in issuing the impugned communication. Admittedly, the impugned order is an ex-parte order. There is nothing on record to justify that the petitioner was issued any show cause notice or the petitioner was heard, before the deputy commissioner could come to a conclusion that the demands as set out in the impugned order are required to be made against the petitioner. The impugned orders/communications dated 2 September 2020 Exhibit-A & Exhibit-B are quashed and set aside - The respondents is at liberty to follow the due procedure in law, in the event, the department is not accepting the assessment order dated 1 September 2018 passed by the Deputy Commissioner and/or to raise a demand against the petitioner for the financial year 1 April 2015 to 31 March 2016, on any ground as the law may permit. All contentions of the parties in respect of any proposed proceedings are expressly kept open. Petition allowed. Issues Involved:1. Validity and legality of the impugned Notice of Default Assessment and Letter issued by the Respondent.2. Petitioner's entitlement to a refund of Rs. 1,06,95,341.3. Compliance with procedural requirements and principles of natural justice.Summary:Issue 1: Validity and Legality of the Impugned Notice and LetterThe petitioner challenged the Notice of Default Assessment and a related Letter issued by the Deputy Commissioner (VAT), Dadra & Nagar Haveli, Silvassa, under Article 226 of the Constitution of India. The petitioner argued that these communications were illegal and arbitrary, as they contradicted an earlier assessment order dated 1 September 2018, which quantified the tax liability at Rs. 1252 for non-submission of C & F forms. The court noted that the department did not follow the lawful procedure for reassessment as mandated by Regulation 58(4) of the Dadra & Nagar Haveli Value Added Tax Regulation, 2005. The impugned orders were issued without a show cause notice or an opportunity for the petitioner to be heard, violating principles of natural justice.Issue 2: Petitioner's Entitlement to RefundThe petitioner submitted a refund application on 29 July 2019, along with all necessary documents. Despite an assessment order dated 1 September 2018, the department issued communications on 2 September 2020, demanding Rs. 1,38,44,40,374 after adjusting the eligible refund. The court found that the department's actions were incongruous and lacked legal backing, as the original assessment order was not invalidated or reassessed.Issue 3: Procedural Compliance and Natural JusticeThe court observed that the department did not follow the due procedure in law for reassessment or invalidation of the returns filed by the petitioner. The impugned orders were ex-parte, issued without any show cause notice or hearing, thus failing to comply with the principles of natural justice.Conclusion:The court quashed and set aside the impugned orders/communications dated 2 September 2020. The respondents were directed to follow the due procedure in law if they chose to reassess or raise a demand against the petitioner. The refund application was to be decided in accordance with the law, and the admitted amount of Rs. 1,06,95,341 was to be refunded to the petitioner within four weeks, with permissible interest. Rule was made absolute, and no costs were awarded.