Validity of VAT assessment based on Audit Visit Report by improperly constituted audit team; assessment set aside, revision allowed

Whether an assessment under Section 42 of the OVAT Act premised on an Audit Visit Report (Form VAT-303) submitted by a Sales Tax Officer purporting to be Head of the Audit Team is valid. The HC held Rule 43's prescription of an audit team including Assistant Commissioner, Sales Tax Officer and Assistant Sales Tax Officer is mandatory (conjunctive construction); statutory acts must be performed in the manner prescribed. Because the Audit Team was not duly constituted and the STO acted as head, the Audit Visit Report was vitiated and the assessment under Section 42 based on it was set aside; revision allowed.

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Issues: (i) Whether an Audit Visit Report in Form VAT-303 submitted by a Sales Tax Officer who purports to be head of an audit team that was not constituted in accordance with Rule 43 of the Odisha Value Added Tax Rules, 2005 (read with Section 41 of the OVAT Act, 2004) renders the resulting audit assessment under Section 42 vitiated?

Analysis: Rule 43 prescribes constitution of an audit team and Section 41 requires tax audit to be conducted in the prescribed manner with the audit report submitted by the officer authorised to conduct the audit. The statutory language of Rule 43 employs conjunctive terms indicating requirement of personnel of different designations unless the context clearly permits otherwise. Precedent holds that where a statutory procedure prescribes a particular mode, deviation is not permissible and an Audit Visit Report submitted by an officer who is not the officer authorised or properly constituted as head of the audit team is vulnerable. Prior decisions applying the maxim that things required to be done in a particular way must be done in that way support the view that audit assessments founded on reports submitted in breach of the statutory composition requirements cannot be sustained. The Tribunal failed to decide this ground though it was raised in the second appeal, and authoritative coordinate decisions interpreting Rule 43 confirm that the discretion in Rule 43 was limited and a report submitted contrary to the mandated constitution is invalid.

Conclusion: Issue (i) is answered in the negative in favour of the petitioner; the Audit Visit Report submitted by an audit team not constituted in conformity with Rule 43 is vitiated and an audit assessment under Section 42 based on such report cannot be sustained.

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