Deputy Commissioner's Section 73 order set aside for violating natural justice principles in tax proceedings

The HC set aside the Deputy Commissioner's order dated 21.12.2023 under Section 73 of Chapter-V of the Finance Act, 1994 for FY 2015-16 due to violation of natural justice principles. The department failed to serve notice to the petitioner and admitted having no material to justify such service. The court found the order unsustainable and remanded the matter to the authority for fresh adjudication with proper opportunity of hearing. The writ petition was disposed of accordingly.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the statutory notice of assessment under Section 73 of Chapter V of the Finance Act, 1994 was duly served on the Petitioner in relation to the Financial Year 2015-16;
• Whether the impugned ex-parte Order-in-Original dated 21.12.2023 passed by the Deputy Commissioner, GST & Central Excise, Jharsuguda Division is sustainable in the absence of proof of service of notice on the Petitioner;
• Whether the Petitioner, who ceased business operations in the State of Odisha since 2011, was afforded a reasonable opportunity of hearing before the passing of the ex-parte order;
• Whether the attachment orders on the Petitioner's bank account, which were challenged and subsequently withdrawn with liberty to file a fresh petition, were validly issued without proper service of notice;
• The procedural propriety and adherence to principles of natural justice in the assessment proceedings under the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Service of Notice of Assessment under Section 73 of the Finance Act, 1994

The relevant legal framework is Section 73 of the Finance Act, 1994, which governs the issuance of notices for assessment or reassessment of tax liabilities. The procedural requirement mandates that the assessing authority must serve a notice on the person concerned, informing them of the initiation of proceedings and affording an opportunity to be heard.

Precedents emphasize the necessity of proper service of notice as a condition precedent to the validity of any assessment order. Absence of such service vitiates the order as it violates principles of natural justice.

The Court noted that the Department admitted the absence of any material evidence to prove that the notice was served on the Petitioner. The impugned order itself stated that notices were sent by Registered Post, but no proof of delivery or receipt was on record. The Petitioner contended that no such notice was ever received, supported by the fact that it had ceased business operations in Odisha since 2011.

The Court reasoned that mere issuance of notice by Registered Post does not suffice without proof of service. The Petitioner's non-appearance before the assessing authority was not due to deliberate avoidance but because the notices were never received. Hence, the ex-parte order was premised on an invalid assumption of notice service.

The Court concluded that the statutory requirement of service of notice was not fulfilled, rendering the assessment order unsustainable.

Issue 2: Validity of Ex-Parte Order-in-Original dated 21.12.2023

The legal principle governing ex-parte orders in tax proceedings is that such orders can be passed only after due service of notice and reasonable opportunity to the affected party to present their case.

The Court examined the impugned order and found that the authority proceeded ex-parte without establishing that the Petitioner had knowledge of the proceedings. The absence of service of notice and opportunity to be heard violated the principles of natural justice.

The Court emphasized that before passing an ex-parte order, the authority must satisfy itself that the notices issued were duly served. Failure to do so renders the order liable to be quashed.

Accordingly, the Court set aside the Order-in-Original dated 21.12.2023 and remanded the matter to the Deputy Commissioner for fresh adjudication after affording the Petitioner an opportunity of hearing.

Issue 3: Attachment of Bank Account and Related Procedural Aspects

The Petitioner's bank account was attached pursuant to the impugned order, which was challenged in an earlier writ petition that was withdrawn with liberty to file a fresh petition. The Petitioner requested lifting of the attachment to operate the account, which was not granted.

The Court noted that attachment orders based on an ex-parte assessment order without proper service of notice are not sustainable. The procedural irregularity in assessment proceedings taints the attachment order.

The Court directed that the Department supply a copy of the notice of assessment to the Petitioner's counsel within three working days, and upon receipt, the Petitioner shall file reply/explanation with evidence within two weeks. The authority is directed to conclude the proceedings within two months after hearing the Petitioner.

Issue 4: Procedural Fairness and Natural Justice in Tax Assessment Proceedings

The Court underscored the fundamental requirement of procedural fairness in tax assessment proceedings, which includes proper service of notice and opportunity to be heard before passing adverse orders.

The absence of these procedural safeguards amounts to violation of natural justice and renders the order liable to be set aside.

The Court's decision reiterates that the assessing authority must ensure compliance with procedural mandates before proceeding to pass any order, especially ex-parte orders affecting the rights of the taxpayer.

3. SIGNIFICANT HOLDINGS

The Court held:

"It is transpired that that notice was not served upon the Petitioner, as it is admitted that the department has no material to justify service of notice on the petitioner. Therefore, the Order-in-Original dated 21.12.2023 ... cannot be sustained and is liable to be set aside and the matter requires remand to the authority concerned for fresh adjudication."

This establishes the core principle that valid service of notice is a sine qua non for sustaining assessment orders under the Finance Act, 1994.

The Court further held that ex-parte orders passed without ensuring service of notice and opportunity to be heard violate principles of natural justice and are liable to be quashed.

The final determination on each issue is that the impugned order is set aside, the attachment orders are invalid in the absence of proper notice, and the matter is remanded for fresh adjudication after affording the Petitioner a reasonable opportunity of hearing.

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