2026 (1) TMI 847 - HC - VAT / Sales Tax

Validity of audit-initiated tax assessments invalidated for lack of statutory authorization; proceedings set aside and remitted

Dominant issue: Whether assessment proceedings were validly authorized. Reasoning: Under statutory authorization requirements (as applied by HC ... Validity of assessment proceedings - audit and the subsequent inspections and assessment carried out were all without proper authorization - HELD THAT:- From the operative portion of the judgment in the case of SRI BALAJI FLOUR MILLS VERSUS COMMERCIAL TAX OFFICER II, CHITTOOR AND OTHERS [2010 (12) TMI 1117 - ANDHRA PRADESH HIGH COURT], it is apparent that for want of authorization as is required under the provisions of APVAT Act, the entire proceedings initiated from the stage of audit would get vitiated. The High Court is therefore inclined to allow the writ petition on this ground alone that the entire proceedings, being without proper authorization being verified by the decision of this High Court in the case of M/s. Balaji Flour Mills. The next issue to be considered would be in the light of the vitiation of entire proceedings and the order dated 16.11.2008 passed by respondent No.1. The High Court is again inclined to follow the order passed by the High Court in the case of M/s. Balaji Flour Mills wherein also after setting aside the proceedings of the State authorities which was without authorization, the matters stood remitted back to the concerned authorities from the stage of its vitiation, which in the instant case would be the stage of audit. So far as the aspect whether it would be the petitioner No.1 would be liable to pay the tax or would it be the petitioner No.2 i.e., M/s. Viceroy Hotels Limited, this aspect also is left open to be decided by the authorities after scrutinizing the contract agreement entered into between the petitioner No.1 and petitioner No.2 dated 02.01.2006 - Needless to mention that since petitioner No.2 has already paid tax of Rs.2,23,16,321/- to the Department, in addition the petitioner No.1 also at the time of the admission of the writ petition had, in terms of the order of the High Court, paid another Rs.1,00,00,000/-. Any further claim to be raised on either side would only be done on finalization of proceedings. The petition is allowed. Issues: Whether the assessment proceedings conducted pursuant to a VAT audit are vitiated for want of proper statutory authorization, and whether such proceedings must be set aside and remitted.Analysis: The Court examined the record and accepted that the audit, inspection and assessment were conducted without the authorization required under the APVAT framework. The Court relied on the operative holding of this Court in M/s. Balaji Flour Mills that an authorization to audit under Section 43 read with Rule 59(1)(7) does not itself permit the audit officer to undertake assessment, and that assessments and consequential orders made without the required authorization are vitiated. In the present facts the respondents conceded that the audit, inspection and assessment lacked proper authorization and the Court found no dispute on turnover figures, only on which party bears the tax liability; however, the liability question was not finally decided and was left to the authorities on remittal after scrutiny of contracts and books.Conclusion: The assessment proceedings conducted without proper statutory authorization are vitiated; the writ petition is allowed and the impugned assessment order is set aside and remitted to the appropriate authority to proceed from the stage of audit after obtaining due authorization.