2008 (9) TMI 884 - HC - VAT and Sales Tax

Notice for conducting tax audit for the period from April 1, 2005 till the date of audit visit challenged - Whether it is permissible to conduct tax audits as provided under section 41 of the OVAT Act repeatedly for passing fresh audit assessment orders under section 42 of the OVAT Act for a particular period in respect of which earlier an order of assessment under section 42 of the OVAT Act was passed? Held that - once audit assessment under section 42 is completed for a particular period, the assessing officer becomes functus officio for the same period so far second and subsequent assessment under that section is concerned. But there is no embargo for reopening the audit assessment earlier made, under section 43 of the OVAT Act. In view of the above, the present notice issued vide annexure 1 for tax audit for the period from April 1, 2005 till the date of audit visit is bad in law and liable to be quashed. W.P. allowed.

Issues Involved:
1. Legality of conducting repeated tax audits under the OVAT Act.
2. Validity of the second notice for tax audit after an audit assessment has already been completed.

Issue-wise Detailed Analysis:

1. Legality of Conducting Repeated Tax Audits Under the OVAT Act:

The petitioner challenged the notice dated July 16, 2008, issued under Rule 44(2) of the OVAT Rules for conducting a tax audit for the period from April 1, 2005, till the date of the audit visit. The petitioner argued that the audit assessments for the periods April 1, 2005, to March 31, 2006, and April 1, 2006, to October 31, 2006, were already completed under Section 42 of the OVAT Act, making the second notice unsustainable.

The court examined the relevant provisions of the OVAT Act and Rules, particularly Sections 41, 42, and 43, and Rules 41, 42, 43, 44, and 45. Section 41 deals with the identification of taxpayers for tax audit and allows the Commissioner to direct tax audits on a random basis or based on risk analysis. Section 42 pertains to audit assessments, allowing the assessing authority to serve notice and conduct an audit assessment if the tax audit reveals suppression of purchases or sales, erroneous claims of deductions, or tax evasion. Section 43 addresses turnover escaping assessment, allowing reassessment if there is evidence of escaped or under-assessed turnover.

The court noted that the purpose of a tax audit is to verify the correctness of returns filed by the dealer and that the OVAT Act provides a complete mechanism for making different types of assessments, including self-assessment, provisional assessment, audit assessment, and assessment of escaped turnover.

The court emphasized that once an audit assessment is completed under Section 42, there is no further scope for conducting another tax audit and audit assessment for the same period under Sections 41 and 42. The statute provides adequate safeguards for assessing undisclosed or escaped turnover through Section 43, which allows reopening completed audit assessments if certain conditions are met. Therefore, conducting repeated tax audits and audit assessments under Sections 41 and 42 for the same period would render Section 43 redundant and is not permissible.

2. Validity of the Second Notice for Tax Audit After an Audit Assessment Has Already Been Completed:

The court held that the second notice issued under Rule 44(2) for conducting a tax audit for the period from April 1, 2005, till the date of the audit visit was invalid. The court reasoned that once an audit assessment is completed under Section 42, the assessing officer becomes functus officio for that period concerning further assessments under the same section. Any further assessment for the same period must be conducted under Section 43, which deals with turnover escaping assessment.

The court referred to the legal maxim "Expressio unius est exclusio alterius," meaning that if a statute provides for a thing to be done in a particular manner, it must be done in that manner and no other. The court cited several precedents, including Taylor v. Taylor, Hukam Chand Shyam Lal v. Union of India, and Commissioner of Income-tax, Mumbai v. Anjum M.H. Ghaswala, to support this principle.

The court concluded that the second notice for tax audit was issued in contravention of the statutory provisions and was therefore bad in law. The writ petition was allowed, and the notice under annexure 1 was quashed. There was no order as to costs.

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