2009 (4) TMI 850 - HC - VAT and Sales Tax

Whether show-cause notices do not mention the basis on which the turnovers mentioned therein were sought to be taxed ? Whether the petitioner was denied an opportunity of effectively putting forward their defence thereagainst? Held that - The show-cause notice should reflect the jurisdictional facts based on which the final order is proposed to be passed. The assessee would then have an opportunity to show cause that the authority had erroneously assumed existence of a jurisdictional fact and, since the essential jurisdictional facts do not exist, the authority does not have jurisdiction to decide the other issues. This requirement is also absent in the show-cause notices issued in the present case. Viewed from any angle, failure to indicate the basis for levy of tax under the A.P. VAT Act in the show-cause notice on, among others, the turnover of ₹ 815.52 crores falls foul of the audi alteram partem rule necessitating the impugned assessment order being set aside on the ground of violation of the principles of natural justice. W.P. allowed.

Summary

Issues Involved:
1. Validity of the show-cause notices.
2. Jurisdiction to levy tax under the A.P. VAT Act.
3. Violation of principles of natural justice.
4. Availability of alternative remedy under Article 226 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Validity of the show-cause notices:
The petitioner challenged the assessment order dated January 31, 2009, on the grounds that the preceding show-cause notices did not specify the basis for taxing the mentioned turnovers. This omission allegedly denied the petitioner an opportunity to effectively defend themselves. The Assistant Commissioner issued notices on October 20, 2008, and December 6, 2008, proposing assessments based on estimated turnovers. However, the show-cause notices failed to detail the grounds for taxing Rs. 815.52 crores under the A.P. VAT Act, thus violating the audi alteram partem rule, which mandates that a person should not be deprived of their rights without being informed of the reasons and given an opportunity to respond.

2. Jurisdiction to levy tax under the A.P. VAT Act:
The petitioner contended that the turnover of Rs. 815.52 crores, procured from registered dealers outside Andhra Pradesh and transferred to APGENCO, was exempt under section 6(2)(b) of the CST Act. They argued that these transactions were inter-State sales and not subject to the A.P. VAT Act. The respondent, however, proposed to tax these turnovers under the A.P. VAT Act without providing a clear jurisdictional basis in the show-cause notices. The court emphasized that the show-cause notice must reflect jurisdictional facts to allow the assessee to challenge the authority's jurisdiction.

3. Violation of principles of natural justice:
The court found that the show-cause notices lacked essential particulars, preventing the petitioner from submitting an effective reply. The principles of natural justice require that a person be informed of the grounds for action against them and be given an opportunity to respond. The court cited precedents emphasizing the need for precise and unambiguous notices to enable a fair hearing. The failure to indicate the basis for tax in the show-cause notices violated these principles, necessitating the setting aside of the assessment order.

4. Availability of alternative remedy under Article 226 of the Constitution of India:
The court acknowledged that while an alternative remedy exists, it is not a bar to exercising jurisdiction under Article 226 in cases of fundamental rights violations, lack of jurisdiction, or violation of natural justice. The court noted that if natural justice is violated at the initial stage, an appeal cannot substitute for a fair original hearing. The court, therefore, chose to address the issue directly rather than relegating the petitioner to the alternative remedy.

Judgment:
The court quashed the impugned assessment order due to the violation of the principles of natural justice. It directed that the assessment order be treated as a show-cause notice, allowing the petitioner to file objections within two weeks. The respondent was instructed to provide a personal hearing and pass a fresh order in accordance with the law. The writ petition was allowed without costs.