2011 (12) TMI 495 - HC - VAT and Sales Tax

Validity of audit assessment order passed by DCST under Rule 12(3) of the Central Sales Tax (Orissa) Rules, 1957 Applicability of period of limitation - Whether the assessing authority is empowered to utilize any adverse report other than the audit visit report against a dealer while making audit assessment under rule 12(3) of the CST(O) Rules read with section 42 of the OVAT Act - Held that - The audit assessment and assessment of escaped turnover cover separate and distinct field for the purpose of assessment - while in the case of audit assessment, the maximum period of limitation is one year, in the case of assessment of turnover escaping assessment, the period of limitation is five years - Both the assessments have to be completed within the respective period of limitation as provided under the statute - while making audit assessment as provided under rule 12(3), the assessing authority has no power/authority to utilize any material against the dealer other than the materials available in the audit report - the period of five years provided under the statute for completing assessment of escaped turnover cannot be restricted to one year as provided in case of audit assessment - when the statute requires to do certain thing in certain way, the thing must be done in that way or not at all - other methods or mode of performance are impliedly and necessarily forbidden - the settled legal proposition is based on a legal maxim expression unius est exclusio alterius , meaning thereby that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner and following other course is not permissible - the assessing authority is not justified in utilizing the fraud report dated May 2, 2011 against the petitioner-dealer while making audit assessment on the basis of audit visit report dated September 30, 2010. Violation of principles of natural justice Held that - Giving eight days time to explain the allegations raised against the dealer-petitioner in the report dated May 2, 2011 which is in 20 volumes covering more than 4,000 pages cannot be said that reasonable opportunity of being heard has been afforded to the petitioner before passing the impugned order of assessment. Whether the assessing authority is justified in passing assessment order by generalizing the entire claim of stock transfer on the strength of findings arrived at on scrutinizing some transactions of stock transfer Held that - While examining the transaction of stock transfer, the assessing authority is required to examine each and every transaction to find out the genuineness of the claim - the onus of proving always lies upon the taxing authority to show that a particular sale or sales is/are exigible to tax under the Act the order is set aside with a direction to the assessing authority to pass the audit assessment order afresh exclusively on the basis of audit visit report Decided in favour of petitioner.

Summary

Issues Involved
1. Utilization of adverse reports other than the audit visit report in audit assessment.
2. Period of limitation for making audit assessment.
3. Justification of utilizing the Vigilance Department's fraud report in audit assessment.
4. Violation of principles of natural justice and disobedience to court orders.
5. Generalization of stock transfer claims based on scrutinized transactions.

Detailed Analysis

1. Utilization of Adverse Reports Other than the Audit Visit Report in Audit Assessment
The court examined whether the assessing authority is empowered to utilize any adverse report other than the audit visit report against a dealer while making audit assessment under rule 12(3) of the CST (O) Rules read with section 42 of the OVAT Act. The court concluded that audit assessment must be completed based on materials available in the audit visit report only. Utilizing any other material from different sources is not permissible and is foreign to the audit assessment process.

2. Period of Limitation for Making Audit Assessment
The court highlighted that audit assessment must be completed within six months from the date of receipt of the audit visit report, with a possible extension of six months, but not exceeding one year. The period of five years for completing the assessment of escaped turnover cannot be restricted to one year as in the case of audit assessment.

3. Justification of Utilizing the Vigilance Department's Fraud Report in Audit Assessment
The court found that the assessing authority was not justified in utilizing the fraud report dated May 2, 2011, while making audit assessment based on the audit visit report dated September 30, 2010. The assessment should be exclusively based on the audit visit report, and utilizing the fraud report was beyond the scope of the audit assessment.

4. Violation of Principles of Natural Justice and Disobedience to Court Orders
The court noted that the petitioner was given only eight days to respond to a voluminous fraud report, which was not reasonable. This short period did not afford the petitioner a fair opportunity to rebut the charges, thus violating principles of natural justice. The court also observed that the assessing authority did not comply with its earlier order to provide a reasonable opportunity for the petitioner to be heard.

5. Generalization of Stock Transfer Claims Based on Scrutinized Transactions
The court emphasized that the assessing authority must examine each transaction individually to determine its genuineness. Generalizing the entire claim of stock transfer based on scrutinizing some transactions is not permissible. The Supreme Court's judgment in Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes mandates examining each transaction to decide its taxability.

Conclusion
The court set aside the impugned assessment order dated September 22, 2011, and directed the assessing authority to pass a fresh audit assessment order exclusively based on the audit visit report within four weeks from the petitioner's appearance. The court also instructed the assessing authority to serve notice for making assessment under rule 12(4) of the CST (O) Rules and complete it after affording a reasonable opportunity of hearing to the petitioner, considering the Supreme Court's judgment in Tata Engineering and Locomotive Co. Ltd. The writ petition was disposed of with these observations and directions.