2016 (3) TMI 1156 - HC - VAT and Sales Tax

Validity of assessment order - principles of natural justice - the applications for rectification/correction of mistake has been rejected, behind the back of petitioners - whether opportunity of hearing should be granted when the rectification is sought for by the assessee himself and he wants certain corrections in the orders on grounds as are raised in the rectification application? Held that - the Full Bench of the Delhi High Court has dealt with this question in the case of Smart Private Limited 1990 (2) TMI 49 - DELHI High Court . In the case before the Full Bench of Delhi High Court, the provision of section 254(2) of the Income Tax Act was interpreted and Justice Kripal (as he then was and who has authored the Judgment) after taking note of the provisions of section 254(2) of the Income Tax Act has discussed in detail the import and effect of the provisions of Section 254(2) - the learned Full Bench has come to a conclusion that principles of natural justice have to be read into the provisions of section 254(2) and it has been held that this provision has been inserted in the statute by way of abundant caution to give certain right to a person who is aggrieved by an order passed, and if being aggrieved by certain order passed the statute gives a power to the aggrieved person to file an application, a presumption has to be drawn that the statute correspondingly gives a right to that person for an opportunity of hearing with regard to acceptance or otherwise of the application filed by virtue of the right which accrues to the person on account of the statutory provision. In the case of Punjab National Bank & Ors. Vs. Kunj Behari Mishra, 1998 (8) TMI 594 - Supreme Court of India , it has been held by the Supreme Court that even if a statutory rule does not provide for an opportunity of hearing if the order impugned has the effect of affecting the rights of person adversely then the requirement of the principles of natural justice has to be read into the Rules. The requirement of grant of opportunity of hearing or following the principles of natural justice before rejecting an application under section 54(1), has to be read into the rules and in dismissing the application on the grounds as indicated in the impugned orders dated 13.05.2015, without hearing the petitioners, an error has been committed by the department. Petition allowed and matter remanded to back to the Assistant Commissioner, Commercial Tax, Chhindwara with a direction to issue notice to the petitioners, hear them on the application for rectification and, thereafter pass an order.

Summary

Issues Involved:
1. Challenge to the order rejecting rectification applications under Section 54(1) of the M.P. VAT Act.
2. Violation of principles of natural justice due to lack of notice and hearing.
3. Interpretation of Section 54(1) of the M.P. VAT Act and Rule 65 of the M.P. VAT Rules, 2006.
4. Comparison with Section 254(2) of the Income Tax Act regarding rectification procedures.

Issue-wise Detailed Analysis:

1. Challenge to the order rejecting rectification applications under Section 54(1) of the M.P. VAT Act:
The petitioners challenged the orders dated 13.05.2015 passed by the Commercial Tax Commissioner, which rejected their applications for rectification under Section 54(1) of the M.P. VAT Act. The rectification was sought for imposition of VAT in W.P. No.13653/2015 and assessment of entry tax on purchase of plant and machinery in W.P. No.13655/2015.

2. Violation of principles of natural justice due to lack of notice and hearing:
The petitioners argued that their applications for rectification were rejected without notice or hearing, violating the principles of natural justice. They contended that under Rule 65 of the M.P. VAT Rules, 2006, notice in Form No. 45 is required before rectification. The respondents countered that notice is only necessary if the rectification order enhances tax or reduces the refund, which was not the case here. The court emphasized that principles of natural justice must be read into the statute, and the petitioners should have been given an opportunity to be heard.

3. Interpretation of Section 54(1) of the M.P. VAT Act and Rule 65 of the M.P. VAT Rules, 2006:
Section 54(1) empowers the Commissioner to rectify clerical or arithmetical mistakes or errors arising from omissions within one calendar year from the date of the order. The court noted that the prescribed procedure under Rule 65 requires notice in Form No. 45 for rectification. The court held that the statutory provision implies a right to be heard, and dismissing the application without hearing the petitioners violated this right.

4. Comparison with Section 254(2) of the Income Tax Act regarding rectification procedures:
The petitioners drew a parallel with Section 254(2) of the Income Tax Act, which also provides for rectification of mistakes. The court referred to the Full Bench decision of the Delhi High Court in Smart P. Ltd Vs. Income Tax Appellate Tribunal, which held that principles of natural justice must be read into rectification procedures. The court agreed that the same principles apply to Section 54(1) of the M.P. VAT Act, requiring notice and hearing before rectification.

Conclusion:
The court allowed the petitions, quashed the impugned orders, and remanded the matter back to the Assistant Commissioner, Commercial Tax, Chhindwara. The court directed the Commissioner to issue notice to the petitioners, hear them on their rectification applications, and then pass an order in accordance with law. The court clarified that it did not address the merits of the rectification claims, focusing solely on the need for a hearing.