2019 (3) TMI 1763 - HC - VAT and Sales Tax

Validity of audit objection raised - re-assessment order not made - Section 33 of the Bihar Value Added Taxation Act 2005 - substantial compliance of the obligation cast under the provisions by the assessing authority - HELD THAT - The entire decision making process leading to reassessment orders dated 2.8.2018 and the demand notice dated 31.8.2018 for the assessment orders 2012-13 and 2011-12 respectively as impugned at Annexures 3/1 and 3/2 to the respective writ petition are clothed with illegality for neither the audit objection in absence of assessment or reassessment or scrutiny had a legal sanction and even if such lapse is ignored and waived for a moment then the failure of the prescribed authority to record his satisfaction as to the lawfulness and correctness of the audit objection before he proceeded to mechanically issue notice to the petitioner is held dehors the statutory obligation rendering the entire proceedings culminating in reassessment order(s) and the demand notice(s) bad in law. Where the proceeding itself is contrary to the statutory prescriptions a participation by the petitioner in the same would not provide it with lawful sanction. The entire reassessment proceedings founded on the audit note impugned at Annexure 2/1 of the respective writ petitions for the assessment years 2012-13 and 2011-12 respectively culminating in the order of reassessment dated 2.8.2018 and the demand notice dated 31.8.2018 impugned at Annxures 3/1 and 3/2 to the respective writ petition cannot be upheld - Petition allowed.

Issues Involved:
1. Validity of audit objection without finalized scrutiny or assessment.
2. Compliance with Section 33 of the Bihar Value Added Tax Act, 2005.
3. Requirement of satisfaction by the Assessing Authority on the lawfulness of the audit objection.
4. Effect of participation in reassessment proceedings by the petitioner.
5. Legality of reassessment orders and demand notices based on audit objections.

Issue-wise Detailed Analysis:

1. Validity of Audit Objection Without Finalized Scrutiny or Assessment:
The court noted that the audit objection by the Comptroller and Auditor General (CAG) indicated that scrutiny or assessment had not been finalized. Section 33 of the Bihar Value Added Tax Act, 2005 ("the Act") mandates that an audit objection can only be raised if an assessment, reassessment, or scrutiny of any return has been made. Since the CAG's objection was raised without a finalized assessment or scrutiny, it lacked legal sanction. The court held that the CAG had no basis to record any objection, and the assessing authority was not obliged to act on such an objection.

2. Compliance with Section 33 of the Bihar Value Added Tax Act, 2005:
Section 33 of the Act stipulates that reassessment can only be initiated based on an objection by the CAG concerning an assessment, reassessment, or scrutiny. The court found that the reassessment orders were based on audit objections raised without finalized assessments, making the objections unsustainable under Section 33. The court emphasized that the statutory prerequisites for reassessment were not met.

3. Requirement of Satisfaction by the Assessing Authority on the Lawfulness of the Audit Objection:
Rule 25 of the Rules framed under the Act requires the assessing authority to be satisfied about the lawfulness of the audit objection before proceeding with reassessment. The court observed that the assessing authority issued notices based solely on the audit objection without recording satisfaction regarding its lawfulness. This mechanical approach violated the statutory obligation to record satisfaction, rendering the reassessment process illegal.

4. Effect of Participation in Reassessment Proceedings by the Petitioner:
The court rejected the argument that the petitioner's participation in the reassessment proceedings amounted to a waiver of the statutory requirements. It held that mere participation does not confer jurisdiction or validate an illegal proceeding. The court cited precedents to support the view that participation in proceedings does not cure jurisdictional defects or statutory non-compliance.

5. Legality of Reassessment Orders and Demand Notices Based on Audit Objections:
The court concluded that the reassessment orders and demand notices were illegal due to the absence of a valid audit objection and the failure of the assessing authority to record satisfaction on the lawfulness of the audit objection. The reassessment orders dated 2.8.2018 and demand notices dated 31.8.2018 for the assessment years 2012-13 and 2011-12 were quashed and set aside.

Conclusion:
The court allowed the writ petitions, quashing the reassessment proceedings and the consequent orders and demand notices. The decision underscores the importance of adhering to statutory requirements and the necessity for assessing authorities to record satisfaction on the lawfulness of audit objections before initiating reassessment proceedings.

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