2022 (8) TMI 490 - HC - VAT and Sales Tax

Disallowance of Input tax credit - order has been passed without proper notice to petitioner - violation of principles of natural justice - HELD THAT - In the case at hand, it is clear that respondent no.3 has not provided to petitioner what was received from the investigation branch or given an opportunity to explain or put forth petitioner s case. The petitioner has not been given a proper hearing and the order has been passed without proper notice to petitioner. It would also amount to breach of principles of natural justice. Therefore, the impugned order is hereby quashed and set aside and the matter is remanded for denovo consideration. The order shall be passed by an officer other than Mr. A.S. Kudale, who is the Deputy Commissioner of Sales Tax, who had passed the impugned order. Before passing any order, a personal hearing shall be given to petitioner with atleast seven working days advance notice. After the personal hearing, petitioner, should they wish to file written submissions recording what transpired during the hearing, those written submissions shall be submitted within three days after the personal hearing. The order to be passed shall be a well reasoned order discussing every submission made by petitioner and the order shall give a finding on every submission made by petitioner - the assessment order shall be passed within twelve weeks from today. Petition disposed off.

Summary

Issues Involved:
Impugning an order disallowing Input Tax Credit (ITC) for purchases, breach of natural justice in passing the order without proper hearing or notice, failure to provide details from the Investigation Branch, and the need for a denovo consideration.

Analysis:
1. The petitioner challenged an order disallowing an Input Tax Credit (ITC) of Rs.1,65,97,751,48 for purchases from six entities, claiming arbitrariness as the disallowance was reflected in the Mahavikas system. The impugned order lacked details from the Investigation Branch and failed to provide the petitioner with an opportunity to explain, breaching principles of natural justice.

2. The Court highlighted the lack of transparency in the order disallowing ITC, quoting an internal circular lamenting the department's failure to pass orders judiciously. The circular emphasized the importance of providing reasons for disallowances and ensuring proper hearings for dealers, warning of disciplinary actions for non-compliance.

3. Emphasizing the importance of natural justice, the Court quashed the impugned order and remanded the matter for denovo consideration by an officer other than the one who initially passed the order. It ordered the provision of findings from the Investigation Branch to the petitioner, a personal hearing with advance notice, and submission of written responses after the hearing.

4. The Court directed a well-reasoned assessment order within twelve weeks, focusing on every submission made by the petitioner. It clarified that no observation on the merits of the matter was made, and the petition was disposed of. Additionally, it suggested considering disciplinary proceedings against the officer responsible for the initial order, in line with the internal circular's guidelines.

In conclusion, the judgment addressed the issues of procedural fairness, transparency, and adherence to natural justice principles in tax matters, emphasizing the importance of providing adequate opportunities for affected parties to present their case and ensuring reasoned decision-making by tax authorities.