2024 (10) TMI 783 - HC - VAT / Sales Tax

Challenge to impugned order and the impugned demand notice - failure of natural justice - non-application of mind - legal mala fides - HELD THAT - In the gross facts of the present case, there is no question of relegating the Petitioners to the alternate remedy of appeal under the provisions of the MVAT Act. In a case where the violation of the principles of natural justice is apparent, the objection based upon the non-exhaustion of alternate remedies is rarely entertained. In this case, the Respondents did not even raise or, in any event, press the objection based upon the non-exhaustion of the alternate remedies. Though the impugned assessment order is dated 14 March 2022, the same was served upon the 3rd Petitioner (though it relates to the 1st and 2nd Petitioners) only on 1 July 2023, after 15 months. In the Affidavit filed on behalf of the 3rd Respondent, there is no explanation for this inordinate delay in communicating or serving the impugned assessment order dated 14 March 2022. The impugned assessment order refers to notice being served upon the Petitioners and the Petitioners filing their reply to the show cause notice. However, in the Affidavit, it is admitted that no show cause notice was ever served upon the Petitioners, and therefore, the Petitioners had no opportunity to file any reply. Section 23 (4) of the MVAT Act provides for the issue of a notice followed by a reasonable opportunity to be heard before assessing any assessee to the best of his judgment. Since neither any notice was issued to the Petitioners nor that the Petitioners granted any opportunity of being heard, the impugned assessment order is liable to be set aside for failure of natural justice and breach of the provisions of Section 23 (4) of the MVAT Act. The impugned assessment order is vitiated by legal mala fides - the impugned assessment order dated 14 March 2022 is entirely unsustainable and is required to be quashed and set aside for gross failure to comply with the statutory provisions in Section 23 (4) of the MVAT Act and the principles of natural justice and fair play, non-application of mind and legal mala fides. The impugned assessment order needs to be quashed and set aside on the grounds of breach of Section 23 (4) of the MVAT Act, violation of the principles of natural justice and fair play, non-application of mind, and legal mala fides. Whether in the facts of the present case, accede to Ms Vyas s submission about remanding the matter to the assessing officer for fresh adjudication after granting full opportunity to the Petitioners of being heard in the matter? - HELD THAT - The Petitioners have made out the strong prima facie case that the impugned assessment order dated 14 March 2022 was, in fact, not made on the said date but made beyond 31 March 2022, on which date the statutorily prescribed period for making an assessment order expired given the proviso to Section 23 (4) of the MVAT Act. Under the proviso, the Assessing Officer had eight years to assess the Petitioners and make the assessment order. Any indulgence by way of remand would not only reward the respondents with an enhanced limitation period to complete the FY 2013-2014 assessment proceedings but embolden unscrupulous tax officials to manipulate orders or otherwise mistreat the assessees - it is declined to remand the matter to the assessing authority after quashing and setting aside the impugned assessment order purportedly made out on 14 March 2022. The impugned assessment order, purportedly made on 14 March 2022, is quashed and set aside - petition allowed.

Summary

Issues Involved:

1. Breach of natural justice and fair play.
2. Non-application of mind and legal mala fides.
3. Issuance of a common assessment order for distinct legal entities.
4. Backdating of the assessment order beyond the statutory limitation period.
5. Procedural errors and factual inaccuracies in the assessment order.
6. Consideration of remand for fresh adjudication.

Detailed Analysis:

1. Breach of Natural Justice and Fair Play:

The Petitioners contended that the impugned assessment order dated 14 March 2022 was issued without serving a show cause notice or granting an opportunity for a personal hearing, violating Section 23(4) of the MVAT Act. The court noted that there was no explanation for the delay in communicating the order, which was served 15 months after its purported date. The court highlighted the principles established in Bachhittar Singh vs State of Punjab, emphasizing that an order must be communicated to the affected party to be binding. The failure to issue notice and provide a hearing constituted a breach of natural justice, warranting the setting aside of the order.

2. Non-Application of Mind and Legal Mala Fides:

The Petitioners argued that the assessment order contained references to unrelated entities and incorrect descriptions of agreements, indicating non-application of mind and legal mala fides. The court found substance in these allegations, noting several glaring factual errors and a lack of explanation for the references to Mr. Vikas Gattani's alleged hearing on a date after the order's purported issuance. The court concluded that the order was issued without proper consideration and was vitiated by legal mala fides.

3. Issuance of a Common Assessment Order for Distinct Legal Entities:

The Petitioners challenged the issuance of a common assessment order for two separate legal entities, arguing that neither the MVAT Act nor the Rules allowed for such an order. The court agreed, stating that issuing a common order for distinct entities was an exercise of powers not vested in the Respondents and was arbitrary and ultra vires.

4. Backdating of the Assessment Order Beyond the Statutory Limitation Period:

The Petitioners contended that the assessment order was backdated to appear within the statutory limitation period, which expired on 31 March 2022. The court found prima facie evidence supporting this claim, noting the reference to a hearing on 23 May 2023 in an order dated 14 March 2022. The court concluded that the order was likely made beyond the limitation period, rendering it unsustainable.

5. Procedural Errors and Factual Inaccuracies in the Assessment Order:

The court identified several procedural errors and factual inaccuracies in the assessment order, including incorrect party descriptions and reliance on unrelated agreements. These errors indicated a lack of application of mind, further justifying the order's quashing.

6. Consideration of Remand for Fresh Adjudication:

The Respondents suggested remanding the matter for fresh assessment to protect revenue interests. However, the court declined, citing the gross illegalities and manipulation in the assessment process. The court emphasized that remanding the matter would reward the Respondents with an extended limitation period and embolden unscrupulous practices. Instead, the court quashed the impugned assessment order and awarded costs to the Petitioners.

Conclusion:

The court quashed the impugned assessment order dated 14 March 2022 due to breaches of natural justice, non-application of mind, legal mala fides, procedural errors, and backdating beyond the statutory limitation period. The court declined to remand the matter, emphasizing fairness and probity in tax governance. The Petitioners were awarded costs, and the rule was made absolute.