2025 (1) TMI 602 - HC - VAT / Sales Tax

Violation of principles of natural justice - failure to mention of provisions of Section 21 (5) of A.P. Value Added Tax Act, 2005 - Time limitation of audit assessment proceedings dated 13.10.2020 - whether the impugned order of assessment was passed within the period of limitation or not. In usual course, the period of limitation would be four years from the end of the tax period and the order dated 13.10.2020 is beyond the period of limitation? - HELD THAT - It is an admitted fact that the petitioner had received all the show cause notices. However, the petitioner chose not to respond to either the initial show cause notice issued in June, 2020 or the subsequent notices. The question of violation of principles of natural justice would arise, if a show cause notice is issued to a person and he responds to such show cause notice, after which additional grounds, which were not raised in the show cause notice are utilized, for passing an adverse order against the notice. In the present case, the petitioner has not responded to any of the show cause notices. In such circumstances, non-mentioning of Section 21 (5) of the Act, in the show cause notice, would not be fatal to the impugned order dated 13.10.2020. The audit assessment dated 13.10.2020 was not barred by limitation due to the application of the extended period under Section 21(5) for tax evasion. Conclusion - i) The omission of Section 21(5) in the show cause notices did not violate the principles of natural justice, given the petitioner's lack of response. ii) The audit assessment dated 13.10.2020 was not barred by limitation due to the application of the extended period under Section 21(5) for tax evasion. Petition dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the audit assessment proceedings dated 13.10.2020 were initiated beyond the statutory period of limitation as per the A.P. Value Added Tax Act, 2005.
Whether the extended period of limitation under Section 21(5) of the Act could be invoked without prior mention in the show cause notices.
Whether the principles of natural justice were violated due to the non-mention of Section 21(5) in the show cause notices.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation Period for Audit Assessment

Relevant Legal Framework and Precedents: The A.P. Value Added Tax Act, 2005, prescribes a limitation period of four years for audit assessments from the end of the tax period. Section 21(5) allows an extension to six years in cases of tax evasion.
Court's Interpretation and Reasoning: The court considered whether the assessment was conducted within this period and whether the extended limitation period could be applied.
Key Evidence and Findings: The assessment was completed on 13.10.2020, beyond the standard four-year limitation period. However, evidence of suppressed turnover through e-weigh bills justified the application of the extended period under Section 21(5).
Application of Law to Facts: The court found that the suppression of turnover constituted tax evasion, thus warranting the six-year limitation period.
Treatment of Competing Arguments: The petitioner argued that the assessment was time-barred, while the respondent highlighted the evasion of tax, justifying the extended period.
Conclusions: The court upheld the application of the six-year limitation period due to the evasion of tax.

Issue 2: Invocation of Section 21(5) Without Mention in Show Cause Notices

Relevant Legal Framework and Precedents: Section 21(5) of the Act allows for an extended limitation period in cases of tax evasion. The principles of natural justice require that parties be informed of all grounds for action against them.
Court's Interpretation and Reasoning: The court examined whether the omission of Section 21(5) in the show cause notices constituted a violation of natural justice.
Key Evidence and Findings: The petitioner was served with multiple show cause notices but did not respond to any.
Application of Law to Facts: The court reasoned that since the petitioner did not engage with the notices, the omission was not fatal to the assessment order.
Treatment of Competing Arguments: The petitioner claimed the omission violated natural justice, while the respondent argued that the lack of response from the petitioner negated this claim.
Conclusions: The court concluded that the non-mention of Section 21(5) in the notices did not invalidate the assessment due to the petitioner's non-response.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The suppression of turnover, in the VAT returns, filed by the petitioner, is sufficient to hold that there has been evasion of tax."
"In such circumstances, non-mentioning of Section 21(5) of the Act, in the show cause notice, would not be fatal to the impugned order dated 13.10.2020."

Core principles established:

The extended limitation period under Section 21(5) can be applied in cases of tax evasion, even if not initially mentioned in show cause notices, provided the taxpayer does not respond to the notices.
Non-response to show cause notices can negate claims of violation of natural justice regarding procedural omissions.

Final determinations on each issue:

The audit assessment dated 13.10.2020 was not barred by limitation due to the application of the extended period under Section 21(5) for tax evasion.
The omission of Section 21(5) in the show cause notices did not violate the principles of natural justice, given the petitioner's lack of response.
The writ petition was dismissed, and the assessment and appeal orders were upheld.

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