2014 (2) TMI 1004 - HC - VAT and Sales Tax

Special audit under Section 58A of the Delhi Value Added Tax Act, 2004 - Adequate opportunity in the context of proposal under Section 142(2A) of the Income Tax Act - Held that - Section 142(2A) before this amendment in 2006 was cast in pari materia terms. Interpreting that provision, the Supreme Court was alive to the fact that the order of special audit was likely to cause prejudice, hardship and even great deal of displacement to the assessee. The Court, therefore, read into Section 142(2A), the requirement that the tax administrator ought to issue prior notice and grant reasonable opportunity. That the Parliament assimilated the law and codified it through a proviso is a matter of detail which ought not to be determinative in the circumstances. In the present case, given the pari materia terms of both provisions, this Court rules that an identical opportunity in the case of special audit in the Income Tax is necessary to be given through notice by the Commissioner on each occasion when special audit is proposed - It is open to the respondents, if so advised, to issue Show Cause Notice and grant reasonable opportunity in line with the Supreme Court s decision in Rajesh Kumar (2006 (11) TMI 135 - SUPREME Court) and Sahara India (Firm) (2008 (4) TMI 4 - Supreme Court) - Decided in favour of assessee.

Summary

Issues:
1. Validity of orders for special audit under Section 58A of the Delhi Value Added Tax Act, 2004 (DVAT) without prior Show Cause Notice.
2. Interpretation of Section 58A of the DVAT Act post-amendment.
3. Comparison with Section 142(2A) of the Income Tax Act regarding the requirement of issuing notice prior to special audit orders.

Analysis:
1. The petitioner challenged the orders for a special audit issued by the VAT Commissioner without a prior Show Cause Notice, arguing that such orders should be preceded by an opportunity for the assessee to present their views. Citing relevant judgments, the petitioner contended that adequate notice and time for representations are essential before such orders with adverse civil consequences are made.

2. The Revenue argued that the amendment to Section 58A of the DVAT Act in 2013 expanded the powers of the VAT Commissioner to propose special audits even before the initiation of proceedings. They highlighted the deletion of specific phraseology and emphasized that if the legislature intended to require a Show Cause Notice, it would have explicitly provided for it. The Revenue also pointed out the differences between Section 58A and Section 142(2A) of the Income Tax Act.

3. The Court analyzed the provisions of Section 58A of the DVAT Act and Section 142(2A) of the Income Tax Act, along with relevant judgments. The Court noted that the Supreme Court had previously emphasized the need for prior notice and a reasonable opportunity for the assessee in cases of special audits. Despite the differences in specific language and amendments, the Court ruled that a similar opportunity through notice by the Commissioner is necessary for special audits under both Acts.

4. Ultimately, the Court held in favor of the petitioner, ruling that the orders for special audit without prior Show Cause Notice were invalid. The Court directed the respondents to issue Show Cause Notice and grant a reasonable opportunity to the petitioner in line with established legal principles and previous Supreme Court decisions. The writ petition was allowed, and the impugned orders were quashed, providing relief to the petitioner.