2018 (3) TMI 1534 - HC - VAT and Sales Tax

Input tax credit - Odisha VAT Act, 2004 - whether the opposite party no.2, who on finding discrepancies in the VAT returns had recommended further investigation and wanted submission of detailed enquiry report/evasion report, was competent to assess the petitioner under Section 43 of the Odisha VAT Act ? Held that - It is well settled that the principles of natural justice demand that nobody shall be a judge of his own cause. It is equally well settled that justice should not only be done but also should be manifestly be seen to have been done. In the present case, the undisputed facts show that the officer at whose instance further investigation was initiated on the basis of his prima facie finding relating to huge mismatch and excess claim of inputs tax credit by the petitioner, has himself conducted the assessment resulting in issuance of impugned assessment order under Annexure-1 and consequential demand notice under Annexure-2 - the reasonable likelihood of bias cannot be ruled out. The competent authority is directed to re-assess the assesse and complete the reassessment, preferably, within a period of eight weeks from today - Application disposed off.

Issues Involved:
1. Validity of the assessment order under Section 43 of the Odisha Value Added Tax Act, 2004.
2. Validity of the demand notice issued under Annexure-2.
3. Alleged violation of principles of natural justice by the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Validity of the assessment order under Section 43 of the Odisha Value Added Tax Act, 2004:
The petitioner, a sole proprietorship dealing in Gold Bullion and Ornaments, challenged the assessment order dated 19.3.2014 under Section 43 of the Odisha Value Added Tax Act, 2004 (OVAT Act). The petitioner argued that the assessment was flawed because the same officer who recommended further investigation due to discrepancies in VAT returns also acted as the Assessing Officer. This dual role violated the principles of natural justice, as it created a situation where the officer was a "judge in his own cause." The court noted that the officer's involvement in both initiating the investigation and conducting the assessment led to a reasonable likelihood of bias. Consequently, the assessment order was quashed.

2. Validity of the demand notice issued under Annexure-2:
The demand notice issued under Annexure-2 was a direct consequence of the disputed assessment order. Since the assessment order was found to be invalid due to the violation of natural justice principles, the demand notice was also quashed. The court emphasized that any further assessment must be conducted by a different officer to ensure fairness and compliance with legal standards.

3. Alleged violation of principles of natural justice by the Assessing Officer:
The court scrutinized the role of the Deputy Commissioner of Commercial Taxes, who had highlighted discrepancies in the VAT returns and recommended further investigation. The same officer later acted as the Assessing Officer, which was deemed inappropriate. The court cited previous judgments, including Tata Sponge Iron Limited v. Commissioner of Sales Tax, Orissa, and ABB India Limited v. State of Odisha, to reinforce that an officer involved in the audit process should not conduct the assessment to avoid any bias. The court concluded that the principles of natural justice were violated, as justice must not only be done but also be seen to be done.

Conclusion:
The court quashed both the assessment order and the demand notice due to the violation of natural justice principles. It directed the competent authority to reassess the petitioner within eight weeks, ensuring that a different officer conducts the reassessment to maintain transparency and fairness. The writ application was disposed of without costs.

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