2019 (4) TMI 1404 - HC - VAT and Sales Tax

Whether the Commissioner, Commercial Tax recorded prior reasons as contemplated under Sub-section (1) of Section 55 and whether there was proper delegation to the Subordinate Authorities to carry out the search operation? - HELD THAT - Close reading of Section 55(1) of the Act of 2002 reveals that, it does not confer unbridled and unguided power on the Commissioner to order for investigation. Self satisfaction on the fact available has to be arrived at first which is required to be recorded in writing . In other words, action cannot be taken simply or being satisfied without recording the reasons of satisfaction. The respondents thus have adverted to second part of Subsection (1) of Section 55 of Act of 2002 which empowers the Commissioner to direct any of the Officers referred to in Clauses (c) to (h) of Sub-section (1) of Section 3 to proceed to investigate - The contention that no reason to inspect/search business premises is required to be given , indicates that the Commissioner did not record any reason to believe the correctness of the information of tax, evasion received by him to form basis for investigation. This fact is further established when despite the order dated 04/08/2016, the respondent has failed to keep the original file present at the time of hearing for perusal of this Court to ensure whether any reason has been recorded by the Commissioner before issuing directions under Section 55(1) of the Act of 2002. The provisions as adverted supra being mandatory, non compliance thereof, vitiated the entire proceedings. Thus when the foundation is found to be defective, the entire superstructure must crumble. The investigation, assessment thereof, the First and Second Appellate order are quashed - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether any search/inspection can be made without recording reasons under Section 55 of the Act?
2. Whether the Assistant Commercial Tax Commissioner can conduct search/inspection without prior reasons by the Commissioner?
3. Can any action be taken without serving a mandatory show cause notice under Section 55(6)(C) of the Act?
4. Is the penalty imposed under Section 55(6)(C) without jurisdiction due to procedural lapses?
5. Are the findings regarding tax evasion on estimated stock value of ?11,50,426 perverse?

Analysis:

Issue 1:
The Court examined whether the Commissioner had recorded reasons as required under Section 55(1) before directing the investigation. The provision mandates recording reasons to believe tax evasion by a dealer. The Court emphasized the importance of recording reasons to prevent abuse of power, citing the case of Maneka Gandhi vs. Union of India. It held that failure to record reasons vitiated the proceedings, leading to the quashing of the investigation and assessment orders.

Issue 2:
The Court considered if the Assistant Commissioner could conduct a search without prior reasons by the Commissioner. It found that the Commissioner's failure to record reasons before directing the investigation rendered the entire process defective. Non-compliance with the mandatory provision was deemed to invalidate the proceedings, resulting in the quashing of all related orders.

Issue 3:
The Court addressed whether action could be taken without serving a mandatory show cause notice under Section 55(6)(C) of the Act. It was observed that the lack of recorded reasons by the Commissioner affected the validity of the entire process, leading to the quashing of the investigation, assessment, and appellate orders.

Issue 4:
Regarding the imposition of penalty under Section 55(6)(C) without following due procedure, the Court found that the procedural lapses resulting from the failure to record reasons by the Commissioner rendered the penalty imposition without jurisdiction. Consequently, the investigation, assessment, and appellate orders were quashed.

Issue 5:
The Court examined the findings related to tax evasion on the estimated stock value of ?11,50,426. It was determined that the entire process was vitiated due to the lack of recorded reasons by the Commissioner, leading to the quashing of all related orders. The Court refrained from further analysis on other issues due to the foundational defect in the proceedings.

In conclusion, the Appeal was allowed, and the investigation, assessment, and appellate orders were quashed due to the Commissioner's failure to record reasons as required by law, thereby invalidating the entire process.