2020 (8) TMI 532 - HC - VAT / Sales Tax

Principles of Natural Justice - Validity of assessment order - Input Tax Credit - cancellation of registration certificate of the vendor - allegation that disallowance of Input Tax Credit without providing the copy of the order of cancellation of registration certificate of the vendor - HELD THAT - The issue raised in the present writ application is identical to the issue which was raised before the Coordinate Bench in the case of M/S. B.K. TRADERS THROUGH ITS PROPRIETOR VIRALBHAI VINODBHAI KARIA VERSUS STATE OF GUJARAT 2020 (7) TMI 471 - GUJARAT HIGH COURT where it was held that In the instant case, since there is violation of principles of natural justice, more particularly, when the petitioner chose to approach the respondent-authority on 13.03.2020 and requested for relevant and vital documents, in response to the notice issued by it, without supplying the same, respondent-authority has imposed the petitioner with not only the heavy penalty but also interest by the order dated 24.03.2020, which is impugned in this petition, we, therefore, deem it appropriate to entertain this petition and at the joint request made by both the sides, matter deserves to be remitted, quashing and setting aside the impugned order of assessment. There are many procedural lapses on the part of the respondent No.2 going to the root of the matter. There is no escape from the fact that the hearing for the purpose of imposing penalty under the Act, 2003 pursuant to the notice issued in that regard in Form No.309 was fixed on 24th March 2020. The notice in Form No.309 is dated 17th March 2020. However, it appears that when the representative of the writ applicants appeared before the respondent No.2 on 17th March 2020, a copy of the Form No.309 was served upon him and on the very next date i.e. 18th March 2020, the hearing was undertaken and the order also came to be passed on the very same date including the order of penalty. We are not convinced with the manner in which the proceedings have been dealt with by the respondent No.2. It would have been very easy for us to decline to entertain this writ application on the ground that the remedy of appeal is available to the writ applicants, but we believe that justice should not only be done, it should manifestly appear to have been done - There is one another aspect of the matter. It is not even the case of the respondent No.2 that the vendors from whom the goods were purchased by the respondent No.2 had not paid tax on the transaction on which the writ applicants claimed the Input Tax Credit. It is also not the case of the respondent No.2 that the writ applicants purchased the goods from such vendors after their registrations were cancelled. The matter is remitted to the respondent No.2 for its consideration a fresh, on merits. The claim of Input Tax Credit shall be considered a fresh after giving due opportunity of hearing to the writ applicants - Application allowed.

Summary

Issues Involved:
1. Quashing and setting aside the impugned order and demand notice.
2. Alleged violation of principles of natural justice.
3. Failure to provide necessary documents to the writ applicants.
4. Alternative remedy of appeal under Section 73 of the VAT Act.
5. Procedural lapses in the imposition of penalty.

Detailed Analysis:

1. Quashing and Setting Aside the Impugned Order and Demand Notice:
The writ applicants sought to quash the impugned order dated 18.03.2020 and the demand notice issued on the same date, which disallowed their claim of input tax credit. The court found merit in the writ application, noting procedural lapses and violations of natural justice. The impugned order and demand notice were quashed and set aside, with the matter remitted to the respondent No.2 for fresh consideration on merits.

2. Alleged Violation of Principles of Natural Justice:
The writ applicants argued that the disallowance of input tax credit without providing the order of cancellation of the vendor's registration was a gross violation of natural justice. The court agreed, referencing previous decisions that emphasized the necessity of furnishing relevant documents to the affected party. The court concluded that the respondent No.2's actions breached the principles of natural justice.

3. Failure to Provide Necessary Documents to the Writ Applicants:
The writ applicants contended that they were not provided with copies of the assessment orders and the order of cancellation of registration of vendors. The court noted that despite the respondent No.2's claim of providing necessary information, the procedural lapses indicated otherwise. The court mandated the respondent No.2 to furnish the requisite documents to the writ applicants for a fair reassessment.

4. Alternative Remedy of Appeal under Section 73 of the VAT Act:
The respondents argued that the writ application was not maintainable due to the availability of an alternative remedy of appeal under Section 73 of the VAT Act. However, the court held that the alternative remedy was not sufficient in this case due to the procedural irregularities and the breach of natural justice. The court exercised its discretion to entertain the writ application under Article 226 of the Constitution of India.

5. Procedural Lapses in the Imposition of Penalty:
The court observed significant procedural lapses in the imposition of the penalty. The notice for penalty was issued on 17th March 2020, with a hearing scheduled for 24th March 2020. However, the respondent No.2 conducted the hearing and passed the order on 18th March 2020, which was deemed improper. The court found this conduct to be a violation of procedural fairness and natural justice.

Conclusion:
The court concluded that the impugned order and demand notice were untenable in law due to procedural lapses and violations of natural justice. The matter was remitted to the respondent No.2 for fresh consideration, with instructions to provide the necessary documents to the writ applicants and allow them an opportunity to present fresh evidence. The entire exercise was directed to be completed within three months.