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TMI Blog2014 (9) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... both in dispute as a precondition for entertaining an appeal against the order enumerated under section 77(1) of the OVAT Act does not make the right of appeal illusory and such a condition is within the legislative power of the State Legislature and cannot be held to be unreasonable and violative of article 14 of the Constitution. - Decided against the assessee. Imposition of penalty under section 42(5) - penalty equal to the twice of the demand - Held that:- even if further opportunity will be given to the assessee before imposing penalty that will be a futile exercise. Penalty is not independent of the tax assessed. If the tax is assessed, imposition of penalty under section 42(5) is warranted. section 42(5) of the OVAT Act authorizing imposition of penalty equal to twice the amount of tax assessed under section 42(3) or (4) of the OVAT Act is constitutionally valid. It is not arbitrary, unreasonable, oppressive, or hit by article 14 or in any way ultra vires the Constitution of India. - Decided against the assessee. Failure of the authorized officer to submitt audit visit report to the assessing authority within seven days - Held that:- notice issued in form VAT 306 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed time for a period not less than 30 days for production of relevant books of account and documents. In the instant case, notice in form VAT 306, which has been attached to the writ petition as annexure 1 reveals that such notice though was dated April 30, 2008 has been issued vide issue No. 2177 dated May 16, 2008 fixing date of appearance and production of the books of account on June 10, 2008. Thus, the notice in form VAT 306 itself shows that 30 days time as provided under section 42(2) has not been allowed to the petitioner. The petitioner's case is that the notice in form VAT 306 was served in first week of June, 2008 and thus the petitioner barely had 4-5 days to appear and comply with the direction in the notice and thereby the cardinal principle of natural justice is violated. Thus, this is a case of clear violation/infraction of the mandatory provisions of section 42(2) of the OVAT Act. - Decided in favor of assessee. In the fact situation, completion of audit assessment on the basis of AVR which has been submitted in violation of statutory provisions of section 41(4) of the OVAT Act read with rule 45(3) of the OVAT Rules and upon issuance of notice in form VAT 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. On objection and protest, the petitioner was threatened with various coercive actions. The petitioner therefore, under duress, protest and compulsion, rendered necessary assistance to the said persons and provided all informations and documents sought for from it. Documents and files were seized and removed from the petitioner' premises. No seizure list of documents and files seized and removed from the petitioner's premises was prepared and a copy thereof was handed over to the petitioner. Audit was completed on the same day. On or about first week of January, 2008, the petitioner received a notice in VAT 306 enclosing copy of audit visit report indicating the date of appearance before the Assistant Commissioner of Sales Tax, Jajpur Range, Jajpur Road on June 10, 2008. Pursuant to the above notice, the petitioner appeared and provided details required under the notice. The details were provided on various dates and last most important dates being October 24, 2008 and November 15, 2008. On or about November 19/20, 2008, the petitioner received the assessment order dated October 20, 2008 (annexure 2). Being aggrieved by the said assessment order, the petitioner has filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, interest and penalty for conditional stay at the stage of hearing of the interim stay petition. Such provision circumvents and defeats the very spirit and legislative intent of introducing the OVAT Act and repealing the Orissa Sales Tax Act. The provision thwarts, defeats, obliterates and eclipses a substantive right of appeal of the petitioner by imposing such an unreasonable and oppressive provision. The concept of pre-deposit and artificially inflated demand in cases like the present militates against and defeats the fiscal regime and causes severe harm to perspective planning and defeats any fiscal discipline causing severe harm to the economy. Mr. Mahanti, further submitted that the petitioner challenges the constitutional validity of sub-section (5) of section 42 of the OVAT Act read with sub-rule (6) of rule 49 of the OVAT Rules being arbitrary, unreasonable, fatally hit by gross and flagrant violation of the principles of natural justice. Section 42(5) of the OVAT Act and rule 49(6) of the OVAT Rules are ultra vires the Constitution of India and also hit by doctrine of double jeopardy. Section 42(5) of the OVAT Act provides that without prejudice to any penalty or int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudicial finding leading to the audit visit report and the assessment order unsustainable in law. The notice in form VAT-306 itself is contrary to the provisions of section 42(2) of the OVAT Act insofar as the mandatory statutorily prescribed period of thirty days granted therein illegally and in gross violation of the principles of natural justice has been reduced to around twenty five days. The audit visit report has been submitted by a person who was neither a part of nor is the head of the team of audit visit on October 1, 2007. The approval of the audit visit report has been given by the Assistant Commissioner of Sales Tax, Enforcement Range, Berhampur on a report submitted by the Sales Tax Officer, Investigation unit, Bhubaneswar as head of the audit team. Section 41(4) of the OVAT Act provides a period of seven days to the authorized officer to submit the audit report to the assessing authority. But in the instant case, the audit report was submitted on March 31, 2008, i.e., after a period of six months from the date of completion of the audit. Therefore, audit report and consequential assessment order are unreasonable, unsustainable, non est and void ab initio in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order ignores the details submitted to opposite party No. 6 which clearly favours the petitioner and proceeded contrary to the materials available on record and reaches a perverse and unsustainable conclusion and saddles the petitioner with the extra demand and therefore, learned senior advocate Mr. Mahanti, prays to allow this writ petition by granting the reliefs as prayed in this writ petition. Mr. R.P. Kar, learned standing counsel appearing for the Revenue, submitted that an alternative and efficacious remedy by way of appeal is available to the petitioner and the petitioner itself admits that it has filed appeal against the impugned order of assessment before the first appellate authority. Therefore, the petitioner cannot avail of parallel proceedings against the impugned order of assessment passed under annexure 1. Mr. Kar further submitted that the assertion of the petitioner that the audit assessment order has been passed without giving opportunity of hearing to the petitioner and thereby principles of natural justice is violated is contrary to its own averments made in paragraph 2(t) of writ petition, wherein it is averred that the petitioner appeared, assisted an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir favour visited the business premises of the petitioner on October 1, 2007 and on objection and protest the petitioner was threatened with various coercive actions as a result of which the petitioner under duress, protest and compulsion rendered necessary assistance to the investigating officer and provided all materials and documents sought for from him? (vii) Whether the documents filed were seized and removed by the investigating officials from the business premises of the petitioner without preparing and handing over any seizure list to the petitioner? (viii) Whether there exists no case for dispensing with prior notice on tax audit under section 42 of the OVAT Act, 2004 read with rule 42 of the OVAT Rules, 2005? (ix) Whether the pre-condition of an intelligence or information regarding evasion of tax was not satisfied as required under rule 41(3) of the OVAT Rules before an order was passed by the Commissioner for audit under that rule? (x) Whether no prior or post facto approval of the next higher authority as provided under rule 44(3) of the Rules has been taken for directing audit under rule 41(3) of the OVAT Rules. (xi) Whether approval of the report by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute. According to Mr. Mahanti, learned senior advocate, this provision is very harsh. There is no relieving provision as no power is vested with the appellate authority to grant any relaxation in the matter of pre-deposit of 20 per cent of tax or interest or both in dispute. In case of raising arbitrary demand, it is difficult to maintain an appeal as it is mandatory as per the existing provision to deposit of 20 per cent of the tax or interest or both in dispute to maintain appeal. According to Mr. Mahanti, such a provision is arbitrary, unreasonable and hit by articles 14 and 19(1)(g) of the Constitution of India. Placing reliance on the judgment of the honourable Supreme Court in the case of Mardia Chemicals Ltd. v. Union of India [2004] 120 Comp Cas 373 (SC); [2004] 4 SCC 311, Mr. Mahanti submitted that the honourable Supreme Court declared that the provision of section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 requiring deposit of 75 per cent of the demand is constitutionally invalid. The honourable Supreme Court has further held that the amount of deposit of 75 per cent of the demand, at the initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all judicial and quasi-judicial adjudications. The right to appeal is a statutory right and it can be circumscribed by the conditions in the grant. . . . The purpose of the section is to act in terrorem to make the people comply with the provisions of law. In Kondiba Dagadu Kadam v. Savitribai Sopan Gujar AIR 1999 SC 2213, the honourable Supreme Court held as under: It has to be kept in mind that the right of appeal is neither a natural nor an inherent right attached to the litigant being a substantive statutory right it has to be regulated in accordance with law in force at the relevant time. The conditions mentioned in the section must be strictly fulfilled before an appeal can be maintained and no court has the power to add to or enlarge those grounds. The appeal cannot be decided on merit on merely equitable jurisdiction. In Gujarat Agro Industries Co. Ltd. v. Municipal Corporation of the City of Ahmedabad [1999] 4 SCC 468, the honourable Supreme Court held that right of appeal, though statutory, can be conditional/qualified and such a law cannot be held to be violative of article 14 of the Constitution. An appeal cannot be filed unless so provided under the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of this Act, an amount equal to twice the amount of tax assessed under sub-section (3) or subsection (4) shall be imposed by way of penalty in respect of any assessment completed under the said sub-sections. The constitutional validity of sub-section (5) of section 42 of the OVAT Act is under challenge basically on two grounds: (i) this provision mandates imposition of penalty without prejudice to any penalty, or interest that may have been levied under any provisions of the Act; and (ii) without any show cause to the affected assessee. VAT is indirect tax on consumption of goods. It is the form of collecting sales tax under which tax is collected in each stage on the value added to the goods. The basic object of VAT Scheme is to provide voluntary and self compliance. It goes without saying that to plug the leakage of revenue, the Legislature enacted law authorizing imposition of penalty for infraction of any statutory provision. We are conscious that generally penalty proceedings are quasi-judicial in nature. Therefore, before imposing penalty, opportunity of hearing should be provided to the affected assessee-dealer. In the OVAT Act, various sections provide for imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said that the provision in this regard is arbitrary and unreasonable. Against the assessment of tax and penalty there is a provision for appeal. In appeal, if the amount of tax assessed under section 42 of the OVAT Act is reduced, the quantum of penalty will also be reduced automatically. Therefore, it is not an unreasonable provision as contended by Mr. Mahanti, learned senior advocate appearing for the petitioner. In view of the above, we are of the considered view that section 42(5) of the OVAT Act authorizing imposition of penalty equal to twice the amount of tax assessed under section 42(3) or (4) of the OVAT Act is constitutionally valid. It is not arbitrary, unreasonable, oppressive, or hit by article 14 or in any way ultra vires the Constitution of India. Question No. (iii) is whether the authorized officer has not submitted audit visit report to the assessing authority within seven days from the date of audit as contemplated under section 41(4) of the OVAT Act and thereby the impugned audit visit report dated March 31, 2008 and audit assessment dated August 20, 2008 would be non est/unsustainable in the eye of law. Normally, it is a mixed question of fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit visit report has been submitted under the seal and signature of the Sales Tax Officer, Investigation Unit, Bhubaneswar as head of the audit team. But as a matter of fact the said officer was never a part of the audit team and the audit visit report also does not disclose the said officer to be a part of the audit visit team. Therefore, the Sales Tax Officer, Investigation Unit, Bhubaneswar cannot be the head of the audit team and has no jurisdiction and competence to sign the audit visit report. Moreover, the approval of the audit visit report has been given by the Assistant Commissioner of Sales Tax on a report submitted by the Sales Tax Officer, Investigation Unit, Bhubaneswar as head of the audit team. It is a matter of record that the audit at Bhubaneswar office of the petitioner was under the supervision of the Assistant Commissioner of Sales Tax, Enforcement Range, Balasore whereas the report has been approved by the Assistant Commissioner, Enforcement Range, Berhampur. This renders the approval of the report vulnerable and a case of mechanical exercise of power without application of mind by an incompetent and unauthorized officer. Therefore, the report and their appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice premises was visited by STO (I), Berhampur and ASTO's of Investigation Unit, Bhubaneswar under the supervision of ACST, Enforcement Range, Balasore, the said audit visit report has been approved by the Assistant Commissioner of Sales Tax, Enforcement Range, Berhampur. This is also not permissible under the law. Question No. (v) is as to whether statutory period of 30 days allowed in section 42(2) of the OVAT Act, 2005 has not been extended to the petitioner in form VAT 306 and thereby the audit assessment proceedings are vitiated. Section 42(1) provides that where the tax audit conducted under sub-section (3) of section 41 results in the detection of suppression of purchases or sales, or both, erroneous claims of deductions including input tax credit, evasion of tax or contravention of any provisions of this Act affecting the tax liability of the dealer, the assessing authority may, notwithstanding the fact that the dealer may have been assessed under section 39 or section 40, serve on such dealer a notice in the form and manner prescribed along with a copy of the audit visit report, requiring him to appear in person or through his authorized representative on a date a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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