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TMI Blog2019 (3) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of assessment under section 31, no such privilege is given to the CAG to exercise jurisdiction on a deemed assessment. The complete non-application of mind with which the issue has been handled is manifest from the audit report itself available at Annexure 5 which after recording the alleged excess Input Tax Credit claimed by the petitioner relegates him to a proceeding under section 31(2) of the VAT Act completely oblivious of the fact that while it is under the statutory prescriptions of section 33 that the power was being exercised by the CAG , section 31(2) of the VAT Act is a penalty exercise in circumstances where an assessment/re-assessment is conducted on the basis of an audit conducted under the orders of the Commissioner under section 26(3) of the VAT Act and not on the basis of audit objection by the CAG under section 33 of the VAT Act . Thus, neither the discharge by the CAG to record their audit objection at Annexure 5 is in tune with the statutory prescriptions because the provision underlying the VAT Act does not vest jurisdiction in the CAG to hold audit on the basis of deemed assessment and thus the audit report is held illegal and wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale Therein Act, 1993 (hereinafter referred to as the Entry Tax Act ) bearing TIN Nos.10050748029, 10050643204 and 10050742183 respectively. The petitioner claims to have filed his quarterly as well as annual returns including the audit reports within the time stipulated for the financial years 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 and also deposited the amount of tax as found admissible. The issue in hand relates to the financial year 2017-18. According to the petitioner, it furnished its quarterly return for the period April to June, 2017 in time and in prescribed format, as per the VAT Act vide Form RT-V. The petitioner submitted his annual return under Form RT-III along with the VAT report in terms of section 54 of the VAT Act . It is not in dispute that for the financial year 2017-18 there was only one quarterly return filed for the period April to June, 2017 because with effect from 01.07.2017 the Goods and Services Taxes Act (Central and State) came into force. Up to this stage there is no dispute. The pleadings on record confirm that an audit report was submitted by the Senior Audit Officer along with the Assistant Audit Officer in the office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of which is enclosed at Annexure 5 series. The petitioner was asked to respond to the audit objection. According to Mr. Giri, the petitioner appeared and submitted before the respondent no.3 i.e. the Assistant Commissioner, Commercial Taxes, Patliputra Circle, Patna that since the assessment for the period 2015-16 and 201617 was underway, he would produce the records on its completion and some time may be given for production of C-II certificate etc. It is argued that a second notice was issued on 26.10.2018 for filing reply and the petitioner again responded by producing the records for the earlier period and undertook to produce the records for the financial year 2017-18 soon after the conclusion of the assessment proceeding of the financial year 2015-16 and 2016-17. It is informed that petitioner though received the notice of hearing for the financial year 2015-16 and 2016-17 but no notice was issued for the financial year 2017-18 and on query the petitioner was surprised to gather knowledge of the impugned assessment order passed by the Joint Commissioner, Commercial Taxes, Patliputra Circle, Patna on 26.11.2018 together with the demand raised thereunder. According to M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the VAT Act submits that it relates to assessment on the basis of audit objection. He further submits that the term assessment cannot be given a restricted meaning to cover only cases where an order of assessment or re-assessment is passed by the Assessing Authority, rather it would cover cases of deemed assessment as well because if a return is not put to scrutiny by the due date or extended due date fixed for filing of return, the tax due shall be deemed to have been assessed and which would give jurisdiction to the CAG to hold its audit. Learned counsel in support of his submission has relied upon a judgment of the Supreme Court reported in AIR 1988 SC 191 (M/s J.K. Cotton Spinning Weaving Mills Ltd. vs. Union of India) and a judgment reported in (1995) 1 SCC 537 (Harish Tandon vs. Addl. District Magistrate, Allahabad). We have heard learned counsel for the parties and we have perused the records. The facts are not in dispute rather are admitted. It is not in dispute that the returns filed by the petitioner whether quarterly for the period April to June, 2017 or the annual returns filed under section 24(1A) and (3) respectively were never put to scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit objection by the CAG and which situation is catered by section 33 of the VAT Act and reads under: 33. Assessment of tax based on audit objections.- Where an objection has been made by the Comptroller and Auditor-General of India in respect of an assessment or re-assessment made or scrutiny of any return filed under this Act, the prescribed authority shall proceed to re-assess the dealer with respect to whose assessment or reassessment or scrutiny, as the case may be, the objection has been made in the manner prescribed: Provided that no order under this Section shall be passed without giving the dealer an opportunity of being heard. The manner prescribed for holding re-assessment by the prescribed authority in the light of the objection by the CAG is provided under rule 25 of the Rules which reads under: 25. Assessment on audit objections.- (1) If any irregularity relating either to fact or law committed in the course of any proceedings is pointed out by the Comptroller and Auditor-General, the authority specified in rule 62 shall, upon being satisfied about the lawfulness of such objection and after giving the dealer an opportunity of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to section 26(1) of the VAT Act . We are fortified in our opinion by the language present in rule 25 of the Rules which prescribes the procedure to be followed on an objection raised by the CAG and requires the Assessing Authority to consider and be satisfied on the lawfulness of the objection before he proceeds to re-assess the tax but in case he is not satisfied by the objection so made by the CAG , then sub-rule (2) of rule 25 obliges him to record his views and forward the same to the Commissioner along with a copy of his original order and the audit objection. On the other hand, a plain reading of the provisions of section 31 read with rule 22 of the Rules manifests that where the tax of an assessee is deemed assessed and the Commissioner is of the opinion that an audit is required in the interest of revenue, he shall proceed to take action in terms of rule 22 of the Rules and where such a process has been initiated and the Circle Incharge is satisfied that the dealer has not disclosed his tax liability or concealed any part thereof for reduction of tax payable by the dealer, he shall proceed to initiate proceeding under section 31 of the VAT Act . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is conducted on the basis of an audit conducted under the orders of the Commissioner under section 26(3) of the VAT Act and not on the basis of audit objection by the CAG under section 33 of the VAT Act . The illegalities in the proceeding do not stop here rather are perpetuated by the mechanical discharge by the Assessing Authority who has blindly proceeded on the audit objection without recording any satisfaction as to its lawfulness as per the mandate of rule 25(1) of the Rules . Rule 25 of the Rules has been reproduced by us above and provides for the procedure for holding assessment/ reassessment on an audit objection by the CAG . A plain reading of the provisions would manifest that a discharge by the prescribed authority on receipt of an audit objection by the CAG is not mechanical, rather he is to draw satisfaction on its lawfulness and it is only after he records his assent or dissent thereon that he can proceed thereafter. The two situations stand discussed in sub-rules (1) and (2) respectively and in case the prescribed authority is satisfied to the lawfulness of the audit objection then after giving opportunity to the dealer under sub-section (3) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit objection at Annexure 5 is in tune with the statutory prescriptions because the provision underlying the VAT Act does not vest jurisdiction in the CAG to hold audit on the basis of deemed assessment and thus the audit report is held illegal and without statutory support and consequentially the assessment proceeding based thereon are rendered illegal because not only the prescribed authority has proceeded on an illegal audit objection rather he has also failed to record his satisfaction as to the lawfulness of the audit objection and has mechanically proceeded to draw the proceeding under section 33 of the VAT Act completely unmindful of the obligation cast on him under rule 25(1) and (2) of the Rules . The entire proceeding thus culminating in the assessment order and the demand notice impugned at Annexure 8 and 8/1 respectively are outcome of an infracted proceeding not only on statutory violation but also on the manner of discharge. Accordingly the entire proceeding culminating in the assessment order impugned at Annexure 8 together with the demand notice impugned at Annexure 8/1 are quashed and set aside. In so far as the interlocutory applications are conc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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