Deo Ispat Alloys Limited vs Commissioner Of Commercial Taxes

In the matter of an application under Articles 226, 227 of the Constitution of India. --------

Deo Ispat Alloys Limited, Bhawanipur, Kirei, Dist: Sundargarh, Represented by its Director, Sri Chandrakant Choudhury ... Petitioner

-Versus-

Commissioner of Commercial Taxes, Orissa, Banijyakar Bhawan, Cantonment Road, Cuttack and others ... Opp. Parties

For Petitioner : Mr. Damodar Pati

For Opp. Parties : Mr. R.P.Kar, Standing Counsel (Commercial Taxes Deptt.)

---------- P R E S E N T: THE HONOURABLE SHRI JUSTICE I.MAHANTY AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Order : 26.09.2014

B.N. Mahapatra, J.

This writ petition has been filed with a prayer to quash the

order of assessment dated 26.11.2013 passed by the Sales Tax Officer,

Rourkela Circle, Panposh under Section 43 of the Orissa Value Added Tax

Act, 2014 (for short, 'the OVAT Act') for the period from 01.04.2009 to 2

06.09.2012 on the ground that the said order is illegal, arbitrary and

violative of principles of natural justice.

2. Petitioner's case in a nutshell is that it is a limited Company

carrying on business in manufacturing of Silico Manganese and its

manufacturing unit is located at Bhawanipur, Kirei in the district of

Sundargarh. It is registered under the provisions of the Orissa Value Added

Tax Act, 2004 (for short, 'OVAT Act'), the Central Sales Tax Act, 1956 (for

short, 'CST Act') and the Orissa Entry Tax Act, 1999 (for short, 'OET Act'). It

had submitted the return for the tax period from 01.04.2009 to 06.09.2012

disclosing true and correct turnover and paid the tax as per the return

filed. It maintains required books of account for its business activities for

compliance of the OVAT Act. Pursuant to the notice issued by opposite

party No.2-STO, Rourkela II Circle, Panposh, Rourkela to the petitioner

under Section 43 of the OVAT Act, it appeared before opposite party No.2

on 21.10.2013 and 12.11.2013 along with purchase register, purchase

bills, sales registers and sale bills for verification. Petitioner on the said

dates prayed opposite party No.2 to provide the report for submission of

reply on the allegation made against it. On 26.11.2013, the petitioner

submitted a written note praying opposite party No.2 to provide a copy of

the report. Opposite party No.2 without providing a copy of the report

completed the impugned assessment under Annexure-1 raising demand of

Rs.8,34,77,727/- towards tax, interest and penalty. Hence, the present writ

petition.

3

3. Mr.D.Pati, learned counsel for the petitioner submitted that the

allegations on the basis of which the impugned assessment order has been

passed are false and fabricated. The main plank of argument of Mr.Pati is

that before completing the assessment under Section 43 on the basis of the

adverse materials contained in the report, the same was not confronted to

the petitioner. No reasonable opportunity of hearing was afforded to the

petitioner for submission of its explanation against the allegations raised in

the report. Therefore, it was submitted that the impugned order of

assessment is not sustainable in law.

4. Mr.R.P.Kar, learned Standing Counsel for the Revenue

submitted that there is no infirmity and illegality in the order of assessment

impugned in the present writ petition. On the date of visit, no books of

account was produced at the place of business. Many incriminating

documents and records revealing some of the business transactions were

recovered from the business premises of the dealer and seized under

Section 73(6) of the OVAT Act. Seized incriminating materials and

documents revealed that the dealer-Company was involved in clandestine

business transactions and evaded the legitimate tax due from it. The

dealer-Company did not appear for offering any statement on confrontation

of adverse material after availing number of opportunities. Concluding his

argument, Mr.Kar submitted that considering the volume of suppression,

volume of purchase and sale transactions, extra tax raised in the impugned

assessment order is neither arbitrary nor excessive. 4

5. On the rival contentions of the parties, the following questions

fall for consideration by this Court:-

(i) Whether any reasonable opportunity of hearing has been afforded to the petitioner before passing the impugned order?

(ii) Whether copy of the incriminating material intended to be used against the petitioner has been supplied to the petitioner?

(iii) Whether a dealer is entitled to be supplied with the materials intended to be used against him in the assessment proceeding for his rebuttal?

6. Question Nos.(i), (ii) and (iii) being interlinked, they are dealt

with together.

7. Perusal of the impugned assessment order does not reveal that

various allegations on the basis of which the impugned order of assessment

was passed had been confronted to the petitioner. In the penultimate

paragraph of the order of assessment impugned, the Assessing Officer

observed as follows:

"I have gone through the fraud case report 01.04.2009 to 06.09.2012 vis-à-vis with written compliance of the Ld. Advocate. The detail reaons of reopening of the case was supplied to the dealer. But the dealers neither submitted any satisfactory explanation nor produced any documentary evidence in order to nullify the allegation made in the tax evasion report submitted by the Enforcement Wing. Thus, it is proved beyond my doubt that the dealer is engaged clandestine business activities and knowingly avoiding to submit the written compliance for his defence. Considering the allegation contained in the 5

tax evasion report submitted by the Deputy Commissioner of Commercial Enforcement, Sambalpur true and correct, the re-assessment order is decided as per fraud case report basing on the information and materials available in the record on merit."

8. Perused the assessment records produced by Mr.Kar from

which it reveals that pursuant to the notice issued for assessment of

escaped turnover, the petitioner appeared from time to time before the

Assessing Officer with books of account and the case was partly heard.

Order sheet does not reveal that the materials utilized against the dealer-

petitioner in the assessment order were confronted to him and his

explanation against each of the allegation was recorded by the Assessing

Officer. Statement of the petitioner recorded on 12.11.2013 in course of

assessment proceeding is available at page 23 of the assessment record. It

would be relevant to extract here the contents of said statement dated

12.11.2013.

"Today, i.e., on 12.11.2013 (Tuesday) at about 11 am, I appeared before the Sales Tax Officer, Rourkela II Circle, Panposh regarding production of books of account for escaped assessment under OVAT, CST & OET Act. On being asked by the STO, I had produced the books of accounts, i.e., return photo copies without certified, purchase register, sale register, purchase & sale bill from the period from 01.04.2006 to 06.09.2012. But I could not produce the documents for the period from 01.04.2008 to 06.09.2012 and committed an assurance before the STO that I will produce the above said documents on 19.11.2013. At last the fraud case report was confronted by the STO to me.

The above statement given by me is true and correct to the best of my knowledge and belief."

6 9. We are shocked to notice how very casually an order of escaped

assessment under Section 43 of the OVAT Act has been passed raising

huge demand of Rs.8,34,77,727/- utilizing various allegations against the

dealer without confronting the same to the dealer. So far as the

confrontation of fraud case report is concerned, only one line is recorded in

the statement dated 12.11.2013, i.e., "at last fraud case was confronted by

the STO to me". Neither the order sheet entry nor the statement recorded

from the dealer on 12.11.2013 reveal that the incriminating materials in

the fraud case report, which the Assessing Officer utilized in the

assessment, were confronted to the petitioner and his explanations were

considered before passing of the impugned order of assessment. This is a

glaring example, how assessment order is passed without observing the

principles of natural justice and huge demand is raised, which ultimately

adversely affects the interest of the dealer as well as the Revenue. It causes

hardship to the dealer when he was compelled to pay a portion of the

substantial demand during pendency of appeal/revision in order to carry

on his business. It adversely affects the interest of Revenue when such

order does not stand to the judicial scrutiny and in many cases, finally the

Revenue Department is required to refund the amount collected during

pendency of the appeal and revision along with interest as provided under

the statute.

7

10. The Hon'ble Supreme Court in C. Vasantlal and Co. v.

Commissioner of Income-tax, Bombay City [1962] 45 ITR 206 observed

as follows:

"The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it."

11. The Hon'ble Supreme Court in State of Kerala v. K. T.

Shaduli Yusuff [1977] 39 STC 478 held as under:

"... The tax proceedings are no doubt quasi-judicial proceedings and the sales tax authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same. ..."

12. In Kishinchand Chellaram v. Commissioner of Income-tax,

Bombay City II [1980] 125 ITR 713, the Hon'ble Supreme Court held that it

was true that proceedings under the income-tax law were not governed by

the strict rules of evidence, and, therefore, it might be said that even

without calling the manager of the bank in evidence to prove the letter

dated February 18, 1955, it could be taken into account as evidence. But

before the Income-tax authorities could rely upon it, they were bound to

produce it before the assessee so that the assessee could controvert the

statements contained in it by asking for an opportunity to cross-examine

the manager of the bank with reference to the statements made by him. 8

13. In Delhi Transport Corporation v. D.T.C. Mazdoor Congress

[1991] Supp 1 SCC 600, the Hon'ble Supreme Court held as follows:

"... It is now well-settled that the 'audi alteram partem' rule which in essence, enforces the equality clause in article 14 of the Constitution is applicable not only to quasi-judicial orders but to administrative orders affecting prejudicially the party-in-question unless the application of the rule has been expressly excluded by the Act or regulation or rule which is not the case here. Rules of natural justice do not supplant but supplement the Rules and Regulations. Moreover, the rule of law which permeates our Constitution demands that it has to be observed both substantially and procedurally. ..."

14. In Basudeo Tiwary v. Sido Kanhu University [1998] 8 SCC

194, the Hon'ble Supreme Court held that in order to impose procedural

safeguards, this court has read the requirement of natural justice in many

situations when the statute is silent on this point. The approach of this

Court in this regard is that omission to impose the hearing requirement in

the statute under which the impugned action is being taken does not

exclude hearing - it may be implied from the nature of the power -

particularly when the right of a party is affected adversely. The justification

for reading such a requirement is that the Court merely supplies omission

of the Legislature.

15. This court in J.S. Refineries Ltd. [1998] 109 STC 16 held that

any material sought to be utilized against the dealer has to be brought to

his notice.

9

16. This Court in the case of Lakhiram Jain and Sons Vs. Sales

Tax Officer, Rayagada Circle, Rayagada and another, [2009] 21 VST

280 (Orissa)] has held as under:

"Law is well-settled that if any person is likely to be affected by the use of any material against him those are to be brought to his notice for rebuttal. This is the requirement of the natural justice. The principles of natural justice are based on two basic pillars, i.e., (i) nobody shall be condemned unheard (audi alteram partem), and (ii) nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa)."

17. Needless to say that an assessing authority is entitled to collect

the materials behind the back of the assessee. It is not necessary that all

the materials so collected by the assessing authority need be confronted to

the assessee. Only those materials which the assessing authority intends to

utilize against the assessee during assessment are bound to be disclosed to

the assessee.

18. Considering the facts and circumstances of the case as well as

the decisions of the Hon'ble Supreme Court and this Court, we are of the

considered opinion that a dealer is entitled to be supplied with the

materials intended to be used against him in the assessment proceeding for

rebuttal and the dealer's explanation with regard to those materials is

bound to be considered by the assessing officer in the assessment order

either accepting or rejecting the same.

19. The next question relates to the stage at which the copy of the

seized documents should be supplied to the petitioner - dealer. Should it be 10

supplied before or after production of books of account for verification by

the assessing officer? We should keep in mind that in order to plug the

leakage of revenue, the fiscal statutes provide various measures to be taken

by the departmental officers including surprise visit to the place of

business, audit visit, establishment of check-post, inspection of goods in

transit, etc. Pursuant to such provisions, very often departmental officers

used to pay surprise visit to the business premises of the dealer to find out

whether all the transactions effected by a dealer in his day-to-day business

are recorded in his regular books of account maintained for the purpose of

paying tax. It is not uncommon that unscrupulous businessmen who effect

purchase and sale outside, the regular books of account keep note of the

same in some slips/chits or secret account for the purpose of their own

reference. The inspecting officers while conducting inspection at the place

of business of the dealer, invariably try to trace out such duplicate

accounts. If any such account comes to their possession, they cross-verify

the same with regular books of account maintained by the dealer and

submit their verification report to the assessing officer alleging suppression

of purchase and/or sale, if any, found on such verification. In such event,

the assessing officer is not bound to accept the view of the inspecting officer

in respect of the allegations raised against the dealer in the report in

entirety. He may not accept the report at all. He may accept the report in

part. Therefore, part of the report containing allegation against the dealer

and the materials on the basis of which such allegation has been made 11

must have to be disclosed to the dealer for his rebuttal, if the assessing

officer wants to utilize the same against the dealer.

20. In view of the above, we have no hesitation to hold that no

opportunity of hearing has been afforded to the petitioner before passing

the impugned order of assessment. We further hold that the incriminating

materials utilized against the petitioner in the assessment order have not

been supplied to the petitioner to which the petitioner is entitled to.

21. In the fact situation, we quash the order of assessment dated

26.11.2013 passed under Section 43 of the OVAT Act for the period from

01.04.2009 to 06.09.2012 and remand the matter to the Assessing Officer

to make the assessment afresh after confronting the adverse materials he

intends to utilize against the petitioner and considering the petitioner's

explanation against such allegation(s). The entire exercise shall be

completed within a period of eight weeks from today.

22. In the result, the Writ petition is allowed to the extent indicated

above. No costs.

................................

B.N. Mahapatra, J.

I.Mahanty, J. I agree.

............................. I.Mahanty, J.

Orissa High Court, Cuttack The September, 2014/bks/skj/ss