M/s Cobra Instalaciones Y Servicios (Petitioner) challenged an assessment order dated May 15, 2013 (Assessment Order) passed under Section 42 of the Odisha Value Added Tax Act, 2004 (OVAT Act) for being passed beyond the period of limitation i.e. after lapse of more than 6 months from the date of completion of the Audit Visit Report (AVR) on June 20, 2012.
The Assessing Authority (“AA”) realised that limitation period was going to end thus, requested the Commissioner of Sales Tax (“CST”) to invoke the power conferred on him in terms of proviso to Section 42(6) of the OVAT Act. Thereafter the CST passed an order extending the time for passing the assessment order on July 20, 2013 by a period of 6 months.
The Hon’ble Orrisa High Court noted that on the date that the Assessment Order was passed i.e., May 15, 2013, there was no order passed by the CST extending time for making the assessment. Further, the Assessment Order dated does not even mention the fact that the AA had made a request to the CST for extension of time for completion of the assessment proceedings.
Thus, the extension has been granted post facto to a case where Assessment Order has already been passed on May 15, 2013. Therefore, Assessment Order is unsustainable in law. Further, the order passed by the CST in terms of the proviso to Section 42(6) of the OVAT Act cannot validate such an illegal assessment order, which, on the date it was passed, was clearly time-barred.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. This matter is taken up by video conferencing mode.
2. The challenge in the present petition is to an assessment order dated 15th May, 2013 passed by the Deputy Commissioner of Commercial Taxes, Keonjhar Circle, Keonjhar under Section 42 of the Odisha Value Added Tax Act, 2004 (OVAT Act) calculating the tax payable as Rs.52,13,938/- for the period from 1st April, 2009 to 31st March, 2010. After accounting for the amount paid, the Input Tax Credit as well as the tax deducted at source, the total sum payable was worked out as Rs.56,25,096/-.
3. One of the principal grounds in which the assessment order has been challenged is that it has been passed beyond the period of limitation i.e. after lapse of more than six months to the date of completion of the Audit Visit Report (AVR) on 20th June, 2012.
4. The connected matters are for the periods from 2009-10 to 2011-12 pertaining to demands both under the OVAT Act as well as under the Odisha Entry Tax Act (OET Act).
5. While directing notice to be issued in the present case along with other petitions by this Court, on 27th August, 2013 an interim order was passed directing the Petitioner to deposit a sum of Rs.75 lakh with the Commercial Taxes Department towards outstanding dues under the OVAT Act.
6. Mr. Mohanty, learned Senior Counsel for the Petitioner informs the Court that the said direction was complied with.
7. In response to the notice issued in these petitions, a reply has been filed in the lead petition, W.P. (C) No.15956 of 2013. On this specific issue of limitation, it is submitted that the notice for audit visit was issued on 20th August, 2011. On 9th February 2012, the statement of representative of the Petitioner was recorded. It is stated that after completion of the AVR, it was sent to the assessing authority as required under Section 41 (4) of the OVAT Act. It is then stated that the assessing authority received the audit report on 26th September, 2012 and initiated the proceedings for audit assessment under Section 42 of the OVAT Act by issuing notice in Form VAT-306 fixing the date of appearance and causing production of documents/records on 26th October, 2012.
8. It is stated that on 18th October 2012, the Petitioner’s representative appeared and the assessing authority recorded the statement. It is then stated that despite the Petitioner undertaking to produce particulars within a week, he did not do so. Therefore, on 22 nd January 2013, an intimation was issued to the Petitioner for further proceedings, fixing the date to 5th February, 2013. It is stated that on 5th February, 2013, the Petitioner appeared and further proceedings took place. These proceedings continued “and finally the Petitioner sent documents to the assessing authority which were taken on record and examined.”
9. In Para-10. (Viii) of the counter affidavit, it is stated as under:
“The notice in Form VAT-306 having been served on the petitioner on 01.10.2012, the assessment was required to be completed within six months from the date of service of such notice, i.e., on or before 31.03.2013 as per Section 42 (6) of the OVAT Act”
10. Realising that the limitation was going to an end on 31st March 2013, the Assessing Authority on 25th March, 2013 i.e. six days prior thereto, requested the Commissioner of Sales Tax (CST) to invoke the power conferred on him in terms of proviso to sub-Section (6) of Section 42 of the OVAT Act. Thereafter the CST passed an order on 20 th July, 2013 extending the time for passing the assessment order by a period of six months. A copy of the said order is enclosed with the counter affidavit as Annexure-A/1.
11. It must be mentioned here that the Petitioner has filed I.A. No.9250 of 2021 seeking to amend the petition to challenge the order at Annexure-A/1 to the counter affidavit.
12. This Court heard the submissions of Mr. B. K. Mohanty, learned Senior Counsel appearing for the Petitioner and Mr. Sunil Mishra, learned Additional Standing Counsel for the Sales Tax Department-Opposite Parties.
13. The short point for determination in the present case is whether an ex post facto extension of limitation could have been granted by the CST in terms of the proviso to Section 42 (6) of the OVAT Act to validate the impugned assessment order dated 15th May, 2013 for all the above years?
14. In order to appreciate the above issue, the Court will first refer to Section 42 of the OVAT Act, which reads as under:
“42. Audit assessment. –
(1) 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 provision 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 authorised representative on a date and place specified therein and produce or cause to be produced such books of account and documents relying on which he intends to rebut the findings and estimated loss of revenue in respect of any tax period or periods as determined on such audit and incorporated in the Audit Visit Report.
(2) Where a notice is issued to a dealer under sub-section (1), he shall be allowed time for a period of not less than thirty days for production of relevant books of account and documents.
(3) If the dealer fails to appear or cause appearance, or fails to produce or cause production of the books of account and documents as required under sub-section (1), the assessing authority may proceed to complete the assessment to the best of his judgment basing on the materials available in the Audit Visit Report and such other materials as may be available, and after causing such enquiry as he deems necessary.
(4) Where the dealer to whom a notice is issued under sub-section (1), produces the books of account and other documents, the assessing authority may, after examining all the materials as available with him in the record and those produced by the dealer and after causing such other enquiry as he deems necessary, assess the tax due from that dealer accordingly.
(5) Without prejudice to any penalty or interest that may have been levied under any provision of this Act, an amount equal to twice the amount of tax assessed under sub-section (3) or sub-section (4) shall be imposed by way of penalty in respect of any assessment completed under the said sub-sections.
(6) Notwithstanding anything contained to the contrary in any provision under this Act, an assessment under this section shall be completed within a period of six months from the date of receipt of the Audit Visit Report:
Provided that if, for any reason, the assessment is not completed within the time specified in this sub-section, the Commissioner may, on the merit of each such case, allow such further time not exceeding six months for completion of the assessment proceeding.
(7) No order of assessment shall be made under sub-section (3) or sub-section (4) after the expiry of one year from the date of receipt of the Audit Visit Report.”
15. It is seen that “Audit Assessment”, which is triggered by the “Audit Visit Report” in terms of Section 41 (4) of the OVAT Act is different from a regular assessment as it is meant to enable the department to revisit the assessment for previous years on detection of “suppression of purchases or sales or both, erroneous claims of deductions including input tax credit, evasion of tax or contravention of any provision of the Act affecting the tax liability of the dealer.”
16. The non-obstante clause at the beginning of Section 42 (6) of the OVAT Act indicates the importance of completion of proceedings in a time bound manner. Section 42 (6) mandates the assessment should be completed within a period of six months “from the date of receipt of the Audit Visit Report.”
17. In the present case, there is no dispute at all that the notice in Form VAT-306 was served on the Petitioner on 1st October, 2012. The six months period from that date ended on 31st March, 2013.
The assessment was therefore required to be completed on or before 31st March, 2013.
18. The proviso to sub-section (6) of Section 42 of the OVAT Act permits the CST “on the merit of each such case” to allow “such further time not exceeding six months for completion of the assessment proceeding.” If this is read with Section 42 (7) of the OVAT Act, it is clear that there is an outer limit for the extension of time granted by the CST. He cannot extend the time beyond six months and in any event the assessment order cannot be made, even with extension granted by the CST, after the period of one year from the date of the receipt of the AVR. In other words, in the present case, no extension could have been granted by the CST to complete the audit assessment beyond 30th September, 2013.
19. On the facts of the present case, it is seen that the assessing authority proceeded to make the assessment order on a date beyond the expiry of six months period i.e. on 15th May 2013, without waiting for an order to be passed by the CST on his request for extension of time. Therefore, on the date that the assessment order was passed, there was no order passed by the CST extending time for making the assessment. Strangely, the impugned assessment order dated 15th May, 2013 does not even mention the fact that on 25 th March, 2013 the assessing authority had made a request in terms of the proviso to Section 42 (6) of the OVAT Act to the CST for extension of time for completion of the assessment proceedings.
20. The order at Annexure-A/1 to the counter affidavit, reveals that the extension was granted only on 20th July, 2013 i.e. more than two months after the assessment order was passed. This was in fact noticed in the said order, the full text of which reads as under:
Audit Visit Reports (AVRs) under the Orissa Value Added Tax Act, 2004 and the Orissa Entry Tax Act, 1999 in case of M/s. Cobra Instalaciones Y Servicious S.A., TIN-21961405922 for the tax period from 1-04-2009 to 31-12-2011 were received in O/o. the D.C.C.T., Keonjhar Circle, Keonjhar on 26-09-2012 and the notices for audit assessments were served on the dealer on 1-10-2012. As reported by the D.C.C.T., Keonjhar Circle, Keonjhar the assessments could not be completed within the stipulated period of six months, i.e. by date 31-03-2013. It has been requested to the undersigned to allow extension of time post facto in case of the instant dealer as the assessment order has already been passed on 15-05-2013.
Under these circumstances, the proposal to extend the period of limitation prescribed U/s.42(6) of the Orissa Value Added Tax Act was received beyond a period of six months, but within the extended period of limitation of one year U/s.42(7) of the Act.
Considering the above fact, the Deputy Commissioner of Sales Tax, Keonjhar Circle, Keonjhar is allowed extension of time for further period of six months or date of assessment, whichever is earlier, as per the provisions U/s.42(6) and section 42(7) of the Orissa Value Added Tax Act, 2004 and U/s 9C (6) of the Orissa Entry Tax Act, 1999 in case of M/s. Cobra Instalaciones Y Servicious S.A. TIN-21961405922.”
21. The above order itself indicates that what has been granted is an extension of time “post facto” to a case where the assessment order “has already been passed on 15th May, 2013.” Curiously, the second paragraph states that the “proposal to extend the period of limitation prescribed under Section 42 (6) of the OVAT Act” was received “beyond a period of six months.” In other words, it appears that the request made by the letter dated 25th March, 2013 was in fact received by the CST after 31st March, 2013.
22. Be that as it may, it is plain that on the date that the assessment order was passed i.e. on 15th May, 2013 the Assessing Authority could not have presumed that limitation was going to be extended by the CST by an order to be passed two months thereafter. Having applied to the CST for extension of time, it was impermissible in law for the Assessing Authority to proceed to pass the assessment order knowing fully well that such order, on the date that it was going to be passed, was barred by limitation. The mandatory language of Section 42 (6) of the OVAT Act, which states that an assessment “shall be completed within a period of six months from the date of receipt of the Audit Visit Report” gave the Assessing Authority no option but to hold his hands and wait for the order to be passed by the CST in terms of the proviso to Section 42 (6) of the OVAT Act. Not having done so, clearly the assessment order was unsustainable in law.
23. Viewed from another angle, the CST was presented with a fait accompli by the time he applied his mind to whether extension should be granted at all or not. There was already an assessment order passed on 15th May 2003 by the time he had to decide on the question of extension. The language of the proviso to Section 42 (6) requires the CST to assess “the merit of each such case.” It is not a case of automatic extension of time. It is a quasi-judicial exercise and it is the discretion of the CST whether or not to allow such extension. This is the legislative intent behind the use of the word ‘may’ in the proviso to Section 42 (6) of the OVAT Act.
24. When viewed to this background, the order dated 20th July, 2013 passed by the CST simply notes the dates on which the notice for audit assessment was served and when the report was served and the fact that “assessments could not be completed within the stipulated period….” None of the factors which prompted the Assessing Authority to request for extension of time have been noticed in the said office order dated 20th July 2013. In other words, there was a complete abdication of the essential functions of the CST in terms of the proviso to Section 42 (6) of the OVAT Act of evaluating “the merit of such case”. The said order does not reflect what factors weighed with the CST in granting extension except the fact that an assessment order has “already been passed on 15th May 2013”. Thus, the exercise of power in terms of the proviso to Section 42(6) of the OVAT Act was, on the fact of the present case, an empty formality defeating the very purpose of requiring the audit assessment proceedings to be completed in a time bound manner. Section 42 (7) of the OVAT Act underscores the importance of completion of assessment proceedings in a time bound manner and limits the discretion of the CST in allowing the extension beyond the period of six months. This makes it even more important for the CST to have applied its mind to the facts of the case before mechanically granting extension.
25. The last paragraph of the order dated 20th July, 2013 clearly acknowledges that the CST was presented with a fait accompli since he allowed extension of time “for a further period of six months or date of assessment, whichever is earlier……..” In other words, the CST felt constrained to somehow validate what is claimed to be an illegal order is ex post facto.
26. In State of Punjab v. M/s. Shreyans Industries Ltd. (2016) 4 SCC 769, the Supreme Court was interpreting Section 11 (10) of the Punjab General Sales Tax Act, 1948 (PGST Act), in terms of which the Commissioner could grant a three-year extension for completion of assessment after recording in writing the reasons for extending such period. The specific question considered was “whether the power to extend time is to be necessarily exercised before the normal expiry of the said period of three years run out?”
27. The above question was answered by holding that “power to extend the time is to be exercised before the normal period of assessment expires.” The Supreme Court explained the rationale thus:
“In the context of the Punjab Act, it can be said that extension of time for assessment has the effect of enlarging the period of limitation and, therefore, once the period of limitation expires, the immunity against being subject to assessment sets in and the right to make assessment gets extinguished.
Therefore, there would be no question of extending the time for assessment when the assessment has already become time barred. A valuable right has also accrued in favour of the assessee when the period of limitation expires. If the Commissioner is permitted to grant the extension even after the expiry of original period of limitation prescribed under the Act, it will give him right to exercise such a power at any time even much after the last date of assessment.”
28. In light of the legal position explained above, it was important for the Commissioner to have exercised the power to extend the period before the original period of limitation expired i.e. before 31st March, 2013. of limitation
29. For all of the abovementioned reasons, the Court is unable to sustain the validity of the impugned assessment order dated 15th May 2013, which, on the date it was passed, was in violation of Section 42(6) of the OVAT Act. The Court further holds that the order dated 20th July, 2013 passed by the CST in terms of the proviso to Section 42 (6) of the OVAT Act cannot validate such a illegal assessment order, which, on the date it was passed, was clearly time barred.
30. The amount deposited by the Petitioner pursuant to the interim order dated 27th August 2013 will be refunded to the Petitioner upon an application being made by the Petitioner, on the basis of this order. If such application is made not later than 1st September 2021, it shall be processed and an appropriate order be passed thereon by the Department in a time bound manner, in any event not later than three months thereafter.
31. The petition is allowed in the above terms, but in the circumstances, with no order as to costs.
32. As the restrictions due to resurgence of COVID-19 situation are continuing, learned counsel for the parties may utilize a printout of the order available in the High Court’s website, at par with certified copy, subject to attestation by the concerned advocate, in the manner prescribed vide Court’s Notice No.4587, dated 25th March, 2020 as modified by Court’s Notice No.4798, dated 15th April, 2021.
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