M/S. Sri Venkata Satyanarayana ... vs Commercial Tax Officer
2021 Latest Caselaw 1658 AP

       HON'BLE SRI JUSTICE U.DURGA PRASAD RAO
                                 AND
             HON'BLE MS. JUSTICE J. UMA DEVI

                   Writ Petition No.5605 of 2021

ORDER: (Per UDPR,J)

      The petitioner seeks writ of certiorari or any other writ or order

directing quashing of the order of the 1st respondent dated 15.07.2018

passed in A.O.No.121443 for the tax period 2015-16, 2016-17 and

2017-18 (upto June, 2017) as illegal, arbitrary, without proper

authorization and without proper opportunity to the petitioner and

pass such other orders as the Court deems fit.

2. The petitioner runs stone crusher unit at S.Kota Road, Jami

Village, Vizianagaram District. It is a turnover tax dealer (ToT) under

the provisions of the AP VAT Act, 2005.

3. The 1st respondent, basing on the authorization for audit and

assessment issued by the 2nd respondent on 09.03.2018, undertook

assessment by issuing show cause notice to assess the turnover of the

petitioner basing on the electricity consumption. The petitioner did

not receive the show cause notice prior to the assessment. Hence, the

petitioner was not aware of the best judgment assessment. It was only

when a demand notice was issued for payment of tax that the

petitioner realized that there was a demand for tax of Rs.3,95,733/-

and equal amount towards penalty.

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                                                           WP No.5605 of 2021

4. The petitioner applied for certified copy on 28.11.2020 and the

1st respondent supplied the same on 08.01.2021 which revealed that

tax liability of Rs.3,95,733/- was on an estimated turnover of

Rs.75,14,667/- basing on the power consumption for the tax period

2015-16, 2016-17 and 2017-18. The alleged show cause notice dated

25.04.2018 proposing to levy tax or the alleged notice

dated 16.05.2018 fixing personal hearing were not at all served on the

petitioner and hence, the petitioner had no opportunity to file

objections or to appear for personal hearing.

5. On verification of the assessment order, the petitioner found

that the assessment was without authorization. In the assessment

order, it was claimed by the 1st respondent that he had obtained

common authorization for audit and assessment from the 2nd

respondent on 09.03.2018 and thereafter initiated assessment. The

authorization is defective for more than one reasons i.e., it was not

issued by appropriate authority and it was issued both for audit and

assessment which is not correct in the eye of law. Therefore, the

assessment order is vitiated.

Hence the writ petition.

6. Heard Sri S. Dwarakanath, learned counsel, representing Sri

K.V.J.L.N.Sastry, learned counsel for the petitioner and learned

Government Pleader for Commercial Taxes.

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                                                           WP No.5605 of 2021

7. On two main grounds, learned counsel for the petitioner

questioned the validity of the impugned order passed by the 1st

respondent. Firstly, it is contended that as per Rule 59(7) of the AP

VAT Rules, 2005, in respect of a ToT dealer, the best judgment

assessment can be made by the Deputy Commercial Tax Officer

(DCTO) of the circle concerned as authorized by the Commercial Tax

Officer of the circle concerned for the dealers in the circle concerned.

However, in the present case, the assessment is done by the

Intelligence Officer who is higher in rank and not competent to assess

the petitioner. Therefore, the assessment order is bad at law for

improper authorization.

8. Secondly and alternatively, it is argued that assuming that the

1st respondent is competent to pass assessment order treating the

petitioner is a VAT dealer, even then the assessment is vitiated for the

reason that there cannot be a common authorization for audit and

assessment as issued by the 2nd respondent. There should be one

authorization for audit and a separate authorization for assessment.

Even if both authorizations are couched in one order, the Auditing

authority shall conduct the audit first and if he finds any under-

declaration of the turnover and other mischiefs, he should prepare a

report and submit to the higher authority who issued authorization and

it is only after recording the satisfaction by such higher authority that

in view of the deficiencies and defects narrated in the audit report,

there is a requirement for assessment, such higher authority shall issue 4 UDPR,J & JUD,J WP No.5605 of 2021

separate proceedings for conducting assessment. In the instant case,

basing on the common authorization for audit and assessment issued

by the 2nd respondent, the 1st respondent directly conducted the

assessment basing on his audit report without referring the same to the

2nd respondent. Hence, the assessment is vitiated on that ground also.

9. Inter alia he also argued that no sufficient opportunity was

given to the petitioner to submit its objections.

10. Per contra, learned Government Pleader argued that there are

no procedural violations as alleged by the petitioner. He would

submit, as per 59(1)(7) of AP VAT Rules, 2005, the best judgment

assessment can be made in respect of ToT dealer by DCTO of the

circle as authorized by the CTO of the circle and in the instant case

the assessment was made by the 1st respondent who is CTO

(Intelligence) and he is higher in the rank than the DCTO. Further, he

made the assessment on the authorization issued by the Joint

Commissioner (ST) and therefore it cannot be argued for a moment

that he had no inherent lack of power to make assessment. He would

argue that if only when the assessing officer was below the rank of

DCTO, would the question of inherent lack of authority/power arise to

test the validity of his order. Since that is not the case here, the

assessment order cannot be challenged on the ground that the 1st

respondent was not competent to pass assessment order. In this

regard, he relied upon the decision of a Division Bench of the

common High Court of Andhra Pradesh in Progressive Constructions 5 UDPR,J & JUD,J WP No.5605 of 2021

Ltd. Vs. The State of Andhra Pradesh Revenue (CT)-I, Department

and Ors1. He further argued that since the composite authorization to

audit and assessment was already given by the Joint Commissioner,

there was no requirement for the 1st respondent to place the audit

report before the Joint Commissioner and seek permission for making

assessment. He thus prayed to dismiss the writ petition.

11. The point for consideration is, whether the assessment order

dated 15.07.2018 passed by the 1st respondent is legally and

procedurally defective one and liable to be set aside?.

12. We gave our anxious consideration to the above arguments.

Rule 59(7) of the AP VAT Rules, 2005 reads thus:

"59. Authority prescribed

(1)For the purpose of exercising powers specified in column (2) of the table below, the authorities specified in column (3) thereof, shall be the authorities prescribed.

     Sl.No.     Powers                   Authority              Section/Rule
      (1)         (2)                       (3)                      (4)
      (7)   TOT-Unilateral          DCTO of the circle, Sections 20(3)(a)&(b),
              Assessment/Best       concerned,           as 21(1), 21(3)(4)&(5) and
              Judgment              authorized by the CTO Rule 25(1) & 25(5)
              assessment            of      the     circle,
                                    concerned for the
                                    dealers     in   circle
                                    concerned.

13. Thus, according to the above Rule, in respect of ToT dealer the

best judgment assessment can be made by a DCTO of the circle

concerned as authorized by the CTO of the circle concerned for the

dealers in the circle concerned. In the instant case, the impugned

MANU/AP/0839/2017 = 2018(3)ALD119, (2018) 66 APSTJ 64 6 UDPR,J & JUD,J WP No.5605 of 2021

assessment order No.121443 dated 15.07.2018 depicts that the said

order was passed by the Commercial Tax Officer (Intelligence) (now

Assistant Commissioner) (ST) Vizianagaram Division on the

authorization for audit and assessment issued by the Joint

Commissioner (ST), Vizianagaram, dated 09.03.2018. Admittedly the

1st respondent is higher in rank than the DCTO. So also Joint

Commissioner, who issued authorization is higher in rank than the

CTO. Therefore, as rightly argued by learned government pleader, it

cannot be contended that the 1st respondent lacks inherent jurisdiction

to make best judgment assessment. In terms of Rule 59(1)(7) of the

AP VAT Rules, the conferment of authorization on 1st respondent by

the Joint Commissioner may, at the worse, be termed as a procedural

deviation but not as lack of inherent power/jurisdiction on the part of

both the Joint Commissioner and the 1st respondent. Running the risk

of pleonasm, it is not a case of want of jurisdiction but only a irregular

assumption of jurisdiction. In similar circumstances, in Progressive

Constructions' case (1 supra), a Division Bench of the common High

Court of Andhra Pradesh observed that while an assessment order

passed by an officer below the rank of DCTO would suffer from

inherent lack of jurisdiction, the assessment orders passed by an

officer in the rank of DCTO and above, without authorization from

the competent authority to make assessment, would, at best, constitute

irregular assumption of jurisdiction which can be either waived by the

dealer or cured on an authorization being given in their favour by the

competent authority. In our case as already discussed supra, since the 7 UDPR,J & JUD,J WP No.5605 of 2021

1st respondent is higher in rank than the DCTO of the circle who is

competent to make best judgment assessment and as the authorization

was given by the Joint Commissioner, the petitioner's first argument

that the assessment was made by a higher ranked officer than DCTO

and on that ground the assessment fell foul of law, cannot be

countenanced.

14. Now the 2nd argument of the petitioner has to be analyzed. It is

contended by the petitioner that even though the 1st respondent is

assumed to have authority by virtue of the composite authorization for

audit and assessment accorded by the Joint Commissioner, still the 1st

respondent cannot directly and automatically proceed with assessment

without tabling the audit report before the Joint Commissioner

seeking a separate authorization for making assessment. In which

case, the Joint Commissioner, while recording his satisfaction that the

deficiencies and defects narrated in the audit require assessment,

grants the authorization for assessment. Since such exercise is not

done, it is argued, the assessment order is liable to be set aside. In this

regard, the petitioner relied upon the decisions of the common High

Court of Andhra Pradesh in Sri Balaji Flour Mills Vs. The

Commercial Tax Officer and others2, Dekars Fires & Security

Systems Pvt. Ltd. Vs. The Deputy Commissioner (CT)3 and Arihant

Automobiles Vs. Deputy Commercial Tax Officer-I and others4.

MANU/AP/0850/2010 = (2011) 52 APSTJ 85, (2011)40VST150(AP)

MANU/AP/1281/2011 = (2011) 53 APSTJ 45

MANU/AP/0472/2013 = (2013) 56 APSTJ 78, (2013)62VST254(AP) 8 UDPR,J & JUD,J WP No.5605 of 2021

15. In the light of above argument, when perused, the impugned

assessment order dated 15.07.2018 shows that the 1st respondent

passed the assessment order on the strength of composite

authorization for audit and assessment issued by the Joint

Commissioner. In the assessment order we do not find any

mentioning to the effect that audit report was placed before the Joint

Commissioner who, upon being satisfied that an assessment was

required to be made, issued a separate authorization to the 1st

respondent to make the assessment. During hearing also no such

order was placed before this Court by the respondents.

16. Be that it may, in Sri Balaji Flour Mills' case (2 supra), under

similar circumstances, a Division Bench of the High Court of Andhra

Pradesh observed thus:

"47.The VAT Audit Instructions issued by the Commissioner vide circular dated 19.06.2006 also clarify that after completion of authorization, the notice of assessment of VAT in Form 305A shall be issued "wherever necessary". This indicates that authorization of audit and completion of audit need not necessarily lead to an assessment unless the next higher authority authorizes such assessment as per paragraph 7.2(e) of Chapter VII quoted above. Indeed, as rightly pointed out by the counsel for petitioners, Section 43 is a self-contained provision dealing with inspection, search, seizure and confiscation, and does not contemplate any audit related assessment in every case. Therefore, we are convinced that authorization of audit under Rule 59(1)(7) does not have the effect of authorizing or empowering the officers mentioned in Rule 59(1)(4)(ii)(b) and (d) to undertake assessment."

Upon the above observation, ultimately, the Division Bench

ordered as follows:

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                                                            WP No.5605 of 2021



      55. xxxx    xxxx   xxxx xxxx       xxxx xxxx xxxx

(b) In view of our holding that the authorization to audit under Section 43 read with Rule 59(1)(7) by itself does not enable audit officer to undertake assessment, we set aside all the assessment orders and consequential orders, if any under Section 53 of the VAT Act, in all the writ petitions;

(c)All the impugned assessment orders shall stand remitted to the respective audit officers who shall submit audit reports as contemplated under Chapter VII of the VAT Audit Manual for appropriate Post Audit Action. If the competent controlling and/or supervising authority like Deputy Commissioner issues separate orders authorizing assessment, it shall be open to such authorizing officer or authority prescribed, as the case may be, to undertake assessment in accordance with law."

17. In Dekars Fires' case (3 supra), the Division Bench of the High

Court of Andhra Pradesh by following its earlier judgment in Sri

Balaji Flour Mills' case (2 supra) ordered as follows:

"5. Following the same, these writ petitions shall stand disposed of in the following manner. The assessment orders/penalty orders/orders for payment of interest shall stand set aside. The matters shall now go to the Audit Officers (who passed orders), who shall submit audit reports to the Deputy Commissioner for appropriate action in accordance with the judgment of this Court in Balaji Flour Mills."

18. Then, in Arihant Automobiles' case (4 supra), the Division

Bench of the High Court of Andhra Pradesh stressed the need for

recording the satisfaction of higher authority who accorded

authorization for auditing. In that case when audit report was

forwarded by the 1st respondent therein to the Deputy Commissioner

(CY), Kurnool, the said authority passed an order authorizing the 1st

respondent to make assessment, in case of detection of any under-

declaration of turnover. In that context, the Division Bench observed 10 UDPR,J & JUD,J WP No.5605 of 2021

that the Deputy Commissioner failed to record its satisfaction (on

perusal of the report of audit) that under-declaration of turnover was

detected and therefore an assessment should be made. Instead, he

delegated the task of recording of satisfaction to the Assessing

Authority and hence, the order of authorization and consequent order

of assessment fell foul of law.

19. So, the above jurimetrical jurisprudence delineates that though

a composite/common authorization to audit and assess was issued by a

higher authority, still the obligation is on the auditing officer to place

before the higher authority the audit report and the higher authority

shall upon recording its satisfaction about the requirement of

assessment, issue authorization to make such assessment. Adherence

to such procedure is not evident in the instant case. Therefore, the

assessment order is liable to be set aside.

20. Accordingly this Writ Petition is allowed and the impugned

Assessment order No.121443 dated 15.07.2018 passed by the 1st

respondent is set aside and the 1st respondent is directed to place the

audit report before the Joint Commissioner for post audit action and in

case, the Joint Commissioner records his satisfaction for making

assessment, then the 1st respondent or the other assessing authority

shall issue a pre-assessment show cause notice to the petitioner and

after receiving objections and according personal hearing, pass

Assessment order afresh. There shall be no order as to costs.

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                                                     WP No.5605 of 2021

As a sequel, interlocutory applications, if any, pending for

consideration shall stand closed.

_________________________ U.DURGA PRASAD RAO, J

______________ J. UMA DEVI, J 22nd March, 2021 krk/cbs 12 UDPR,J & JUD,J WP No.5605 of 2021

HON'BLE SRI JUSTICE U.DURGA PRASAD RAO AND HON'BLE MS. JUSTICE J. UMA DEVI

Writ Petition No.5605 of 2021

22nd March, 2021 krk/cbs