Sanyog Construction Private Limited vs. The State Of Bihar

Held

The Court held that the reassessment proceedings initiated on the audit objection by the Accountant General were illegal and void ab initio. The Court found that the audit objection itself was without statutory support because the VAT Act does not vest jurisdiction in the CAG to audit deemed assessments. Consequently, the assessment proceedings based on this illegal audit objection were rendered illegal. The Court emphasized that the Assessing Authority failed to record satisfaction as required under Rule 25 before proceeding under Section 33, mechanically issuing notice. The Court distinguished the Supreme Court's decision in Larsen and Toubro Ltd., stating that it was based on the Bihar Finance Act, 1981, with different stipulations, whereas the present case arises under the VAT Act with distinct provisions. The Court reiterated that while an audit objection can constitute information, the exercise must follow prescribed channels. The Court found that Section 31 and Section 33 of the VAT Act, read with their respective rules, provide separate procedures. An objection by the Accountant General under Section 33 must be tested within its parameters, and cannot be used to justify an action under Section 31, which relies on different preconditions. The Court concluded that the entire exercise, including the assessment order, demand notice, and bank account attachment, was void. The Court quashed all consequential actions.

Facts

The petitioner, Sanyog Construction Private Limited, filed a writ petition challenging the attachment of its bank accounts under Section 47 of the Bihar Value Added Tax Act, 2005. The attachment was a consequence of a reassessment order dated May 19, 2015, passed by the Commercial Tax Officer under Section 31(2) of the Act, which raised a tax liability of Rs. 4,73,854/- and a penalty of Rs. 14,21,562/-, totaling Rs. 18,95,116/-. The reassessment stemmed from an audit objection raised by the Accountant General on November 3, 2014, concerning the petitioner's input tax credit claim in its return filed under RT-III. The petitioner argued that its return was deemed assessed under Section 26(1) and no departmental audit objection was raised for reopening, making the subsequent proceedings initiated on the Accountant General's objection illegal. The petitioner had also filed a revision application before the Commissioner, which remained unheard.

Key Issues

1. Whether the reassessment proceedings initiated on an audit objection raised by the Accountant General, in a case of deemed assessment under Section 26(1) of the Bihar Value Added Tax Act, 2005, are legally sustainable, particularly when the Assessing Authority failed to record satisfaction as required under Rule 25 of the Rules? Petitioner's Contention: The petitioner argued that since the assessment was deemed under Section 26(1), the Accountant General had no jurisdiction to reopen proceedings. Even if an objection was raised, the Assessing Authority was obligated under Rule 25 to satisfy itself about the audit objection's lawfulness before issuing notice under Section 33. The petitioner relied on the High Court's decision in M/S Tata Project Ltd. v. State of Bihar, arguing that the present case was a mechanical discharge of duty by the Assessing Authority on an audit objection, similar to the cited precedent. Revenue's Contention: The revenue contended that even if the audit objection lacked lawful sanction for reopening under Section 33, it constituted 'information' sufficient to clothe the Assessing Authority with jurisdiction to proceed under Section 31 of the Act, citing the term 'otherwise' in Section 31. The revenue relied on the Supreme Court's judgment in Larsen and Toubro Ltd. v. State of Jharkhand & Ors. to argue that an audit objection would constitute information for reopening proceedings.