M/S Tata Project LTD. vs. The State Of Bihar And Ors

Held

The Court held that the audit report prepared by the CAG was illegal and without statutory support. The Court reasoned that the VAT Act does not vest jurisdiction in the CAG to conduct audits based on deemed assessments. Consequently, the assessment proceedings based on this illegal audit report were rendered illegal. The Court further found that the prescribed authority failed to record its satisfaction regarding the lawfulness of the audit objection, as mandated by Rule 25(1) and (2) of the Rules, and mechanically proceeded with the assessment under Section 33 of the VAT Act. The Court also noted that the assessment order was confused, invoking Section 33 of the VAT Act while imposing penalty under Section 31(2), which is not applicable to proceedings initiated on a CAG audit objection under Section 33. The Court did not agree with the petitioner's contention that the assessment was ex-parte, finding that the petitioner had responded to notices and sought adjournments. However, due to the fundamental illegality in the audit and the subsequent assessment proceedings, the Court quashed the assessment order and the demand notice. The interlocutory applications were dismissed as they raised separate causes of action.

Facts

The petitioner, M/s Tata Project Ltd., filed a writ petition challenging an assessment order dated 26.11.2018 and a demand notice issued by the Joint Commissioner, Commercial Taxes, Patliputra Circle, Patna. The assessment order for the financial year 2017-18 raised a demand of Rs. 7,97,42,283/-. The dispute primarily concerns the first quarter of the financial year 2017-18 (April to June 2017), as the Goods and Services Tax (GST) regime came into effect from July 1, 2017. An audit report by the Senior Audit Officer detected excess Input Tax Credit (ITC) claimed by the petitioner, to the tune of Rs. 5,59,47,935/-, and suggested penalty under section 31(2) of the VAT Act. The petitioner claims to have filed returns on 30.08.2018, while the due date for the annual return was December 2019. The petitioner contended that the audit and subsequent assessment were premature and conducted without proper opportunity.

Key Issues

1. Whether the audit conducted by the Comptroller and Auditor-General (CAG) for the financial year 2017-18, specifically for the period April-June 2017, was legally permissible prior to the due date for filing the annual return under Section 24(3) of the Bihar Value Added Tax Act, 2005? 2. Whether the assessment order passed by the Joint Commissioner, Commercial Taxes, Patliputra Circle, Patna, relying on the CAG's audit report, was sustainable in law, considering the petitioner's arguments that the order was ex-parte, the audit report was de hors statutory provisions, the assessment proceeding was contrary to sections 31 or 33 of the VAT Act, and Rule 25 of the Bihar Value Added Tax Rules, 2005, requiring recording of satisfaction, was not followed? Petitioner's arguments: The audit preceded the statutory due date for filing the annual return (December 2019), making it premature. The assessment order was ex-parte and without a proper opportunity to be heard. The audit report was not in accordance with statutory provisions. The assessment proceeding was contrary to sections 31 and 33 of the VAT Act. Rule 25 of the Rules mandates the Assessing Authority to record satisfaction before proceeding on an audit objection, which was absent, rendering the order mechanical. Respondents' arguments: The judgment notes that Mr. Vikash Kumar, learned Standing Counsel No.11, appeared for the respondents, but the provided text does not detail his specific arguments beyond referencing Section 24 of the VAT Act regarding filing of returns.