Avet Chemicals LTD., Hyd. vs. Cto, Gandhinagar Circle And Ano.

Held

The Court allowed the writ petition. It found that the respondents' contention that the petitioner had not challenged the relevant assessment orders was incorrect, as the assessment orders for the years 2004-05 to 2008-09 were indeed challenged. More importantly, the Court found no evidence on record to demonstrate that pre-assessment show-cause notices were served on the petitioner in the manner required by Rule 64(1)(b) of the TVAT Rules, 2005. Consequently, the Court set aside the demand and notice in Form No.4 dated 03.10.2012, the final urgent arrears notice dated 28.08.2012, and the assessment orders for the years 2004-05 to 2008-09. The matter was remitted to the first respondent for fresh consideration. The first respondent was directed to serve pre-assessment show-cause notices on the petitioner, indicating the proposed turnover and tax, and the petitioner was granted two months to file objections. A personal hearing was to be provided, followed by a reasoned order. The bank guarantee was to be kept alive pending fresh disposal. The ratio decidendi is that assessment orders and recovery actions are vitiated if proper pre-assessment show-cause notices, as mandated by law, are not served on the assessee, thereby violating principles of natural justice.

Facts

Avet Chemicals Limited (the petitioner) filed a writ petition challenging demand and recovery notices for Rs. 83,49,705, along with interest and penalties, issued by the Commercial Tax Officer and Deputy Commercial Tax Officer (respondents). The challenge was also directed at assessment orders for the years 2004-05 to 2008-09. The petitioner contended that these actions were illegal and arbitrary, violating principles of natural justice and statutory provisions. A key argument was that pre-assessment show-cause notices were not served, and the products dealt with were exempt from tax from October 1, 2006. The court had previously granted an interim stay, modified to require a bank guarantee of Rs. 25,00,000.

Key Issues

1. Whether the assessment orders for the years 2004-05 to 2008-09 were validly passed without issuing pre-assessment show-cause notices to the petitioner, thereby violating the principles of natural justice under the A.P. VAT Act, 2005 and CST Act, 1956? 2. Whether the demand and recovery notices, and the consequential coercive steps for recovery of Rs. 83,49,705, were legally sustainable in the absence of proper service of assessment orders and pre-assessment show-cause notices? Petitioner's Arguments: The petitioner argued that no pre-assessment show-cause notices were served before passing the impugned assessment orders. They contended that the final urgent arrears notice demanding Rs. 83,49,705 was served without communicating the assessment orders. The petitioner also asserted that their products were exempt from tax under the A.P. VAT Act from October 1, 2006. They relied on the principles of natural justice and the provisions of the A.P. VAT Act, 2005 and CST Act, 1956. Respondents' Arguments: The respondents contended that the petitioner had not challenged the relevant assessment orders in the writ petition and that pre-assessment show-cause notices were indeed served on the petitioner.