HIGH COURT OF ORISSA: CUTTACK W.P.(C) Nos. 6701 & 6702 of 2011 In the matter of applications under Articles 226 and 227 of the Constitution of India. -------- M/s. Tata Sponge Iron Ltd., At:Bileipada, Joda, Dist: Keonjhar (Odisha), represented by its Managing Director Sri Suresh Thawani … Petitioner -Versus- Commissioner of Sales Tax, Orissa & others … Opp. Parties For Petitioner : Mr. B.K. Mahanti, Senior Advocate, For Opp. Parties : Mr. R.P. Kar, Standing Counsel for Revenue ---------- P R E S E N T: THE HONOURABLE THE CHIEF JUSTICE SHRI.V.GOPALA GOWDA AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Judgment: 06.09.2011 B.N. Mahapatra, J. In W.P.(C) No.6701 of 2011 challenge has been made to the order of assessment dated 21.01.2011 (Annexure-1) passed under Section 42 of the Orissa Value Added Tax Act, 2004 (for short, “OVAT Act”) by opposite party No.2-Joint Commissioner of Sales Tax, Jajpur Range, Jajpur Road for the period from 01.04.2006 to 31.03.2007. In W.P.(C) No.6702 of 2011 challenge has also been made to the order dated 21.01.2011 (Annexure-1) passed under Section 42 of the OVAT Act for the period 01.04.2007 to 31.03.2008 by the said opposite party No.2. 2. Since the issues involved are identical in the aforesaid writ petitions, they are disposed of by this common judgment. 3. The petitioner’s case in a nutshell is that it is a Public Limited Company incorporated under the Companies Act, 1956 and carries on business in manufacturing and selling of sponge iron at Beleipada, Joda in the District of Keonjhar. It is registered as a dealer with opposite party No.3- Sales Tax Officer, Barbil Circle, Barbil under the provisions of the OVAT Act, Orissa Entry Tax Act, 1999 (for short, OET Act) and Central Sales Tax Act, 1956 (for short, CST Act). On 05.11.2008, tax audit was conducted for the period 2007-08 and again on 16.05.2009 tax audit was conducted for the period 01.04.2006 to 31.03.2008. The audit visit report in Form-303 was prepared on 05.12.2009. Opposite party No.2-Joint Commissioner of Sales Tax has approved the said audit visit report on 18.01.2010. Pursuant to the notice issued in Form VAT-306 for assessment of tax as a result of audit prescribed under Rule 49(1) of the Orissa Value Added Tax Rules, 2005 (for short, “OVAT Rules”), the petitioner produced the relevant books of account as well as the documents before opposite party No.2 and submitted its written note of submission. The assessment proceeding was concluded on 07.07.2010. The petitioner received the assessment orders dated 21.01.2011 on 14.02.2011. Being dissatisfied with the said assessment orders, the petitioner has filed the present writ petitions. 4. Mr. B.K. Mahanti, learned Senior Advocate appearing for the petitioner submitted that the orders of assessment having been passed raising huge demands coupled with penalty without assigning any reason are liable to be annulled. It was vehemently argued that opposite party 2 No.1-Commissioner of Sales Tax, Orissa in exercise of powers conferred on him under Rule 4(7) of the OVAT Rules assigned the records of the petitioner-dealer to the jurisdiction of Jajpur Range, the Larger Taxpayers’ Unit (for short, ‘LTU’) constituted in the said Range vide Notification No.14394-III(III) 32/2007-CT dated 05.09.2007. The impugned orders of assessment have been passed by opposite party No.2-Joint Commissioner of Sales Tax, Jajpur Range, who is not competent to assess the petitioner. The orders of assessment being passed by an authority who is not vested with authority and jurisdiction to assess, the same are liable to be quashed. 5. It is further submitted that the orders of assessment have been passed violating the principles of natural justice. A close glance at the audit visit report under Annexure-2 and notice in Form VAT-306 for audit assessment under Annexure-3 series would reveal that conspicuously the opposite party no.2-Joint Commissioner of Sales Tax himself having approved the audit visit report on 18.01.2010 has proceeded to assess the petitioner. It is a clear case of bias as opposite party No.2 has acted both as the investigator and adjudicator. In support of his contention, Mr. Mahanti, learned Senior counsel relied upon a judgment of this Court in the case of National Trading Co. vs. Asst. Commissioner of Sales Tax, Cuttack, 2001 (122) STC 212 and Falcon Marine Export Ltd. in W.P.(C) No.91 of 2011. 6. It was further argued that the orders of assessment passed are time-barred having been passed beyond the prescribed time stipulated under sub-section (6) of Section 42 as well as sub-section (7) of Section 42 of the OVAT Act. The audit visit report shows that the same was approved 3 on 18.01.2010 by opposite party No.2-Joint Commissioner of Sales Tax, Jajpur Range. Perusal of the assessment orders reveals that the same are passed on 21.01.2011. As per the requirement of Section 42(6) of the OVAT Act, the orders of assessment were required to be passed on or before 17.07.2010. Though the proviso to sub-section (6) of Section 42 of the OVAT Act provided that if for any reason the assessment is not completed within the time specified in this provision, the Commissioner, may on the merits of each case, allow such further time not exceeding six months for completion of the assessment proceedings, no such extension of time has ever been brought to the notice of the petitioner. The orders of assessment are silent about such extension of time granted by opposite party No.1. Placing reliance upon the judgment of the Hon’ble Supreme Court in the case of CIT, West Bengal-III and others, vs. Oriental Rubber Works, (1984) 1 SCC 700, Mr.Mahanti submitted that opposite party-revenue are obliged to expeditiously communicate the Commissioner’s approval as well as recorded reasons of the Authorized Officer on which such approve based to the petitioner. It was alternatively argued that even if assuming that there has been extension of time by opposite party No.1, the orders of assessment having been passed on 21.01.2011, the same exceeded one year. Moreover, Section 42(7) of the OVAT Act provides that no order of assessment shall be passed after expiry of one year from the date of receipt of the audit visit report. Annexure-2 reveals that opposite party No.2 has given the said audit visit report on 18.01.2010 after approving it. Orders of assessment having been passed on 21.01.2011 and served on the assessee- petitioner on 16.02.2011, the same are hit by provisions of limitation 4 stipulated in the statute. 7. Placing reliance on the judgment of the Hon’ble Supreme Court in the case of P.K. Ramachandran vs. State of Kerala and another, (1997) 7 SCC 556, Mr. Mahanti, contended that the law of limitation may harshly affect a particular party but it has to be applied with all its rigor when the statute so prescribes and the courts have no power to extend the period of limitation on equitable grounds. 8. Placing reliance on the judgment of Punjab and Haryana High Court in the case of Shreyans Industries Limited vs. State of Punjab and others, [2008] 18 VST 493 (P & H), Mr. Mahanti contended that the Commissioner is required to exercise his power of extending time for completion of assessment before the assessment becomes time barred. There is no question of deferring an assessment which has already become time barred. 9. Placing reliance on the judgment of the Hon’ble Supreme Court in the case of Ahmedabad Manufacturing and Calico Printing Co. Ltd. vs. S.G. Mehta, Income-Tax Officer and Another, (1963) 48 ITR (SC) 154, Mr. Mahanti contended that the Rule that an Act did not have retrospective operation on substantial rights which had become fixed before the date of commencement of the Act was not unalterable. The legislature might affect substantial rights by enacting laws which were expressly retrospective or by using language which had that necessary result. The language might give an enactment more retrospectivity than what the commencement clause gave to any of its provisions. When this happened the provisions thus made retrospective, expressly or by necessary intendment, would operate from a 5 date earlier than the date of commencement and would affect rights which, but for such operation, would have continued undisturbed. 10. Mr. Mahanti, learned Senior Advocate further submitted that when no discrepancy is noticed in the books of account, the SION method adopted, in order to find out the suppression, is not supported by any justified reason. There is nothing on record to show that there has been any sale suppression. Short production of finished goods out of raw materials depends on various factors, namely, skill of employees, quality of raw materials, use of the machinery, load of electricity etc. They cannot be said to be uniform all through the year. Variations in production are bound to occur. Since the SION method, has not been statutorily provided, no sanctity can be attached to it while assessing the turnover of the petitioner as if the said method is sacrosanct. In absence of any material whatsoever, the adoption of SION method is without rationality. There has not been proper appreciation as well as consideration of facts involved. The petitioner has produced the relevant materials correlating the entries in books of account with regard to input tax credit availed in respect of HSD. The petitioner also placed invoices showing purchase of HSD from outside the State as well as inside the State. No attempt was made by opposite party No.2 to find out the component of input credit which could be allowed on the purchases of HSD made within the State. The decision relied upon by opposite party no.2 in the assessment orders has no application to the facts of the present cases. Therefore, the assessment orders palpably indicate arbitrary and inflated demands and are liable to be quashed. 6 11 Per contra, Mr. R.P. Kar, learned Standing Counsel appearing for the Revenue submitted that opposite party No.2-Joint Commissioner of Sales Tax was never the head of the audit team as has been contended. The audit visit report dated 05.12.2009 was submitted by a team led by Sri S.R. Mishra, the then ACCT, Barbil Circle on 18.01.2010. Opposite party No.2 has signed at the end of the audit visit report as a token of receipt of the report. The receipt of the audit visit report is an administrative act. The receipt of the report is for the limited purpose of onward transmission of the same to the Assessing Authority. Alternatively, Mr. Kar, learned Standing Counsel submits that in case this Court feels that opposite party No.2 is not a competent authority to make assessment, the present matter may be remanded to any other competent officer having jurisdiction over the dealers assigned to LTUs, who is no way connected with the tax audit of the petitioner. 12. It was further contended that since there is availability of alternative remedy by way of filing appeal under the OVAT Act, the present writ petitions are not maintainable. On 22.02.2010, the petitioner received the notice dated 10.02.2010 sent along with the audit visit report. Originally, the date was fixed for appearance of the assessee-dealer on 10.03.2010, but on its request, the date of appearance was extended to 03.05.2010. Due to various reasons, the case could neither be taken up on 03.05.2010 nor on 09.06.2010 and 29.06.2010. It was only on 07.07.2010 the assessee-petitioner produced the books of account for examination. The audit visit report was confronted to the authorized officer and the books of account produced by the dealer were examined. The statement of the 7 representative of the dealer was recorded. However, the assessments could not be completed awaiting examination of some more documents and the cases were adjourned to 20.10.2010. Therefore, the assessments could not be completed within six months for which opposite party No.2 sought for extension of time as provided under the proviso to Section 42(6) of the OVAT Act. Opposite party No.1-Commissioner of Sales Tax, Orissa extended the time for a period of six months and directed the Assessing Authority to complete the audit assessment by 09.02.2011 positively. Since the audit visit report was received by the dealer on 22.02.2010 so the Commissioner of Sales Tax could have extended the time till 21.02.2011, i.e., one year from the date of receipt of the audit visit report by the dealer-assessee. It is submitted that unless the audit visit report is actually served on the dealer, the assessment proceedings cannot commence as per law. In support of his contention, Mr. Kar, learned Standing Counsel placed reliance upon an unreported judgment of this Court dated 09.10.2007 passed in the case of [M/s. Lalchand Jewellers Pvt. Ltd. Vs. Asst. Commissioner of Sales Tax, Puri Range, Puri in W.P.(C) No.11864 of 2007] and submitted that since in the said case the order of assessment had been passed within six months from the date of receipt of the audit visit report by the dealer the same was treated to be valid and within the period of limitation. Mr. Kar, further submitted that Sections 42(6) and 42(7) of the OVAT Act did not stipulate that the period would start from receipt of the audit visit report by the Assessing Authority or the dealer. While interpreting the said provision, this Court in Lalchand Jewellers Pvt. Ltd. (supra) held that the period commences from the date of receipt of the audit visit report by the dealer. 8 The order of this Court is binding on the Assessing Officer who has acted as per the decision of this Court. According to Mr. Kar, the assessment has rightly been completed within one year from the date of receipt of the audit visit report by the dealer. 13. It was further argued by Mr. Kar that sub-section (6) of Section 42 of the OVAT Act was amended by the Orissa Value Added Tax (Amendment) Act, 2010 and in place of words “receipt of” the words “service of notice on the dealer” was replaced. The aforesaid amendment in the nature of clarification in which the real intention of the legislature can be fully comprehended and the real intention of the legislature before amendment was interrelated in the sense that the period of six months or one year as the case may be is required to be counted from the receipt of audit visit report by the dealer along with notice of assessment. The clarification was necessary to avoid confusion and is in effect conceptually and contextually same to the view expressed by this Hon’ble Court. Placing reliance on the judgment of the apex Court in the case of Thiru Manickam and Co. vs. The State of Tamil Nadu, (1977) 39 STC 12, Mr. Kar contended that subsequent amendment to Section 42(6) of the OVAT Act is clarificatory in nature. 14. Mr.Kar further submitted that the intention of the Legislature for prescribing the period of six months and one year for completing the assessment is in the interest of early collection of Value Added Tax in cases where the dealer failed to submit correct return and the facts are detected only during audit visit. Therefore, the period of six months/one year is a mandate on the assessing authority and no right is conferred on the dealer. The Assessee-petitioner is not correct to say that the period of limitation for 9 making assessment had expired on 17.01.2011. It is submitted that the assessment of tax and the period prescribed for that purpose are part of procedural provisions. Therefore, the time limit given in sub-sections (6) and (7) of Section 42 of the OVAT Act should be interpreted in the manner as done by this Hon’ble Court in Lalchand’s case (supra). The assessment of tax on the basis of fraud which comes to forefront in course of audit assessment should not be allowed to be frustrated because of technical interpretation given by the dealer to escape the liability. The interpretation that frustrates demand and collection of tax is to be avoided in the public interest. Receipt of audit visit report by the Assessing Officer is a part of the “audit” process and receipt of the audit visit report by the dealer is a part of the “assessment” process. The assessment process starts with the issue/service of notice on the dealer along with the audit visit report. Therefore, in the context of assessment, “receipt of Audit Visit Report” is envisaged under the OVAT Act to be receipt of Audit Visit Report by the dealer. It cannot be a receipt of audit visit report by the Assessing Authority which is a part of the audit process, a stage prior to assessment process. It is only after receipt of the audit visit report, the actionable cause lies with the dealer. On the other hand, no cause of action lies with the Assessing Officer when audit visit report is merely received by him except to forward the audit visit report along with notice to the dealer. In any event the position in law has been clearly stated in Lalchand’s case (supra). 15. On the rival contentions of the parties, the following questions fall for consideration by this Court: 10 (i) Whether opposite party No.2-Joint Commissioner of Sales Tax having approved the audit visit report is competent to assess the petitioner? (ii) Whether the impugned orders of assessment are barred by limitation under Section 42(6) and (7) of the OVAT Act, 2004? (iii) Whether the demand raised in the orders of assessment on the ground of suppression of sale is without any valid reason? 16. So far as question No.(i) is concerned, the specific case of the petitioner is that on perusal of the audit visit report and the orders of assessment, it reveals that opposite party No.2 who has approved the audit visit report on 18.01.2010 has passed the impugned orders of assessment. Therefore, it is clear that opposite party No.2 has acted both as investigator and adjudicator. According to Mr. Kar, opposite party No.2 is not the head of the audit team as has been contended by the petitioner. The audit programme was approved by the Commissioner and accordingly, opposite party No.2-Joint Commissioner of Sales Tax constituted an audit team to conduct the audit. Opposite party No.2 has signed the audit visit report in a mechanical manner as a token of receipt of the report. 17. In paragraph-5 of the counter affidavit, it is stated that the audit was directed by opposite party No.2. The receipt of the audit report is a part of the audit process and is purely administrative in nature. In paragraph-6 of the counter affidavit, it is stated that the Joint Commissioner of Sales Tax of the Range is required to constitute an audit team and monitor the progress of the audits assigned to the team. In view 11 of this, it cannot be said that opposite party No.2-Joint Commissioner of Sales Tax is not involved in the audit process. 18. Therefore, we are of the view that in order to maintain transparency, any officer who is involved in any manner or has acted with the process of audit and preparation of the audit report in respect of the dealer should not be the Assessing Officer of that dealer. Otherwise, there will be violation of cardinal principles of natural justice. Our view is fortified by the judgment of this Court in National Trading Co. (supra) wherein this Court held as follows: “……Although many contentions were raised in support of the writ petition, we need not examine them as the matter can be decided on the following : short point being that the reporting officer himself cannot be the assessing officer. It is said that justice should not only be done but should manifestly be seen to be done. Justice can never be seen to be done if a person acts as a Judge in his own cause or is himself interested in its outcome. This principle applies not only to judicial proceedings but also to quasi-judicial and administrative proceedings. In the case at hand, there is no dispute that the reporting officer himself took up the impugned assessment proceedings and completed the same. This he could not have done.” 19. Question No.(ii) is as to whether the period of six months and one year provided under sub-Sections (6) & (7) of Section 42 of the OVAT Act for the purpose of limitation shall run from the date of receipt of the Audit Visit Report by the Assessing Officer or from the date of receipt of the same by the Assessee. At this juncture, it is necessary to extract here the provision of Section 42 (6) of the OVAT Act. 42(6) Notwithstanding anything contained to the contrary in any provision under this Act, an assessment under this section shall be completed 12 within a period of six months from the date of receipt of this 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.” 20. This Court in the case of Lalchand Jewellers Pvt. Ltd. (supra) held that such limitation shall run from the date of receipt of the Audit Visit Report by the dealer. Mr. Mahanti, learned senior counsel submitted that this Court in Lalchand Jewellers Pvt. Ltd. (supra) made a passing remark regarding limitation and was not expression of any opinion on law. For better appreciation of the fact, it is necessary to extract the relevant paragraphs from the order dated 09.10.2007 passed in the case of Lalchand Jewellers Pvt. Ltd. (supra): “Learned counsel for the petitioner is assailing the said assessment order mainly on three grounds. First, the assessment order covers the period from 1.4.2005 to 31.07.2006 which is beyond one financial year. According to him, ‘year’ has been defined under Section 2(64) of the said Act as financial year but the said assessment covers more than one financial year and is bad in law. The second ground is that the said order of assessment is violative of the principles of natural justice inasmuch as the petitioner was asked by notice dated 6.3.2007 to appear and produce the relevant books of accounts before the Assessing Officer on 13.3.2007 at 11 A.M. It is contended that it is difficult for the petitioner to satisfy the authority on the basis of voluminous documents of the Audit Visit Report within one day i.e. by 13.3.2007. As such, appropriate opportunity of hearing was not given to him to explain. The third point is that it is provided under Section 42(6) of the Act that assessment should be completed within a period of six months from the date of receipt of Audit Visit Report. In the instant case, the Audit Visit Report is dated 30.8.2006 and six months from that period will expire by February, 2007. As the assessment order was passed on 13.3.2007, the same is bad in law. 13 Learned counsel appearing for the Revenue has controverted all these points by referring to various provisions of the Act and considering the submissions of the learned counsel for the both the parties, this Court is unable to accept the petitioner’s contentions for the reasons discussed herein below. If we take up the last objection of the learned counsel for the petitioner first it appears from Section 42(6) of the Act, that the assessment order has to be completed within a period of six months from the date of receipt of the Audit Visit Report. Even though the Audit Visit Report is dated 30.8.2006, no where in the petition, there is any averment about the date when the petitioner received the same. Unless the petitioner succeeds in establishing that it has received the same six months earlier than the date of the assessment order the provisions of Section 42(6) is not attracted. No such case has been made out in the writ petition.” (Underlined for emphasis) 21. Thus, it is amply clear that this Court in interpreting Section 42(6) held that unless the petitioner succeeds