THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.2653 of 2009 Dated:20.07.2010 Between: M/s.Agarwal Industries Pvt.Ltd. …Petitioner and The Commercial Tax Officer, Special Commodities Circle, Saroornagar, Hyderabad, And another. …Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.2653 of 2009 ORDER: (per Hon’ble Sri Justice V.V.S.Rao) The petitioner company filed the instant writ petition aggrieved by the notification and demand for penalty to a Value Added Tax dealer in Form 203 (impugned order) dated 29.01.2009. By impugned order the petitioner was requested to pay an amount of Rs.20,76,106/- (Rupees twenty lakhs seventy six thousand one hundred and six only) towards penalty under Section 53(3) of the Andhra Pradesh Value Added Tax Act, 2005 (VAT Act). The petitioner is an assessee under the VAT Act and the Central Sales Tax Act, 1956, and is a manufacturer and marketer of edible oils. For the period from April 2006 to March 2008 (two years) the petitioner claimed input tax credit and paid tax accordingly. The records of the petitioner were audited on 07.07.2008. It was noticed that the petitioner claimed excess input tax credit to a tune of Rs.20,76,106/- during the audit period. Therefore, the first respondent, namely, Commercial Tax Officer, Special Commodities Circle, Saroornagar, proposed to levy penalty under Section 53(3) of the VAT Act and issued notice in Form 203 A calling upon the petitioner to file written objections, if any, within seven days. The petitioner filed detailed objections, inter alia, contending that the notice does not contain any reasons or grounds for proposed levy penalty, and that Section 53(3) of the VAT Act can be invoked only when there is a fraud or willful neglect on the part of the dealer. In their explanation the petitioner also referred to Dadabhoy’s New Chirimiri Ponri Hill Colliery Company Private Limited v Commissioner of Sales Tax, M.P.[1], State of Tamil Nadu v Abirami Agencies[2], Commercial Taxes Officer v Rajdhani Wines[3], Hindustan Steel Limited v State of Orissa[4], Vijai Hosiery Mills v The State of Rajasthan[5] a n d Modi Threads Limited, Hyderabad v State of Andhra Pradesh[6]. After considering the objections the first respondent passed the impugned order imposing the impugned penalty amount. The first respondent came to the conclusion that the petitioner has not maintained separate stock register for the purchases made by utilizing Duty Entitlement Pass Book (DEPB) licence, that though they are aware of the formula A X B / C they did not adhere to restriction of input tax, that the petitioner utilized the oil purchased by utilizing DEPB licence and that an inference can be drawn that the dealer has under declared tax if they have claimed excess/over input tax credit. The Counsel for the petitioner contends that the claim of input credit by the petitioner is in accordance with the provisions of the VAT Act as evidenced by the records to show that specific outputs were made by using specific inputs. He would nextly urge that when the allegations of fraud or willful neglect in filing the returns are absent in the show cause notice, imposing penalty equal to tax is without jurisdiction. Lastly, he contends that when the impugned order is without jurisdiction the writ petition is not barred even though a right of appeal is provided under Section 31(1) of VAT Act. Opposing the writ petition the Special Standing Counsel for the Commercial Taxes submits that the remedy of appeal is a bar to entertain the writ petition. When once the dealer under declared tax it attracts Section 53(3) of the VAT Act and therefore no interference is called for. It is axiomatic that a writ petition would not, ordinarily, be entertained where alternative remedy of appeal is provided by the statute. Though that is not explicit, the exercise of power of judicial review under Article 226 of the Constitution of India is always subject to certain limitations; one such being the availability of effective efficacious alternative remedy. When the tax statutes create the hierarchy of appellate/second appellate and revisional authorities as well as quasi judicial Tribunals to adjudicate grievances and give effective redressal, ignoring all such remedies, the writ petition would not, ordinarily, be entertained straightaway. Liberal approach dehors the settled law would result in adding to bulging dockets of the High Court. In Salam Khan v Tamil Nadu Wakf Board, Chennai[7], His Lordship Sri Justice Markandey Katju (as He then was), dealt with this aspect of the matter and made the following observations. No doubt, alternative remedy is not an absolute bar to the filing of writ petitions, but at the same time it is well settled that writ jurisdiction is discretionary jurisdiction and when there is an alternative remedy, ordinarily a party must resort to that remedy first before approaching this court. Entertaining writ petitions straight away without insisting that a party should first avail of the alternative remedy is an over liberal approach which has caused immense difficulties to the High Courts in the country because they have added to the huge arrears. The Courts have already become overburdened by this over liberal approach instead of following the settled legal principle that a writ petition should ordinarily be dismissed if there is an alternative remedy. The High Courts in India are already tottering and reeling under the burden of massive arrears which have flooded the dockets of the Court, and such kind of over liberal approach has only multiplied this problem manifold. If this approach is further continued a time will surly come when the High Courts will find it impossible to function. All this has happened because unfortunately some Courts have departed from well-settled legal principles. (emphasis supplied) There cannot be any dispute that as laid down by the two Judge Bench of the Supreme Court in Whirlpool Corporation v Registrar of Trade Marks, Mumbai[8], the alternative remedy does not operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principles of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. But a three Judge Bench in C.A.Abraham v Income Tax Officer[9] held that the remedy under Article 226 cannot be invoked by an assessee abandoning the remedy provided by the statute. In C.A.Abraham the appellant along with Thomas was partner in M/s.M.P.Thomas and Company engaged in food grains business. The firm submitted Returns to Income Tax Officer (ITO). On the ground that the firm was carrying transactions in fictitious names and suppressed income for AY 1948-1949, show cause notice was issued for imposing penalty under Section 28 of Income Tax Act, 1922. Explanation was submitted. ITO passed orders imposing penalty for AYs 1950-1951 and 1951-1952. Appeals were dismissed by appellate authority. The same was assailed in Certiorari proceedings before Kerala High Court. The Court rejected relying on a Judgment of A.P.High Court in Mareddi Krishna Reddy v Income Tax Officer, Tenali[10]. In Appeal with Certificate of High Court, Supreme Court considered two questions, namely, whether High Court could have entertained a writ petition ignoring alternative remedy provided by the Act and whether the provisions imposing penalty can be interpreted by pointing out deficiencies. On the first question, it was held that, “assessee cannot abandon to resort to machinery provided under the Act and directly invoke remedy under Article 226 of Constitution of India”. The observations are as follows (para 3). In our view, the petition filed by the appellant should not have been entertained. The Income Tax Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed by the Income Tax authorities, and the appellant could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Tribunal. In Champalal Binani v The Commissioner of Income Tax, West Bengal[11] the Commissioner of Income Tax issued a notice to the appellant under Section 33-B of the Income Tax Act, 1922 to show cause as to why the orders of assessment for AYs 1953-1954 to 1960- 1961 should not be revised. Copies of the notices were sent to the addresses disclosed in the IT Returns. On the date of hearing, none appeared for the assessee. Commissioner set aside orders and directed ITO to make fresh assessment after enquiry and investigation. Against the said order, appellant moved High Court of Calcutta by filing a writ petition. Holding that notice under Section 33-B was not served on the assessee, learned single Judge set aside the order of the Commissioner. The Division Bench reversed holding that notice was served. Supreme Court dismissed the appeal and reiterated that when Income Tax Act provides complete and self-contained machinery for redressal of grievances, no party can be allowed to invoke extraordinary remedy under Article 226 of Constitution of India. The relevant observations are as follows (para 5). We deem it necessary once more to emphasize that the Income Tax Act provides a complete and self-contained machinery for obtaining relief against improper action taken by the departmental authorities, and normally the party feeling himself aggrieved by such action cannot be permitted to refuse to have recourse to that machinery and to approach the High Court directly against the action. … A writ of certiorari is discretionary; it is not issued merely because it is lawful to do so. Where the party feeling aggrieved by an order of an Authority under the Income Tax Act has an adequate alternative remedy which he may resort to against the improper action of the authority and he does not avail himself of that remedy the High Court will require a strong case to be made out for entertaining a petition for a writ. Where the aggrieved party has an alternative remedy the High Court would be slow to entertain a petition challenging an order of a taxing authority, which is ex facie with jurisdiction. A petition for a writ of certiorari may lie to the High Court, where the order is on the face of it erroneous or raises question of jurisdiction or of infringement of fundamental rights of the petitioner. Chanan Singh and Sons v Collector Central Excise[12] was a case where a writ petition was filed before the P&H High Court challenging the order of the CEGAT (now CESTAT) allowing the department’s appeal. The High Court dismissed holding that there is a statutory alternative remedy available. Aggrieved by the same, appeal was carried to Supreme Court. Confirming the High Court, Supreme Court observed (para 2) as under. The appellant challenged before the High Court an order of the Tribunal allowing the appeal of the Revenue. The High Court simply said that the appellant had a statutory alternative remedy and the appellant had to avail that statutory remedy instead of filing writ petition. Accordingly, the High Court dismissed the writ petition. The appellant instead of challenging the order of the Tribunal by availing the statutory alternative remedy, has filed this appeal by special leave challenging the order of the High Court. We are of the view that the High Court was right in dismissing the writ petition directing the appellant to avail the statutory alternative remedy. In view of the binding judgment of the three Judge Bench in C.A.Abraham we are not inclined to go into the merits of the case. Whether the petitioner under declared the tax and/or whether the petitioner claimed excess/over input tax credit for gaining the benefit of “tax under declared”, are the matters to be agitated before appropriate appellate/revisional forum. The writ petition straightaway cannot be entertained. The Writ Petition, therefore, is dismissed at the stage of admission. __________________ (V.V.S.RAO, J) ______________________________ (RAMESH RANGANATHAN, J) 20.07.2010 vs [1] (1979) 44 STC 100 [2] (1994) 92 STC 359 [3] (1992) 87 STC 362 [4] (1970) 25 STC 211 [5] (1980) 45 STC 345 [6] (1993) 16 APSTJ 277 [7] AIR 2005 Madras 241 [8] AIR 1999 SC 22 = (1998) 8 SCC 1 [9] AIR 1961 SC 609 [10] AIR 1957 AP 368 [11] (1971) 3 SCC 20 = AIR 1970 SC 645 [12] (1999) 9 SCC 17