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2016 DIGILAW 1053 (GUJ)

Tanuj Agency Private Limited v. State of Gujarat

2016-06-08

A.J.SHASTRI, AKIL ABDUL HAMID KURESHI

body2016
JUDGMENT : Akil Abdul Hamid Kureshi, J. 1. The petitioners have prayed for setting aside the process of pre-audit before granting refund to the petitioners. The petitioners have also prayed for a direction to refund a sum of Rs. 75,73,923/- with interest. Briefly stated, the facts are as under: The petitioner No. 1 is a private limited company and is a registered dealer under the Gujarat Value Added Tax Act, 2003 ("the Act" for short). For the assessment year 2000-2001, the petitioner's return for value added tax came to be processed and assessed by the competent authority. On the question of taxability of Gutka, the petitioners approached Gujarat Value Added Tax Tribunal ("the Tribunal" for short). The Tribunal decided the Revision petition of the petitioners by order dated 14.7.2009 in favour of the petitioners. The Tribunal placed the matter before Commissioner of Sales Tax, who was the appellate authority, in the following manner: "The Tribunal has carefully perused the impugned common order/s 65 and u/s. 67. It is based on the letter dated 19.7.04 from Additional Commissioner of (Excise) without ascertaining whether the goods purchased contained tobacco or not. No reasons are there in the order for holding it as pan-masala falling under some entry under schedule IIA to the Gujarat Sales Tax Act. Even relevant entry prevailing then is also not mentioned in the order. Notice in Form 49 dtd. 1.9.04 does not contain any reason for charging sales tax on sale of Gutka for the period between Dt. 1.11.2000 to Dt. 28.2.2001. The decision of the Hon'ble Supreme Court is very clear so are the relevant entries in schedules and notification u/s. 49(2) of the Act. Nothing of the above appear to have been considered to the Joint Commissioner of Commercial Tax before passing the impugned order although prima facie there is lot of force in the arguments of the appellant. Such orders cannot be based on some communication from a officer of the Central Excise and ignoring all the contentions of the appellant/applicant. ORDER 1. Nothing of the above appear to have been considered to the Joint Commissioner of Commercial Tax before passing the impugned order although prima facie there is lot of force in the arguments of the appellant. Such orders cannot be based on some communication from a officer of the Central Excise and ignoring all the contentions of the appellant/applicant. ORDER 1. In view of and for the reasons stated above, the appeal and revisional application is allowed and the impugned order dated 31.1.2005 of the Joint Commissioner of Sales Tax is set aside and the matter is remanded back to the learned revisional and appellate authority for fresh speaking and reasoned order on merits after examination of record considering the points raised by the appellant and also keeping in mind the observations made above with direction to pass necessary order latest by Dt. 30.11.2009 after giving proper opportunity of hearing and after considering written and oral submissions that will be made before him. He is also directed to give reasons for not accepting any contention of the appellant. The appellant is also directed not to seek unnecessary adjournments and corporate in the proceedings." 2. The petitioners thereupon appeared before Joint Commissioner and claimed refund of tax already collected. It is the case of the petitioners to which the respondents have raised no serious dispute that the Joint Commissioner was convinced that refund of Rs. 75,73,923/- was payable to the petitioners. In fact, he passed a draft order dated 26.2.2010 in which he considered various issues at considerable length. In addition to taxability of the product in question, he also examined the implication of the decision of the Supreme Court in the case of Mafatlal Industries Ltd. vs. Union of India etc. reported in 1997 (5) SCC 536 . However, instead of proceeding to pass such order, he under his communication dated 3.3.2010 forwarded the draft order to the Additional Commissioner of Value Added Tax pointing out that since the refund amount exceeds Rs. 5 lakhs, there would be a requirement of pre-audit. The said draft order dated 26.2.2010 alongwith communication dated 3.3.2010 are produced at Annexure "F" to the petition. 3. Since the petitioners did not receive any refund from the respondents, they made representations and it appears, also obtained documents from the official record through aid of Right to Information Act. 4. 5 lakhs, there would be a requirement of pre-audit. The said draft order dated 26.2.2010 alongwith communication dated 3.3.2010 are produced at Annexure "F" to the petition. 3. Since the petitioners did not receive any refund from the respondents, they made representations and it appears, also obtained documents from the official record through aid of Right to Information Act. 4. The respondents, instead of granting refund, issued notice dated 21.2.2016 conveying to the petitioners that previously an opportunity was granted to the represent its case to the authority. However, in the interest of justice, a fresh opportunity is being granted to the petitioners and the petitioners may remain present on 15.3.2016 alongwith supporting documents, failing which the authority shall take ex parte decision. In response to this notice, the petitioners conveyed under letter dated 14.3.2016 that the Joint Commissioner had already verified the documents and adjudicated the case finally in favour of the assessee and passed an order dated 26.2.2010 granting refund of Rs. 75,73,923/-. It was therefore, requested that the said order be implemented and refund be released. 5. The petitioners at that stage filed this petition and made the above noted prayers. 6. Learned counsel Mr. Tanvish Bhatt for the petitioners submitted that after the Tribunal decided the issue in favour of the petitioners and placed back the matter before Appellate Authority for fresh decision bearing in mind observations made by the Tribunal, the Appellate Authority had also decided to grant refund to the petitioners. The Additional Commissioner however, unauthorisedly intervened and as is borne out from the record, directed the Appellate Authority to deny refund to the petitioners on wholly extraneous grounds. He submitted that there is no legal sanctity to the pre-audit procedure. The Appellate Authority being a statutory authority cannot be guided by any outside agency including a higher authority. 7. Learned Assistant Government Pleader Ms. Jirga Zaveri however, opposed the petition contending that in order to safeguard interest of Revenue, through administrative instructions, pre-audit procedure is devised where the payable refund is in excess of Rs. 5 lakhs. The decision of the Joint Commissioner in draft order is palpably erroneous. He has neither considered the facts of the judgment of the Supreme Court in the case of M/s. Kothari Products Ltd. vs. Government of A.P. reported in 119 Sales Tax Cases 553 nor that of Mafatlal Industries Ltd. (Supra). 8. 5 lakhs. The decision of the Joint Commissioner in draft order is palpably erroneous. He has neither considered the facts of the judgment of the Supreme Court in the case of M/s. Kothari Products Ltd. vs. Government of A.P. reported in 119 Sales Tax Cases 553 nor that of Mafatlal Industries Ltd. (Supra). 8. In addition to the documents on record, we have perused the original files. We have noticed that after the Tribunal remanded the proceedings before the Appellate Authority i.e. Joint Commissioner to decide the issue afresh bearing in mind observations made by the Tribunal, the Appellate Authority granted hearing to the petitioner. As culmination of such exercise, the Appellate Authority was of the opinion that the petitioners were entitled to refund of a sum of Rs. 75,73,923/-. In fact, he passed a detailed speaking order on 26.2.2010. He however, termed his order as a draft order presumably because of internal directives of the Government for pre-audit in such cases in which refund amount exceeds Rs. 5 lakhs. He forwarded copy of the draft order to the higher authority i.e. Additional Commissioner alongwith his letter dated 3.3.2010. From the file, it further emerges that he was asked to supply Gujarati version of the draft order which was originally in English which also he did. On 16.7.2013, Additional Commissioner through Assistant Commissioner conveyed to the Appellate Authority that "after verification of following issues which arise during pre-audit, permission is granted for passing order with necessary changes (1) the decision of the Hon'ble Tribunal dated 24.12.2008 in Appeal Nos. 222-223 of 2000 may be borne in mind (2) the facts of the case be verified in light of the decision of the Supreme Court in the case of Mafatlal Industries vs. Union of India and others and (3) On the basis of the observations of the Tribunal in the earlier orders, instead of granting refund to the dealer, amount to be utilised for the purpose of tobacco and smoking control. Above issues may be borne in mind and necessary modifications may be made in the draft order and copy thereof be forwarded. 9. The procedure adopted by the department does not flow from any statutory scheme of the Act. Chapter V of the Act pertains to returns, payment of tax, assessment, recovery of tax and refund. Above issues may be borne in mind and necessary modifications may be made in the draft order and copy thereof be forwarded. 9. The procedure adopted by the department does not flow from any statutory scheme of the Act. Chapter V of the Act pertains to returns, payment of tax, assessment, recovery of tax and refund. Section 29 of the Act pertains to the returns to be filed by the dealer. Section 33 pertains to self assessment. Section 34 pertains to audit assessment. Section 35 pertains to turnover escaping assessment. 10. Chapter VIII of the Act pertains to Appeals, Revision and rectification. Section 73 pertains to appeals which reads as under: "73. Appeal. (1) An appeal from every original order, not being an order mentioned in section 74, passed under this Act or the rules shall lie:- (a) If the order is made by an Assistant Commissioner or Commercial Tax Officer, or any other officer sub-ordinate thereto, to the Deputy Commissioner; (b) if the order is made by a Deputy Commissioner, to the Joint Commissioner; (c) if the order is made by a Joint Commissioner, additional Commissioner or Commissioner, to the Tribunal. (2) In the case of an order passed in appeal by a Deputy Commissioner or, as the case may be, by a Joint Commissioner, a second appeal shall lie to the Tribunal. (3) Subject to the provisions of section 84, no appeal shall be entertained unless it is filed within sixty days from the date of communication of the order appealed against. (3) Subject to the provisions of section 84, no appeal shall be entertained unless it is filed within sixty days from the date of communication of the order appealed against. (4) No appeal against an order of assessment shall ordinarily be entertained by an appellate authority, unless such appeal is accompanied by satisfactory proof of payment of the tax in respect of which an appeal has been preferred" [Provided that an appellate authority may, if it thinks fit, for reasons to be recorded in writing, entertain an appeal against such order- (a) without payment of tax with penalty (if any) or, as the case may be, of the penalty, or (b) on proof of payment of such smaller sum as it may be consider reasonable, or (c) on the appellant furnishing in the prescribed manner, security for such amount as the appellate authority may direct] (5) The Commissioner, on receipt of notice that an appeal against the order passed in appeal by the Deputy Commissioner or, as the case may be, by the Joint Commissioner has been preferred by the other party to the Tribunal may, within thirty days of receipt of the notice, file a memorandum of cross objection against any part of the order passed in appeal by the Deputy Commissioner or, as the case may be, by the Joint Commissioner and such memorandum shall be disposed of by the Tribunal as if it were an appeal. (6) Subject to such rules of procedure as may be prescribed, an appellate authority may pass such order on appeal as it deems just and proper. (7) Every order passed in appeal under this section shall, subject to the provision of sections 75, 78 and 70 be final." 11. Section 75 pertains to revision. As per sub-section (1) of section 75, the Commissioner and the Tribunal would have power to revise orders specified thereunder. Section 78 provides for appeal to High Court. As per sub-section (1) of section 78, appeal would lie to the High Court from every order passed in appeal by the Tribunal, if the High Court is satisfied that case involves a substantial question of law. Section 79 pertains to rectification of mistakes and empowers the Commissioner within time prescribed to rectify any mistake which is brought to his notice by person affected by the order. 12. Section 79 pertains to rectification of mistakes and empowers the Commissioner within time prescribed to rectify any mistake which is brought to his notice by person affected by the order. 12. It can thus be seen that the Act makes detailed provisions for filing of return and assessment of tax of the assessee. Once competent authority passes an order, an aggrieved person would have a right to appeal in terms of sub-section (1) of section 73, in all cases other than those which are termed as non-appealable orders specified in section 74. Under sub-section (2) of section 73, under certain circumstances, a second appeal would be available to the Tribunal against the order of the appellate authority. Against the order of the Tribunal, an appeal would be available to the High Court on substantial question of law. Section 75 grants power of revision to the Commissioner as well as to the Tribunal. 13. Having made such elaborate provisions of assessment, appeal and revision, the fundamental question is can an outside agency control the discretion of the statutory appellate authority? In the present case, we may recall, the appellate authority i.e. Joint Commissioner upon remand of the proceedings by the Tribunal heard the petitioners and decided to grant refund. He was however under directives from the Government not to finalise the order which, he therefore, kept at draft stage and sent for what is referred to as a pre-audit. The Additional Commissioner, thereupon inquired into various details and directed him to verify three aspects and to amend his order and pass a fresh order. In the above noted communication dated 16.7.2013, he in fact, conveyed to the Joint Commissioner that after making such changes, he is permitted to pass the order. He was also asked to forward a copy of such order to the Additional Commissioner. 14. Under no circumstances, procedure adopted by the respondents can be countenanced. Respondents have not produced any instructions issued by the Government in this regard. Source of powers to issue such direction is also not shown. The Joint Commissioner, as an appellate authority had statutory duties and functions to perform. He was acting as a quasi judicial authority. In case of such a quasi judicial authority who is entrusted with statutory powers, duties and functions; it is his judgment alone which must prevail. Source of powers to issue such direction is also not shown. The Joint Commissioner, as an appellate authority had statutory duties and functions to perform. He was acting as a quasi judicial authority. In case of such a quasi judicial authority who is entrusted with statutory powers, duties and functions; it is his judgment alone which must prevail. No other outside agency or authority can direct him to act in a particular manner. Merely because the Additional Commissioner happens to be placed higher in rank as per administrative hierarchy or set up, would not give him any authority to govern the discretion of the Joint Commissioner vested in him as per statute while exercising appellate powers. 15. In the case of Mahadayal Premchandra vs. Commercial Tax Officer, reported in A.I.R. 1958 SC 667, the Constitution Bench of the Supreme Court considered the case where the Assistant Commissioner of Commercial Tax had delegated powers to assessment to the Commercial Tax Officer. Despite having deleted such powers, the Assistant Commissioner directed the Commercial Tax Officer to frame assessment in a particular manner though Commercial Tax Officer himself was not inclined to take such a line. The Supreme Court had deprecated the procedure so adopted making following observations: "19. We are really surprised at the manner in which the first respondent dealt with the matter of this assessment. It is clear that he did not exercise his own judgment in the matter and faithfully followed the instructions conveyed to him by the Assistant Commissioner (C.S.) without giving the appellant an opportunity to meet the points urged against them. The whole procedure was contrary to the principles of natural justice. The procedure adopted was, to say the least, unfair and was calculated to undermine the confidence of the public in the impartial and fair administration of the Sales-tax Department concerned. We would have, simply on this ground, set aside the assessment order made by the first respondent and remanded the matter back to him for his due consideration in accordance with law; but as the matter is old and a remand would lead to unnecessary harassment of the appellants, we have preferred to deal with the appeal on merits." 16. It is well settled position that the Income-tax Officer, while deciding to re-open the assessment previously framed must record his reasons for formation of a belief that income chargeable to tax has escaped assessment. It is well settled position that the Income-tax Officer, while deciding to re-open the assessment previously framed must record his reasons for formation of a belief that income chargeable to tax has escaped assessment. It is the opinion of the Income-tax Officer alone which in this context would prevail. It is in this background the Supreme Court in the case of Indian and Eastern Newspaper Society vs. Commissioner of Income Tax, New Delhi 119 ITR 996 opined that the opinion of the internal audit party cannot be regarded as opinion within the meaning of section 147 of the Income Tax Act, 1961. 17. In the case of Anirudhsinhji Karansinhji Jadeja and another vs. State of Gujarat reported in (1995) 5 Supreme Court cases 302, the Supreme Court held and observed as under: "11. The case against the appellants originally was registered on 19.3.1995 under the Arms Act. The DSP did not give any prior approval on his own to record any information about the commission of an offence under TADA. On the contrary, he made a report to the Additional Chief Secretary and asked for permission to proceed under TADA. Why? Was it because he was reluctant to exercise jurisdiction vested in him by the provision of Section 20-A(1)? This is a case of power conferred upon one authority being really exercised by another. If a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If the discretion is exercised under the direction or in compliance with some higher authority's instructions, then it will be a case of failure to exercise discretion altogether. In other words, the discretion vested in all the DSP in this case by Section 20-A(1) was not exercised by the DSP at all. 12. Reference may be made in this connection to Commissioner of Police vs. Gordhandas Bhanji in which the action of Commissioner of Police in cancelling the permission granted to the respondent for construction of cinema in Greater Bombay at the behest of the State Government was not upheld, as the rules concerned had conferred this power on the Commissioner, because of which it was stated that the Commissioner was bound to bear his own independent and unfettered judgment and decide the matter for himself, instead of forwarding an order which another authority had purported to pass." 18. In the case of Commissioner of Income Tax, Shimla vs. Greenworld Corporation, Parwanoo reported in 2009 (7) SCC 69 , Supreme Court observed as under: "53. We may now consider the effect of "noting". The noting of the assessing officer was specific. It was stated so in the proceeding sheet at the instance of the higher authorities itself. No doubt in terms of the circular letter issued by CBDT, the Commissioner or for that matter any other higher authority may have supervisory jurisdiction but it is difficult to conceive that even the merit of the decision shall be discussed and the same shall be rendered at the instance of the higher authority who, as notice hereinbefore, is a supervisory authority. It's one thing to say that while making the orders of assessment the assessing officer shall be bound by the statutory circulars issued by CBDT but it is another thing to say that the assessing authority exercising quasi-judicial function keeping in view the scheme contained in the Act, would lose its independence to pass an independent order of assessment. 55. When a statute provides for different hierarchies providing for forums in relation to passing of an order as also appellate or original order, by no stretch of imagination a higher authority can interfere with the independence which is the basic feature of any statutory scheme involving adjudicatory process." 19. In more recent judgment in the case of Hussein Ghadially @ M.H.G.A. Shaikh and others v. State of Gujarat, reported in 2015 (1) GLR 559, Supreme Court has observed as under: "18. Secondly, because exercise of the power vested in the District Superintendent of Police under Section 20A(1) would involve application of mind by the officer concerned to the material placed before him on the basis whereof, alone a decision whether or not information regarding commission of an offence under T.A.D.A. Should be recorded can be taken. Exercise of the power granting or refusing approval under Section 20A(1) in its very nature casts a duty upon the officer concerned to evaluate the information and determine having regard to all attendant circumstances whether or not a case for invoking the provisions of T.A.D.A. is made out. Exercise of that power by anyone other than the designated authority viz. Exercise of the power granting or refusing approval under Section 20A(1) in its very nature casts a duty upon the officer concerned to evaluate the information and determine having regard to all attendant circumstances whether or not a case for invoking the provisions of T.A.D.A. is made out. Exercise of that power by anyone other than the designated authority viz. The District Superintendent of Police would amount to such other authority clutching at the jurisdiction of the designated officer, no matter such officer or authority purporting to exercise that power is superior in rank and position to the officer authorised by law to take the decision." 20. The lone issue is thus sufficiently clear. The Joint Commissioner of Commercial Tax who is an appellate authority was duty bound to hear and decide the proceedings without any outside interference or insistence. The entire structure of appeal and revision would break down if superior officer in the Government set up is allowed to control the statutory powers of the competent authority, be it the assessing officer or an appellate authority. In the present case, Additional Commissioner insisted that Joint Commissioner who was in charge of the appeal as the appellate authority modifies his order and only thereafter he would have permission to pass the order. On all counts, the procedure adopted by the department was wholly unauthorised and impermissible in law. To be bound by an order of higher authority in an administrative set up is entirely different from the discretion of a statutory authority being governed by an outside agency. 21. The issue can be looked from a slightly different angle. The Additional Commissioner was acting as a representative of the Government. He was protecting the interest of revenue. This was also the main defence argument of the Assistant Government Pleader. We may recall, the appropriate proceedings before the Joint Commissioner were between the petitioner as an assessee and the respondent as tax collector or revenue as is popularly referred. Thus the directions issued by the Assistant Commissioner were in essence by the department who was the litigating party before the Joint Commissioner. In effect therefore, the directions to pass the order in a particular manner came to be issued by an authority who was a party in the appeal and therefore was a person interested in tax litigations. Thus the directions issued by the Assistant Commissioner were in essence by the department who was the litigating party before the Joint Commissioner. In effect therefore, the directions to pass the order in a particular manner came to be issued by an authority who was a party in the appeal and therefore was a person interested in tax litigations. He disapproved the draft order passed by tax appellate authority and asked him to modify his order and forward a copy of fresh order to him. This would be in grossest breach of natural justice and the order would be tainted by bias. 22. The unnatural consequence of the procedure adopted by the department is manifest when under the said communication dated 16.7.2013, besides other issues, the Additional Commissioner required the Joint Commissioner to examine applicability of the principles laid down by the Supreme Court in the case of Mafatlal Industries (Supra). As is well known, the case pertains to the implication of the principle of unjust enrichment. In the draft order, the Joint Commissioner had already given his reasons why decision of the Supreme Court in the case of Mafatlal Industries would not preclude the petitioners from getting the refund. The Additional Commissioner further insisted that issue be examined in a particular manner. 23. The Joint Commissioner had already passed a draft order which contained detailed discussion, reasons and ultimate conclusions including directions to be issued. It is true that an order which is not yet signed by the competent authority would remain as a draft and ordinarily and for valid reasons it would always be open for the authority to pass another or different order before it is signed. However, in the present case, the order remained at a draft stage only on account of wholly unauthorised interference by the external authority. We therefore, direct the Joint Commissioner to proceed to pass the order in terms of the draft order dated 26.2.2010 latest by 10th July, 2016. We are informed that the then Joint Commissioner who had framed the draft order has retired and he has been replaced by another officer. For our purpose this would make no difference. 24. The Government agencies are not without any remedy in case an erroneous or even palpably wrong order being passed. Statute provides for sufficient safeguards in terms of the appeals and revisions. For our purpose this would make no difference. 24. The Government agencies are not without any remedy in case an erroneous or even palpably wrong order being passed. Statute provides for sufficient safeguards in terms of the appeals and revisions. It is always open to the Government to have any such order legally scrutinised and resort to such legal remedy as is provided in the statute. 25. With these observations and direction, the petition is disposed of.