Surbhi Armouring Incorporation vs State of Punjab and Others

Ajay Kumar Mittal, J.—This order shall dispose of CWP Nos. 12838 to 12841, 12847, 12881 and 12851 of 2014, as according to the learned counsel for the petitioner, the issue raised in all these cases is identical. However, the facts have been taken from CWP No. 12839 of 2014. Prayer made in CWP No. 12839 of 2014 is for issuance of a writ in the nature of mandamus to declare provisions of section 29(7) of the Punjab Value Added Tax Act, 2005 (in short, "the PVAT Act") as unconstitutional, offending article 19(1)(g) of the Constitution of India and illegal and not enforceable being violative of the principles of natural justice. Further prayer has been made for quashing the order dated January 29, 2014, annexure P2 passed by respondent No. 2-Excise and Taxation Commissioner, Punjab granting permission to amend assessment order for the assessment year 2009-10 and consequential notices dated February 5, 2014 and June 17, 2014, annexures P3 and P11, respectively, issued by respondent No. 3-Assistant Excise and Taxation Commissioner.

A few facts relevant for the decision of the controversy involved as narrated in CWP No. 12839 of 2014 may be noticed. The petitioner-firm besides manufacturing is engaged in trading of iron and steel on wholesale basis for past many years. It is registered as taxable person under the PVAT Act and also under the Central Sales Tax Act, 1956. During the year 2009-10, the petitioner-firm made sates in the State of Punjab amounting to Rs. 31,60,41,432. It filed all statutory returns and furnished details of purchases and sales with the returns. It had brought forward Investment Tax Credit (TTC) amounting to Rs. 15,306. It made purchases amounting to Rs. 31,52,44,606 against VAT invoices and earned ITC amounting to Rs. 1,26,19,475 in respect of the aforestated purchases. The assessee also deposited VAT amounting to Rs. 50,930. The petitioner-firm had availability of ITC amounting to Rs. 1,26,85,711 and output liability was Rs. 1,26,41,657. The ITC being more than the output tax liability, no further payment was warranted and ITC worth Rs. 45,454 was carried forward to the assessment year 2010-11. Assessment for the year 2009-10 was completed on May 24, 2013, annexure A1 after examination of accounts, verification of purchases and declarations and returns were accepted. According to the petitioner, respondent No: 3 who had neither passed the assessment order nor had ever examined the account books, etc., unilaterally moved respondent No. 2 for grant of permission to amend the assessment orders already passed and the said permission was granted by respondent No. 2 vide order dated January 29, 2014 without affording an opportunity of hearing to the petitioner. Respondent No. 3 issued consequential notice dated February 5, 2014 and June 17, 2014, annexures P3 and P11. On February 22, 2014, the petitioner made an application to respondent No. 3 for supply of the copy of the order passed by respondent No. 2. The petitioner made further applications on March 7, 2014 and March 13, 2014 for supply the copy of the orders. Ultimately common order passed under section 29(7) of the Act was sent to the petitioner vide memo dated March 24, 2014, annexure P2. The petitioner-firm along with Jullundur Engineering Co. filed common Civil Writ Petition No. 6152 of 2014 in this court for quashing the impugned notice dated February 5, 2014. The writ petition was disposed of vide order dated April 1, 2014 relegating the petitioner to seek the remedy of appeal. On April 21, 2014, the petitioner filed separate appeal for each assessment year before the Tribunal against the order of the Commissioner passed under section 29(7) of the PVAT Act. Since the previous Chairman had retired in February 2014 and there was no other sitting member, remedy of appeal was not effective. Respondent No. 3 issued notice dated June 17, 2014 requiring the petitioner to produce books of account along with original sale and purchase invoice. The petitioner filed preliminary objection to the notices, annexures P3 and P11. Respondent No. 3 is taking steps for finalisation of the reassessment proceedings. Hence the petitioner is before this court through the present writ petition.

The learned counsel for the petitioner submitted that the Legislature while enacting section 29(7) of the PVAT Act had empowered the designated officer to amend an assessment order made under sub-section (2) or (3) of section 29 of the PVAT Act if he discovers under-assessment of tax payable by a person for the reason that such person has committed fraud or wilful neglect or has misrepresented facts or a part of the turnover has escaped assessment. According to the learned counsel, the same can be done with the prior permission of the Commissioner. However, the provision is unreasonable, unconstitutional and ultra vires for the reason that no opportunity of hearing has been provided before granting permission by the Commissioner. As a consequence, the order dated January 29, 2014, annexure P2 passed by the Excise and Taxation Commissioner granting permission to amend the assessment order for the year 2009-10 and consequently notices dated February 5, 2014 and June 17, 2014, annexure P3 and P11, respectively issued by the Assistant Excise and Taxation Commissioner are also bad. In support of the submissions, learned counsel for the petitioner referred to judgments in Sahara India (Firm) Vs. Commissioner of Income Tax and Another, , Rajesh Kumar and Others Vs. D.Commissioner of Income Tax and Others, , C.B. Gautam Vs. Union of India and Others, , Automotive Tyre Manufacturers Association Vs. The Designated Authority and Others, , Manaktala Chemicals Pvt. Limited v. State of U. P. [2007] 5 VST 284 (All) and M/s J.T. (India) Exports and another Vs. Union of India and another, .

The primary challenge to the vires of section 29(7) of the PVAT Act has been laid on the ground that it violates principles of natural justice as no opportunity of hearing is provided to the assessee before grant of approval by the Commissioner. According to the learned counsel, this is arbitrary and unreasonable and liable to be struck down. We are not impressed with the aforesaid submission.

It would be apt to refer to section 29(7) of the PVAT Act. It empowers the designated officer to reassess any under-assessment of tax with the prior approval of the Commissioner, which reads thus:

"29. (7) The designated officer may, with the prior permission of the Commissioner, within a period of three years from the date of the assessment order, amend an assessment, made under sub-section (2) or sub-section (3), if he discovers under-assessment of tax, payable by a person for the reason that,--

(a) such a person has committed fraud or wilful neglect; or

(b) such a person has misrepresented facts; or

(c) a part of the turnover has escaped assessment:

Provided that no order amending such assessment, shall be made without affording an opportunity of being heard to the affected person."

A plain reading of section 29(7) of the PVAT Act shows that the designated officer within a period of three years from the date of assessment is authorised to amend assessment order made under sub-section (2) or (3) of section 29 of the PVAT Act if he discovers that there has been underassessment of tax payable by a person as a result of fraud or wilful neglect or misrepresentation of facts on the part of such person or part of the turnover has escaped assessment. However, the amendment of an assessment order is subject to seeking prior permission from the Commissioner and after affording an opportunity of hearing to the affected person by the designated officer.

Further rule 49 of the Punjab VAT Rules (Rules) which relates to amendment of assessment reads thus:

"49. Amendment of assessment.--For the purpose of amendment of assessment under sub-section (7) of section 29, a notice shall be issued by the designated officer, to the person, clearly stating the grounds for the proposed amendment, the date, time and place, fixed for such amended assessment. After hearing, the person concerned and making such enquiry, as the designated officer may consider necessary, he may proceed to amend the orders as he deems fit subject, however, to the following conditions, namely:--

(a) No amendment, which has the effect of enhancing the amount of tax, shall be made by the designated officer, unless he has given notice to the person concerned of its intention to do so and has allowed him a reasonable opportunity of being heard.

(b) Where such amendment has the effect of enhancing the amount of the tax or penalty, the designated officer, shall serve on the person a tax demand notice in form VAT-56 as required under Sub-section (11) of section 29 and thereupon, the provisions of the Act and these rules shall apply, as if such notice had been served in the first instance.

(c) Where any amendment made under sub-section (7) of section 29 has the effect of reducing the tax or penalty, the designated officer shall order refund of the amount, which may be due to the person and the procedure for refund laid down in rule 52 shall apply."

Rule 49 of the Rules has been promulgated in consonance with the aforesaid provision. According to it, a notice shall be issued by the designated officer specifying the grounds for the proposed amendment. The designated officer after hearing the person concerned and making such enquiry as considered necessary may proceed to amend the orders subject to the following conditions:

"(a) wherever amendment has the effect of enhancing the tax liability, notice is required to be given to the person concerned and reasonable opportunity of being heard is to be provided;

(b) in the event of enhancement of amount of tax or penalty, demand notice in form VAT-56 shall be served;

(c) where tax or penalty is reduced as a result of the amendment, the same shall be refunded to the assessee in terms of procedure prescribed under rule 52."

Whether opportunity of hearing is required to be given at the stage of grant of approval has been subject-matter of consideration before the apex court in various pronouncements, The Supreme Court in The Assistant Commissioner, Assessment-II, Bangalore and Others Vs. Velliappa Textiles Ltd. and Others, relating to grant of sanction for prosecution under section 279(1) of the Income-tax Act, 1961 had held that grant of sanction is purely an administrative act and no opportunity of hearing is required to be provided to the affected person before according it. It was recorded as under (pages 568 and 569 in 263 ITR):

"8. The grant of sanction is purely an administrative act and affording of opportunity of hearing to the accused is not contemplated at that stage. An identical question has been considered by this court with reference to section 6 of the Prevention of Corruption Act, 1947 in Superintendent of Police (C.B.I) Vs. Deepak Chowdhary and others, and it was held as under in para 5 of the Report (SCC page 226):

"The grant of sanction is only an administrative function, though it is true that the accused may be saddled with the liability to be prosecuted in a court of law. What is material at that time is that the necessary facts collected during investigation constituting the offence have to be placed before the sanctioning authority and it has to consider the material. Prima facie, the authority is required to reach the satisfaction that the relevant facts would constitute the offence and then either grant or refuse to grant sanction. The grant of sanction, therefore, being administrative act, the need to provide an opportunity of hearing to the accused before according sanction does not arise. The High Court, therefore, was clearly in error in holding that the order of sanction is vitiated by violation of the principles of natural justice''."

In Dr. Subramanian Swamy Vs. Dr. Manmohan Singh and Another, , the Supreme Court dealing with the provisions of the Prevention of Corruption Act, 1988, regarding opportunity of hearing to be provided before grant of sanction had observed as under:

"44. We may also observe that grant or refusal of sanction is not a quasi judicial function and the person for whose prosecution the sanction is sought is not required to be heard by the competent authority before it takes a decision in the matter. What is required to be seen by the competent authority is whether the facts placed before it which, in a given case, may include the material collected by the complainant or the investigating agency prima facie disclose commission of an offence by a public servant. If the competent authority is satisfied that the material placed before it is sufficient for prosecution of the public servant, then it is required to grant sanction. If the satisfaction of the competent authority is otherwise, then it can refuse sanction. In either case,'' the decision taken on the complaint made by a citizen is required to be communicated to him and if he feels aggrieved by such decision, then he can avail appropriate legal remedy."

Section 29(7) of the PVAT Act nowhere envisages personal hearing to be provided to the dealer before granting of prior permission by the Commissioner. The grant of permission is an administrative function and cannot be termed to be quasi-judicial in nature. The prior permission of the Commissioner has been incorporated to safeguard the interest of the dealer so that the designated officer, where he is of the opinion that action is required to be taken, seeks approval of the higher officer of the rank of Excise and Taxation Commissioner. The dealer is provided with an opportunity of hearing at the time when the designated officer after getting approval from the Commissioner proceeds to amend the assessment order. Under the circumstances, the provision in question cannot be termed to be unreasonable, unconstitutional and ultra vires.

Referring to the judgments relied upon by learned counsel for the parties, suffice it to notice that in all those cases, emphasis has been laid on following the principles of natural justice before passing the final orders. None of these cases relates to grant of opportunity of hearing before according sanction or approval to initiate an action. No doubt, the principles of law enunciated in these pronouncements are unexceptionable, but keeping in view the facts and circumstances of the cases in hand, no advantage can be derived by the petitioner from them. In view of the above, the approval given by the Commissioner and the notices issued by the concerned authority for amending the assessment order cannot be faulted. Accordingly, we do not find any merit in the petitions and the same are hereby dismissed.