The Bombay High Court, stressed the importance of a fair and transparent tax regime while imposing a cost of ₹20,000 on the Maharashtra VAT Department for violating the principles of natural justice.
The court took strong exception to the department’s failure to provide the assessee with a proper opportunity to be heard before passing the assessment order, underscoring that such actions undermine the fairness expected in tax proceedings.
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A petition was filed by the assessee, who contended that the VAT Department had passed an assessment order without following due process.
On behalf of the revenue, Addl. GP S D Vyas, referring to the affidavit of Dhananjay Akhade, Additional Commissioner of State Tax, Pune, filed on 12 February 2024 in this Court, submitted that the errors in the impugned assessment order cannot be rectified or reviewed under the provisions of the MVAT Act. Considering the enormous amount of tax quantum, she submitted that the matter may be remanded for fresh assessment to protect revenue interests.
The Petitioners categorically pleaded that they were never served with any notice or granted any opportunity of personal hearing in respect of FY 2013-2014 and FY 2014-2015. They have pleaded that until the receipt of the above assessment orders, the Petitioners were completely in the dark about any assessment proceedings initiated by the Respondents under the MVAT Act.
Rohan Shah, Senior Advocate for the Petitioners, submitted that the impugned assessment order was made in flagrant breach of the principles of natural justice and fair play. He submitted that neither was any show cause notice issued to the Petitioners nor were the Petitioners granted any opportunity to be heard in the matter.
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He also submitted that the failure to issue a show cause notice and grant an opportunity of hearing infringed Section 23(4) of the MVAT Act and Rule 21 of the MVAT Rules. Accordingly, he contended that the impugned assessment order dated 14 March 2022 was null and void and ought to be so declared by this Court.
The court observed that procedural fairness, including the right to a proper hearing, is a fundamental tenet of the law, especially in tax matters where the stakes are high for both the revenue department and the taxpayer.
In the decision, the Bombay High Court remarked, “ The facts and circumstances, in this case, are pretty gross. Though the interest of revenue is vital, such interest cannot override considerations of probity and fairness in tax governance. A fair tax regime where no assessee is harassed is equally crucial. Here, we are concerned with the FY 2013-2014 assessment proceedings. If the tax quantum is huge as alleged, steps can always be taken to recover such amounts from the officials due to whose lapse such tax liability, if any, remained to be determined and recovered following the law.”
The court remarked that while tax authorities are empowered to collect revenue, they must do so within the framework of the law, ensuring that taxpayers are afforded every opportunity to present their case.
The High Court Bench of Justices Jitendra Jain and M S Sonak held that the VAT Department had violated the principles of natural justice by not issuing proper notices or granting the assessee a hearing before the final assessment.
This omission, the court noted, amounted to a denial of the assessee’s right to be heard, which is essential for maintaining transparency and fairness in tax adjudications.
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In conclusion, the court ruled in favour of the assessee and imposed a cost of ₹20,000 on the VAT Department for its failure to adhere to due process. The ruling serves as a reminder to tax authorities of their obligation to conduct assessments in a manner that is both legally sound and procedurally fair, ensuring that taxpayers are not subjected to undue harassment.
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