The Bombay High Court has invalidated a VAT show cause notice, which lacked specific details regarding the information or documents required for compliance under the Maharashtra Value Added Tax Act, 2002.
The petitioner, engaged in petroleum exploration in Mumbai’s ‘Panna and Mukta’ and ‘Mid and South Tapti’ fields, argued that transactions fell outside the jurisdiction of the Maharashtra Value Added Tax Act, 2002, as goods were transferred to government nominees at delivery points within contract areas.
It was the Petitioner’s case that title in respect of crude and natural gas is transferred in favour of the Government nominee at the delivery point in the contract areas of the oil fields. According to Petitioner, therefore, it will not fall within the jurisdiction of Respondent No.2, i.e., the Deputy Commissioner of State Tax exercising the jurisdiction under the Maharashtra Value Added Tax Act, 2002 ( “MVAT Act” )
Despite the notice’s deficiencies, the petitioner submitted financial statements, auditor’s reports, and tax returns for FY 2019-20. Following a subsequent compliance request, the department issued an order under Section 23 without addressing key points, solely relying on best judgement.
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Under Section 23(2), if a registered dealer files returns on time, the Commissioner may issue a notice requiring further documents. The court found the subsequent letter equally vague and lacking specific document references from the petitioner’s January 6, 2024 submission.
Justices K. R. Shriram and Jitendra Jain noted that Section 23(2) mandates that if a registered dealer fails to adhere to notice terms, the Commissioner can assess taxes based on best judgement. The notice in question failed to specify documents needed, thus not meeting conditions for such an assessment.
The petitioner was issued a letter dated 11th March 2024 once again calling upon Petitioner to submit assessment compliance within 7 days.
It was observed that, “We find the letter to be as bald and vague as the show cause notice. In the said letter, there is not even a reference to the documents that Petitioner had, alongwith its letter dated 6th January 2024 submitted. Respondent No.2, thereafter, proceeded to pass the impugned order dated 28th March 2024 under Section 23 of the MVAT Act. Respondent No.2 has passed order without dealing with any points and simply on the basis of best judgement under Section 23(2) of the MVAT Act. Emphasising that the Commissioner must first determine the necessity of additional documents to ensure return accuracy, the court concluded that the order and demand notice are to be invalidated due to failure to satisfy prerequisites for a best judgement assessment under Section 23(2) of the Maharashtra Value Added Tax Act.
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