Reassessment Order Can't Merely Be Based On Tax Evasion Report Or An Audit Report: Orissa High Court

The Orissa High Court has held that reassessment orders cannot merely be based on a tax evasion report or an audit report.

The bench of Justice B.R. Sarangi and Justice G. Satapathy has observed that it is not enough if the Assessing Officer refers to the tax evasion report or an audit report; he has to independently apply his mind and record his satisfaction that there has been an escapement of tax. It is the mandatory minimum requirement of Section 43 of the OVAT Act.

The petitioner or assessee has sought to quash the order of assessment or reassessment passed by the department in Form VAT 312 as well as the notice of demand in Form VAT 313. The notice issued by the department in Form 307 and further to issue directions restraining the department from collecting the tax and penalty as involved in the order of assessment along with the demand notice.

The assessee contended that on the basis of the fraud case, if the authority proposed to take steps and issue notice, he should have formed an opinion as required under Section 43 of the OVAT Act. Without forming an opinion, the issuance of a demand notice to the petitioner and the order of assessment or reassessment cannot be sustained in the eyes of the law.

The court noted that when a fraud case report has been received from DCST, Vigilance, Sambalpur in respect of the petitioner-dealer and the period in question and follow-up action, i.e., assessment or reassessment, has been taken, Section 43 of the OVAT Act is required to be complied with, which states that an opinion has to be formed by the assessing authority before passing the order, and, as such, no opinion has been formed by the assessing authority while dealing with the fraud case, as stated in the docket note.

The court held that since the assessing authority has not formed an opinion, as required under Section 43 of the OVAT Act, the demand notice cannot be sustained in the eyes of law. It is liable to be quashed.

The court remitted the matter to the assessing authority for making a fresh adjudication and passing an appropriate order in accordance with the law after giving the petitioner the opportunity to hear it.

Counsel For Petitioner: R.P. Kar

Counsel For Respondent: S. Das

Case Title: M/s.Hindustan Tyre House Versus Dy. Commissioner of Sales Tax

Case No.: W.P.(C) No.289 of 2015

Click Here To Read The Order