Bhavani Agencies v. The Deputy Commercial Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:30.04.2010CORAM:THE HON'BLE MR.JUSTICE P.JYOTHIMANIWRIT PETITION Nos.625 and 626 OF 2010 Bhavani Agencies, Represented by itsProprietrix Tmt.N.Shanthi, No.2, Pondy Villupuram Main Road, Puducherry... Petitioner in W.P.No.625 of 2010 Maruti Agencies, Represented by itsProprietor Mr.R.Thirumalai, Plot no.3, VIP Nagar, Arumparthapuram, Puducherry. .. Petitioner in W.P.No.626 of 2010vs. The Deputy Commercial Tax Officer,(Registration Cell)Commercial Taxes Department, Office of the Commissioner (CT)Puducherry... Respondent in both W.Ps.Writ Petitions filed under Article 226 of the Constitution of India praying for issuance of a Writ of Certiorari, calling for therecords relating to the proceedings of the respondent No.800/DCTO/(RC)/2009-10, dated 09.11.2009 and 10.11.2009, respectively quash thesame. For petitioner : Mr.R.MahadevanFor respondent: Mr.T.P.Manoharan, Special Government Pleader.ORDERThese writ Petitions filed challenging the orders of therespondent, dated 09.11.2009 and 10.11.2009 respectively by which therespondent cancelled the registration of the petitioners as dealer inrespect of petitioner in W.P.No.625 of 2010 for resale of petrol anddiesel in RC.No.101385/87-88 for the business under the repealed https://hcservices.ecourts.gov.in/hcservices/ Pondicherry Value Added Tax Act, 1967 and TIN No.34310000147 under Puducherry Value Added Tax Act, 2007 and CST No.34310000147, dated28.02.1977 under Central Sales Tax Act, 1956 and in respect of thepetitioner in W.P.No.626 of 2010 as dealer for resale of petrol anddiesel and granted Distinct RC No.105047/99-2000 for the saidbusiness under the repealed Pondicherry General Sales Tax Act, 1967and TIN No.34900001132 under Puducherry Value Added Tax Act, 2007 andCST No.34900001132, dated 22.09.1999 under Central Sales Tax Act,1956.

The writ petitioners are the dealers in respect of petroleumproducts as granted by the Indian Oil Corporation. They purchased thelubricants and sold to the customers and they are regularly assessedto tax and have been paying the same. The respondent has issued anotice on 27.10.2009 stating that the petitioner in W.P.No.625 of2010 is in arrears of tax for the assessment years 2002-2003 to 2004-2005 and in respect of petitioner in W.P.No.626 of 2010 regarding thearrears for the assessment years 2000-2001 to 2008-2009 and proposedto cancel the registration certificate under the Puducherry ValueAdded Tax Act, 2007. It is stated that the petitioner in W.P.No.625of 2010 has called for certain clarification, however, it wasinsisted that the proceedings would be dropped if the petitionergives a letter of undertaking. It is believing the said words, acommunication was sent on 05.11.2009 also objecting the authority ofthe respondent. However, the objections were not considered and amechanical order came to be passed on 09.11.2009 which is impugned inthis writ petition.

In respect of the petitioner in W.P.No.626 of 2010, thepetitioner on receipt of the said notice dated 27.10.2009 has sent arepresentation on 04.11.2009 seeking for certain particulars based onwhich the respondent proposed to cancel the registration. In a replysent by the respondent, dated 05.11.2009, the respondent refused tofurnish copies of the documents and without granting sufficient timepassed the impugned order on 10.11.2009.

It is the case of the petitioners that the returns filed bythem are correct and regarding the sale of lubricants it should betreated as a second sales as they have purchased from the customeroutlet to whom the oil corporation is supplying and therefore, itcannot be said to be first sale. It is also stated that the revenuehas not taken note the closing stock and opening stock before passingthe assessment orders. It is also the case of the petitioners thatthe tax could be paid only for the volumes sold and not supply. Itis also stated that as against the assessment orders steps are takenby filing appeal. However, without considering the objections, cancellation orders passed by the respondent is illegal and inasmuchas a copy has been marked to the Indian Oil Corporation it isrefusing to supply fuel to the petitioners' bunk. Against the saidorder of the respondent, the petitioners have filed revision and the https://hcservices.ecourts.gov.in/hcservices/ same was returned directing to pay 50% of the disputed tax inspite ofthe fact that there is no provision under the Pondicherry GeneralSales Tax Act for payment of such amount in revision. In addition to25% at the time of filing of appeal as against the assessment ordersthe said claim is unreasonable and opposed to principles of naturaljustice. It is also stated that similar orders have been quashed bythis Court in W.P.No.23940 of 2009.

The petitioner in W.P.No.626 of 2010 also stated that thepetitioner has also filed a writ petition in W.P.No.43881 of 2006challenging the validity of the amended proviso to Section 34 of the Pondicherry General Sales Tax Act and the order of the appellateauthority directing the petitioner to pay 25% based on the amendedprovision and the same was disposed of on 30.04.2009 and undersimilar circumstances, in the writ appeal filed against the similarorders, the First Bench of this Court permitted the petitioners toapproach the authority for furnishing security instead of payment of25%.

The impugned order of cancellation are challenged on variousgrounds including that they are arbitrary and without jurisdictionand in violation of the principles of natural justice; that therespondent has travelled beyond the scope of notice, dated27.10.2009; that the cancellation of registration can be done in therarest of rare cases; that when the liability of taxes itself inquestioned cancellation of registration is unwarranted; that thecopies of statements from oil corporation having not been furnishedbefore passing such order that the respondent being the registeringauthority cannot perform the function of the assessing authority; that the respondent has failed to take note of the fact that theentire admitted tax amount has been paid and there is no necessity tohastily cancel the registration; that the respondent has not followedany of the provisions of the Pondicherry General Sales Tax Act and Central Sales Tax Act; that it is has been the consistent decision ofthe High Courts as well as the Supreme Court that when the statementrecorded from third parties are relied upon for making assessment, itis mandatory to furnish copies of the said statements to affordopportunity to cross examine the persons whose statements have beenrelied upon and that even though alternative remedy is available thewrit petition is maintainable since there is violation of principlesof natural justice apart from several other grounds of violation of Articles 19, 21, 265 and 300 of the Constitution of India.

In the counter affidavit filed by the respondent in thesecases, it is stated that the petitioners have deliberately suppressedthe sales turnover by ignoring the value for which they made inter-state purchase of petroleum products but paid tax only for a part ofturn over. When the petitioners were asked to pay the arrears of taxand penalty for the assessment years 2002-2003, 2003-2004 and 2004-2005 in respect of writ petition W.P.No.625 of 2010 and 2000-2001 and https://hcservices.ecourts.gov.in/hcservices/ 2001-2002 in respect of writ petition in W.P.No.626 of 2010 by theassessing authority, the petitioners have sought permission of the Assessing authority to pay the old dues of sales tax without penaltywhereas as per law the same is recoverable and therefore, it cannotbe said that the petitioners have been regularly assessed to tax. Itwas only after the investigation by the Intelligence Wing of the Revenue Department, the act of suppression by the petitioners came tolime light.

In the cancellation proceedings, there is no question ofexamining of witnesses. Even in respect of the assessmentproceedings, the Assessing Officer has only relied upon thedeclaration in Form-C issued by the petitioner and the petitionercannot disown the contents of Form-C. It is stated that PondicherryGeneral Sales Tax Act, 1967 envisage levy at first point of sale andthe petitioner as first seller in the Union Territory of Pondicherryis liable to pay tax and the petitioners are deemed to be dealersunder Section 2(h) of the Act which includes every kind of commissionagent. It is stated that the petitioners have been regularlypurchasing petrol and diesel from the Indian Oil Corporation, Chennaiby issuing declaration Form-C as per the Central Sales Tax Act, 1956and the respondent Department was kept in dark about utilisation ofdeclaration Form-C which is exclusively within the knowledge of thepetitioners and therefore, the question of furnishing such materialsdoes not arise and the same is against the provision of the Pondicherry General Sales Tax Act and Section 11 read with Section 81of the Puducherry Value Added Tax Act, 2007 and Section 106 of the Indian Evidence Act 1872 and it is for the petitioner who has tofurnish details.

Likewise, it is stated that in respect of W.P.No.626 of 2010for the financial years 2002-2003, 2003-2004, 2004-2005, 2005-2006and 2006-2007 a total amount of Rs.4,47,81,688/- came to be detectedand penalty imposed to the extent of Rs.7,54,73,861/- and variouscriminal complaints have been lodged in C.C.Nos.303, 341, 382, 403and 629 of 2008. Inspite of criminal cases having been lodged, thereis no change in the attitude of the petitioners. The petitioners havenot paid any of the arrears and are not entitled to maintain the writpetition. It is also stated that in respect of petitioner inW.P.No.626 of 2010, even though the petitioner is the sole proprietoron record, the business is operated by another personThiru. Saravanan, S/o.Thirumal as a beneficial owner and enjoyed thefruits of the business and yet another person Thiru. Ganesan,S/o.S.P.Manickasamy stood as a surety for and on behalf of thebusiness and the respondent Department has filed complaint and the Judicial Magistrate Court proceeds for trial as per the provisions ofthe Benami Transactions (Prohibition) Act, 1988.

Mr.R.Mahadevan, learned counsel for the petitioners wouldsubmit that in respect of petitioner in W.P.No.626 of 2006 after thenotice was issued, the petitioner has called for certain particularsand the respondent has declined to furnish the same. It is hissubmission that under the impugned order of cancellation some otherreasons have been assigned. He would also bring to the notice of this Court that similar notices came to be quashed by this Court. It isalso his submission that the entire admitted tax has been paid and25% of the tax will be paid at the time of filing of appeal. It ishis submission that the very contents of the counter affidavit showthe turbulent attitude of the respondent Department. It is hissubmission that the impugned order of cancellation is opposed to theprinciples of natural justice and outside the purview of the tax law.

On the other hand, Mr.T.P.Manoharan, learned SpecialGovernment Pleader submitted that the petitioners having filedrevision papers before the revisional authority and have withdrawnthe revision without complying the condition of payment of 50%disputed tax amount and therefore, the petitioners having resorted tothe revisional remedy which is alternative remedy available under the https://hcservices.ecourts.gov.in/hcservices/ Act cannot be permitted approached this Court by filing the writpetition. It is stated that the writ petition has been filed afterhaving resorted to the remedy available under the Act and withoutfulfilling the conditions, the present writ petitions are filed. Itis also his submission that as against the original assessment order, no appeal has been filed and therefore, the same has become final. Tosubstantiate his contention that the conduct of the petitionersamounts to tax evasion, he would rely upon a judgment of the Hon'bleSupreme Court in 1994 (2) SCC 718 (Life Insurance Corporation of India Vs.Asha Ramchhandra Ambekar (Mrs) and another) apart from thejudgment reported in 2009 23 VST 107 (Mad) (Sujana UniversalIndustries Ltd., Vs.Deputy Commercial Tax Officer, ValluvarkotamAssessment Circle, Chennai).

I have considered the rival submissions made on either sideand perused the materials available on record and also given myanxious thought to the issue involved in these cases.

In the show cause notice issued by the respondent proposingto cancel the registration of the petitioners under Section 12 of the Puducherry Value Added Tax Act, 2007 read with Central Sales Tax Actbased on the report of the Assessing Officer about the evasion of taxand failure to pay penalty for the assessment years 2002-2003, 2003-2004 and 2004-2005 in respect of W.P.No.625 of 2010 arriving arrearsof tax at Rs.1,15,34,193/- and penalty at Rs.1,73,01,293/- to atotal extent of Rs.2,88,35,486/-. In respect of the petitioner inW.P.No.626 of 2010 regarding the assessment years 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006, 2006-2007, 2007-2008 and 2008-2009 claiming arrears of tax Rs.9,63,71,536/- andpenalty of Rs.14,63,07,330/- to a total extent of Rs.24,26,78,866/-.The said notices were given on 27.10.2009 calling for objections, ifany, or to pay the tax and penalty on or before 06.11.2009.

The petitioner in W.P.No.625 of 2010 in a letter dated05.11.2009 has given a reply stating that the Puducherry Value AddedTax Act, 2007 is in prospective nature which came into force from03.12.2007 and therefore, the notice of cancellation is not attractedsince proceedings have already been initiated under the existingPondicherry General Sales Act, 1967 and therefore, the initiation ofrecovery proceedings and cancellation does not arise.

In W.P.No.626 of 2010 by his letter, dated 04.11.2009addressed to the respondent, the petitioner has sought for certainclarification in respect of 2007-2008 stating that the arrears of taxas per the assessment order for the year 2007-2008 has been noted inthe show cause notice as if it is for the assessment year 2008-2009and that demand has been raised even before the assessment iscompleted. As a reply to this letter, the respondent in the letterdated 05.11.2009 has refused to furnish particulars stating that thedetails are available with the petitioners themselves stating that https://hcservices.ecourts.gov.in/hcservices/ “the details which the dealer now called for are available with themand as such it cannot be furnished” and thereafter, the impugnedorders came to be passed cancelling the registration.

A reference to the impugned order shows that the main basisfor the order of rejection was that there has been tax evasion andthe fraud causing loss to the exchequer and also the impugned orderproceeds on the basis that the Governemnt has responsibility under Article 39(c) of the Constitution of India to frame policy to ensurethat the operation of economic system does not result inconcentration of wealth and means of production to the commondetriment.

The main contention of the learned counsel for thepetitioners is that while the show cause notice gives for one reason, the impugned order of cancellation proceeds on different reasons. Inthe show cause notice, dated 27.10.2009, the reason adduced in boththe cases is as follows:

3. The attitude of non-payment of tax and penalty onthe part of the dealer over the years resulted in hugeaccumulation of arrears. If the dealer is still allowed tocontinue his business, the arrears of tax and penalty willfurther accumulate causing great loss to the Governmentexchequer. Therefore, in order to safeguard the governmentrevenue, the undersigned finds that this is a fit case forcancellation of registration under Section 12 of the Puducherry Value Added Tax Act, 2007 and under Section 7(4) of the Central Sales Tax Act, 1956

.However, in the impugned orders the respondent has chosen to refer toone other reason that the petitioners have failed to file extract ofquarterly basis regarding the declaration Form-C as prescribed under Rule 14(10) of the Central Sales Tax (Pondicherry) Rules, 1967.Further, the explanation submitted by the petitioner in W.P.No.625 of2010, dated 05.11.2009 has not been considered at all which isapparent on the face of the impugned order passed by the respondent. As far as the assessment order for the said years if and only, thepetitioners file appeal the condition of payment of 25% of tax wouldarise. In any event that relates to the recovery of arrears of tax.

It is also not in dispute that under exactly similarcircumstance, this Court in more than one cases, in respective of therespondent itself, has set aside the orders on the ground ofviolation of the principles of natural justice, however, directingthe respondent to proceed in accordance with law. In one such orderin W.P.No.23940 of 2009 in S.Kathiresan Vs.The Deputy Commercial TaxOfficer, (Registeration Cell), Commercial Taxes Department, Office ofthe Commissioner (CT), Puducherry in the order, dated 23.11.2009,under similar circumstance, The Hon'ble Mrs. Justice Chitra https://hcservices.ecourts.gov.in/hcservices/ Venkataraman has passed the following order: “3.A perusal of the order passed further shows thatquite apart from reasons given as a basis for issuance ofa show cause notice, the order further refers to yetanother reason that the petitioner had failed to fileextract as regards the Declaration Form-C as prescribedunder sub rule (10) of rule 14.

Law is well settled that in cases where there are violationof principles of natural justice, the availability of alternativeremedy is not a bar for filing a writ petition under Article 226 ofthe Constitution of India. The basic ground with which the presentwrit petitions are filed are not only that the show cause noticegives one reason and the impugned orders of cancellation proceeds ondifferent reasons and therefore, there was no occasion for thepetitioners to effectively defend themselves especially in thecircumstance that a valid right, which is certainly a right conferredunder Article 19(1)(g) of the Constitution of India was sought to betaken away and therefore, it is in violation of the principles ofnatural justice. As I have stated earlier, there are apparentdifferences and discrepancies between the reasons given in the showcause notice and the impugned order by which the registration stoodcancelled.

In such view of the matter, the compliance of natural justicewould be completed only if the reasons which were the basis for theimpugned orders were indicated in the show cause notice so as toenable the petitioners to give effective reply, and that is theinitial stage of the principles of natural justice. When in thatstage itself there is a violation, I am of the considered view thatmere withdrawal of revision wherein the statutory condition isonerous in directing to pay 50% of the amount cannot stand as astumbling block for enforcing the right of principles of naturaljustice as held by the learned Judge in the said case stated supra. It is not as if the respondent department left with no powers and nomeans to proceed in accordance with law. It is always open to them toproceed in accordance with law and pass appropriate orders. Such viewdoes not mean that it supports the conduct of the petitioners inmaking tax evasion. If really such serious conduct has been committedby the petitioners, certainly, the petitioners are liable for suchaction. But such action should be on the basis of sound legalprinciples taken cautiously by following the principles of naturaljustice and giving full opportunity to the petitioners. Suchcelebrated concept having not been followed on the facts of thepresent case, there is no difficulty to conclude that as directed bythe learned Judge as stated above that the impugned orders sufferfrom want of following the principles of natural justice.

The reliance placed on by the learned counsel for thepetitioners the judgment of the Hon'ble Supreme Court reported in1994 (2) SCC 718 (Life Insurance Corporation of India Vs.AshaRamchhandra Ambekar (Mrs) and another) has no application to thefacts of the present case. That was a case relating to compassionateappointment wherein the High Court has directed the authority tostraight away give appointment on compassionate appointment instead https://hcservices.ecourts.gov.in/hcservices/ of directing the employer to consider the claim of the personconcerned. The reliance placed by the learned counsel for thepetitioner in paragraph 11 of the judgment which is as follows: “11. At this juncture we may usefully refer to MartinBurn Ltd. Vs.Corporation of Calcutta. At page 535 of the Report the following observations are found:

A result flowing from a statutory provision is neveran evil. A Court has no power to ignore that provision torelieve what it considers a distress resulting from itsoperation. A statute must of course be given effect towhether a Court likes the result or not.

The courts should endeavour to find out whether aparticular case in which sympathetic considerations are tobe weighed falls within the scope of law. Disregardful oflaw, however, hard the case may be, it should never bedone. In the very case itself, there are regulations andinstructions which we have extracted above. The courtbelow has not even examined whether a case falls within thescope of these statutory provisions. Clause 2 of sub-clause(iii) of Instructions makes it clear that relaxation couldbe given only when none of the members of the family isgainfully employed. Clause 4 of the circular dated January20, 1987 interdicts such an appointment on compassionategrounds. The appellant Corporation being a statutoryCorporation is bound by the Life Insurance Corporation Actas well as the Statutory Regulations and Instructions. Theycannot be put aside and compassionate appointment beordered”.has absolutely no relevance to the facts of the present case. Here, it is a case of not following the principles of natural justicewhich means to hear the other side before passing of the adverseorder against him.

A reference to a judgment of this Court reported in 2009 23VST 107 (Mad) (Sujana Universal Industries Ltd., Vs.Deputy CommercialTax Officer, Valluvarkotam Assessment Circle, Chennai) again has noapplication. That was a case where in respect of the assessment orderwhen there was an alternative remedy of appeal, the writ petitioncame to be filed and in those circumstances, the writ petition wasdismissed.

Law is well settled that alternative remedy is a rule ofdiscretion. In any event, in cases where there has been violation ofprinciples of natural justice writ would lie. The facts of thepresent case does not relate to assessment order but it is oncancellation of registration which affects the right of the https://hcservices.ecourts.gov.in/hcservices/ petitioners to carry on business lawfully as guaranteed under Article19(1)(g) of the Constitution of India. In my considered view, thejudgment relied upon by the learned counsel for the respondent is ofno help to the respondent Department at all.

In such view of the matter, following the above said orderstated supra, I have no hesitation to hold that the impugned ordersare in violation of principles of natural justice and accordingly, the impugned orders stand set aside and the writ petitions areallowed. Needless to stated that it is always open to the respondentdepartment to proceed in the manner known to law. No costs. Consequently, connected miscellaneous petitions are closed. Sd/-Asst. Registrar//true copy//Sub Asst. RegistrarsmsToThe Deputy Commercial Tax Officer,(Registration Cell)Commercial Taxes Department, Office of the Commissioner (CT)Puducherry.2 cc to Mr.R.Mahadevan, Advocate, Sr.No.29595,,29594Order in WRIT PETITION Nos.625 and 626 OF 2010MDR {CO}TP/11.5.2010.