In the present case, the Hon’ble Bombay High Court dealt with a case whereby such a gross violation of natural justice of the taxpayer has happened that the court observed that the assessment order is vitiated by legal mala fides and imposed a cost of Rs. 50,000/- on the respondents (department).
Petitioners No. 1 and No. 2 (‘P1’ & ‘P2’) (both foreign companies) had entered into an agreement with Petitioner No. 3 (‘P3’) for the right to use of their IPR in India, with effect form 01.01.2013. All three companies are group companies. On 05.05.2023, for the first time ever, notice was issued to P1 & P2 regarding this agreement from the MVAT department, seeking to levy VAT on the value of ‘royalty’ payments made to them by the P3 against the license to use IPRs and technical know-how. Representative of P1 & P2 appeared before the concerned officer and sought extension of time, which was orally granted, informing the Representative that next date will be notified.
Without any such notification, on 01.07.2023, P3 was served with three assessment orders, for FY 2013-14, 2014-2015 and 2015-2016. For FY 2013-14 and 2014-2015, no notice ever served on any of the petitioners. One of the orders also appeared to be back dated to the Court since the time limit to pass order had expired.
The Court observed that normally in cases of violation of natural justice, the matters are remanded, but the present case involves such flagrant breach of statutory provisions of Section 23(4) of the MVAT Act and legal mala fides that the orders will have to be quashed. It was observed that though the interest of revenue is vital, such interest cannot override considerations of probity and fairness in tax governance. The Court observed that remanding the present case and to allow department a further period of 24 months, under Section 24(7), to pass the order would not be inappropriate. The Court also imposed a cost of Rs. 50,000/- to be paid by the Respondents to the Petitioners within 2 months.
W&B Comments: Under the present GST regime, almost every taxpayer has faced some form of natural justice violation primarily due to notices/orders served in blank notified form or lack of reason due to haste to meet the limitation deadline. Usually, in such cases it was the taxpayer who has to be cautious not to approach the High Court prematurely. However the present case, makes it clear that actions of the department which flagrantly violate principles of natural justice cannot be ignored on the pretext of “interest of revenue” and the statutory provisions cannot be bent to recover tax, once the limitation has expired and the appropriate provisions have not been invoked.