Audit Assessment Under Orissa VAT Act Is Invalid If Audit Visit Report Is Time-Barred: High Court

Chief Justice Harish Tandon and Murahari Sri Raman were examining whether the Assessing Authority has jurisdiction to proceed with Audit Assessment under Section 42 of the OVAT Act by issuing of statutory notice in Form VAT-306 on the basis of the AVR submitted under Section 41 after the expiry of the limitation period.

In this case, a Tax Audit in terms of Section 41 of the Odisha Value Added Tax Act, 2004 (OVAT Act), read with Rule 41 of the Odisha Value Added Tax Rules, 2005 (OVAT Rules) for the tax periods 01.04.2010 to 31.03.2013 was undertaken.

An Audit Visit Report in Form VAT-303 (AVR) as prescribed under Rule 45 was prepared on 31.03.2016 by the Deputy Commissioner of Sales Tax. No assessment proceeding was initiated under Section 42 of the OVAT Act pursuant thereto.

A notice dated 21.07.2016 in Form VAT307 prescribed under Rule 50 was issued for assessment of tax on the ground of escaped turnover under Section 43.

Accordingly, assessment under Section 43 of the OVAT Act for the tax periods from 01.04.2010 to 31.03.2013 was framed vide Order dated 10.02.2017 by the Sales Tax Officer.

The assessment order dated 10.02.2017 was challenged before the Odisha High Court, which came to be disposed of by relegating the petitioner/assessee to avail the remedy of appeal.

An appeal against the Order dated 10.02.2017 passed under Section 43 was filed, which came to be disposed of by the Joint Commissioner of Sales Tax (Appeal), Cuttack-II.

The petitioner/assessee raised an issue whether pursuant to direction of the Appellate Authority proceeding under Section 42 of the OVAT Act could be initiated by issue of statutory notice in Form VAT-306 even as assessment under Section 43 was undertaken taking into account the contents and objections of the AVR submitted purportedly under Section 41 consequent upon which assessment under Section 42 could not be made due to operation of limitation.

The Assessing Authority, adhering to the jurisdiction conferred under Section 49(2), concluded the Audit Assessment under Section 42 of the OVAT Act by Order dated 21.03.2025, raising a demand comprising tax and penalty.

The bench stated that the term Appellate Authority defined under clause (1-d) of Section 2 of the Odisha Value Added Tax Act, 2004, cannot be equated as 'Court' for the purpose of Section 49(2) thereof. Having not expressly provided for in Section 49(2) in juxtaposition with any Court or Tribunal passes an order in appeal or revision, the order passed by the Appellate Authority in exercise of power under Section 77 of the OVAT Act cannot be said to be comprehended within the ken of said section.

The bench further opined that the words 'any Court' or 'Tribunal' preceding the expression an order in appeal or revision‖ can only be construed as an order of the Tribunal passed under Section 78 and an order of the Court passed under Section 80 on the question of law arising out order passed under Section 78 by the Sales Tax Tribunal.

An assessment on the premise of escaped turnover was initiated and completed under Section 43 on utilising the AVR. By setting aside such an assessment by the Appellate Authority in appeal under Section 77 on the ground of erroneous invocation of jurisdiction, a fresh Audit Assessment under Section 42 in the garb of exercise of power under Section 49(2) cannot sanctify the AVR, which was invalid in terms of Section 41(4), added the bench.

The bench opined that the notice in Form VAT-306 prescribed under Rule 49 issued for undertaking Audit Assessment under Section 42 based on the AVR is considered to be barred by the limitation provided under Section 41(4). Since the notice is invalid, the Assessment Order, therefore, is also unacceptable.

The bench quashed the notice dated 01.05.2024 in Form VAT-306 and the Audit Assessment Order dated 21.03.2025 passed under Section 42.

In view of the above, the bench allowed the petition.

Case Title: M/s. Indian Oil Adani Ventures Limited v. State of Odisha

Case Number: W.P.(C) No. 12443 of 2025

Counsel for Petitioner/Assessee: V. Sridharan

Counsel for Respondent/Department: Sunil Mishra