InSTREV No. 3 OF 2023 -ORI HC- Orissa High Court sets aside Audit Assessment based on invalid Audit Visit Report in favour of M/s. Bharat Earth Movers Limited
Justice B.R. Sarangi & Justice Murahari Sri Raman [01-09-2023]

Read Order: M/s. Bharat Earth Movers Limited (BEML Ltd.) v. State of Odisha

Chahat Varma

New Delhi, September 8, 2023: The Orissa High Court has ruled in favour of M/s. Bharat Earth Movers Limited (petitioner) in a tax audit case, holding that the Audit Visit Report was vitiated, and the audit assessment under Section 9C of the Odisha Entry Tax Act, 1999 (OET Act), based on it was liable to be set aside.

The petitioner in this case, a government undertaking under the Ministry of Defence, was engaged in manufacturing and selling heavy earth-moving machinery, spare parts, accessories, and lubricants. The Sambalpur branch of the company was selected for a tax audit under the OET Act, and the Odisha Value Added Tax Act, 2004 (OVAT Act). The audit resulted in a demand of Rs. 11,72,172, which included additional tax of Rs. 3,90,724 and a penalty of Rs. 7,81,448. The Appellate Authority did not change the assessment order, leading the petitioner to appeal to the Odisha Sales Tax Tribunal, which made certain modifications to the first appellate order.

The division bench of Justice B.R. Sarangi and Justice Murahari Sri Raman observed that that provisions of Section 9C of OET Act wereparimateria with Section 42 of the OVAT Act and Section 9B of the OET Act specifically speaks of application of provisions of the OVAT Act mutatis mutandis to the context of the OET Act.

Based on the understanding of the term mutatis mutandis, the bench made it clear that whatever is applicable to the OVAT Act is also applicable, to the context of the OET Act. This means that the audit team constituted for tax audit under Rule 43 of the OVAT Rules can also be considered as constituted for the purpose of tax audit conducted under Section 9B of the OET Act.

The bench stated that under Section 9C of the OET Act read with Section 42 of the OVAT Act, the audit assessment must be based solely on the materials available in the Audit Visit Report. The Assessing Authority cannot use any material other than what is presented in the audit report for making the assessment. Therefore, if the Audit Visit Report is submitted by a team not duly constituted as required by the rules, the assessment order based on such an invalid report cannot be considered legally valid.

Consequently, the bench held that the Audit Visit Report submitted by the Audit Team was invalid because it was not duly constituted and did not comply with the requirements of Rule 11 of the OET Rules read with Rule 43 of the OVAT Rules.