Supreme Court Quashes High Court’s Strictures Against Assessing Officer in Tax Case: Chandra Prakash Mishra vs. Flipkart India Private Limited (2022) INSC 277

Date of the Judgment: March 30, 2022
Citation: (2022) INSC 277
Judges: Justice Dinesh Maheshwari and Justice Aniruddha Bose
Can an assessing officer be held liable for actions taken in the course of duty if those actions are later deemed incorrect? The Supreme Court of India addressed this question in a case involving a tax assessment and subsequent criticism of the assessing officer by the High Court of Judicature at Allahabad. The court examined whether the High Court was correct in its assessment of the officer’s conduct, especially when the officer was acting on the information available to him at the time. This judgment clarifies the extent of accountability of statutory authorities for actions taken in good faith.

Case Background

The case revolves around a dispute between Flipkart India Private Limited (referred to as the ‘writ petitioner’) and the Commercial Tax Department of Uttar Pradesh. The writ petitioner had moved its business from Noida to Ghaziabad. However, it allegedly did not update its registered address with the tax authorities in a timely manner. This led to the Deputy Commissioner, Commercial Tax, Range-II, Sector-2, Noida (the appellant), who was acting as the Assessing Authority, to issue ex parte assessment orders and initiate recovery proceedings against the writ petitioner based on the old address. The writ petitioner challenged these actions, claiming that it had informed the department about the change of address and that the ex parte orders were issued without proper notice.

Timeline

Course of Proceedings

The High Court of Judicature at Allahabad initially heard the writ petitions filed by Flipkart challenging the ex parte assessment orders and the rejection of its application for change of address. The High Court found that the tax department had not properly served notices to Flipkart and that the ex parte orders were therefore not sustainable. The High Court also criticized the Assessing Authority’s actions and imposed costs on the department. Subsequently, when the Assessing Authority issued another assessment order, the High Court took a stern view and imposed personal costs on the Assessing Authority and directed departmental action. The Assessing Authority then appealed to the Supreme Court against the adverse remarks and costs imposed by the High Court.

Legal Framework

The case primarily involves the interpretation and application of the Uttar Pradesh Value Added Tax Act, 2008 (UP VAT Act), particularly concerning the following:

• Section 75 of the UP VAT Act: This section deals with the procedure for registering changes in business addresses. According to the appellant, the application for change of address was required to be made within 30 days of the event.
• Section 40 of the UP VAT Act: This section deals with the interest on refund of tax.
• Section 67 of the UP VAT Act: This section provides statutory protection to officers acting in good faith. It states that no suit, prosecution, or other legal proceedings shall lie against any officer or employee of the State Government for anything which is done in good faith or intended to be done under the Act or the rules made thereunder.
• Rule 72 of the Uttar Pradesh Value Added Tax Rules: This rule deals with the procedure for service of notices. The High Court found that the service of notice by affixation at the Noida address was in gross violation of Rule 72 of the Rules.

Arguments

Appellant’s Arguments

• The appellant argued that he acted in good faith while carrying out his statutory duties.
• The application for change of address was filed belatedly, nearly 11 months after the alleged change, violating Section 75 of the UP VAT Act.
• The appellant was bound to proceed based on the registered address available on record.
• Attempts were made to serve notices at both the registered address and the alleged changed address in Ghaziabad.
• The appellant withdrew the order dated 04.05.2016 immediately after the change of address was registered.
• The appellant is protected under Section 67 of the UP VAT Act for actions taken in good faith.

Respondent’s Arguments

• The respondent (Flipkart) argued that it had informed the department about the change of address.
• The ex parte orders were issued without proper notice and opportunity of hearing.
• The High Court rightly disapproved of the actions taken by the appellant.
• The appellant was personally impleaded in the later writ petition because he passed an order in conflict with the High Court’s earlier order.
• The respondent was not keen to retain the amount of costs awarded by the High Court.

Innovativeness of the argument: The appellant’s argument that he was bound to act on the registered address available on record, especially when the application for change of address was belated, was a key point in his defense. This highlighted the procedural challenges faced by the assessing officer.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:

• Whether the High Court was justified in making adverse observations and imposing costs on the appellant for actions taken in his capacity as the Assessing Authority.

The sub-issue that the court dealt with was whether the actions of the appellant were deliberate or lacking in good faith.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court did not cite any cases or books in this judgment. However, it did refer to the following legal provisions:

• Section 75 of the UP VAT Act: Regarding the procedure for registering changes in business addresses.
• Section 40 of the UP VAT Act: Regarding the interest on refund of tax.
• Section 67 of the UP VAT Act: Regarding the protection of officers acting in good faith.
• Rule 72 of the Uttar Pradesh Value Added Tax Rules: Regarding the procedure for service of notices.

Judgment

How each authority was viewed by the Court?

• The Court considered Section 75 of the UP VAT Act to highlight the procedural lapse on the part of the respondent.
• The Court considered Section 67 of the UP VAT Act to emphasize the statutory protection available to officers acting in good faith.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The absence of evidence suggesting deliberate misconduct or malice on the part of the appellant.
• The fact that the appellant was acting on the basis of available records and that the respondent’s application for change of address was belated.
• The principle that every erroneous or illegal action does not necessarily imply a lack of good faith.
• The need to protect statutory authorities from undue criticism and liability when they act in good faith.

The court emphasized that while the actions of the appellant were not in conformity with law, there was no evidence of any deliberate attempt to harass the respondent. The court also noted that the appellant was not given an opportunity to be heard before the adverse comments were made against him in the first two writ petitions.

The Supreme Court’s reasoning was based on the following points:

• The High Court’s findings that the actions of the appellant were irregular, illegal, or even perverse, did not automatically lead to the conclusion that they were deliberate or lacking in good faith.
• The respondent had applied for registration of the change of place of business nearly 11 months after the alleged event.
• The appellant, as the Assessing Authority, had no other registered address of the respondent on record at the time of drawing up the assessment orders.
• Attempts were made to serve notices at both the registered address and the alleged changed address.
• Even if the attempts to serve notices were held to be illegal or irregular by the High Court, it did not imply that the actions were deliberate or lacking in good faith.
• The appellant could not have kept the assessment proceedings pending for an indefinite length of time.
• For imputing motives and drawing inference about want of good faith in any person, particularly a statutory authority, something more than mere error or fault ought to exist.
• The appellant was not impleaded personally as a party in the first two writ petitions, and therefore, the comments against him were not called for without giving him an opportunity to be heard.

The court stated, “Every erroneous, illegal or even perverse order/action, by itself, cannot be termed as wanting in good faith or suffering from malafide.”

The court also observed, “In our view, for imputing motives and drawing inference about want of good faith in any person, particularly a statutory authority, something more than mere error or fault ought to exist.”

The court further noted, “The comments or remarks which were to operate personally against the appellant were not even called for without the appellant having been joined personally a party and having been extended an opportunity of hearing and explanation.”

The Supreme Court’s decision was unanimous, with both judges concurring in the judgment.

Key Takeaways

• Statutory authorities are protected for actions taken in good faith while discharging their duties.
• An error or irregularity in an order does not automatically imply a lack of good faith or malicious intent.
• Adverse remarks against an individual should not be made without giving them an opportunity to be heard.
• Taxpayers should ensure timely compliance with legal requirements, such as updating their registered address with the tax authorities.

Directions

The Supreme Court directed that the amount of Rs. 2,00,000 awarded as costs by the High Court shall be deposited by the respondent No. 1 with the Uttar Pradesh State Legal Services Authority.

Development of Law

The ratio decidendi of the case is that an error or irregularity in an order does not automatically imply a lack of good faith or malicious intent on the part of a statutory authority. This judgment clarifies that statutory authorities are protected for actions taken in good faith while discharging their duties, even if those actions are later deemed incorrect. This is a reaffirmation of the principle that statutory authorities cannot be held liable for every error, and that there needs to be a clear indication of bad faith or malice before any adverse action is taken against them.

Conclusion

The Supreme Court’s judgment in Chandra Prakash Mishra vs. Flipkart India Private Limited sets aside the adverse remarks and costs imposed by the High Court on the assessing officer. The court emphasized that while the officer’s actions were not entirely correct, they did not demonstrate a lack of good faith or malicious intent. This decision protects statutory authorities from undue criticism and liability when they act in good faith, while also underscoring the importance of procedural compliance by all parties.

Category

Parent Category: Commercial Tax Law
Child Category: Assessment Proceedings
Child Category: Uttar Pradesh Value Added Tax Act, 2008
Child Category: Section 75, Uttar Pradesh Value Added Tax Act, 2008
Child Category: Section 67, Uttar Pradesh Value Added Tax Act, 2008
Child Category: Section 40, Uttar Pradesh Value Added Tax Act, 2008
Child Category: Rule 72, Uttar Pradesh Value Added Tax Rules

FAQ

Q: What was the main issue in the Chandra Prakash Mishra vs. Flipkart India Private Limited case?
A: The main issue was whether the High Court was justified in criticizing an assessing officer for actions taken in the course of duty, which were later deemed incorrect, and imposing costs on him.

Q: What did the Supreme Court decide?
A: The Supreme Court set aside the adverse remarks and costs imposed by the High Court on the assessing officer, stating that there was no evidence of bad faith or malice on his part.

Q: What does “good faith” mean in this context?
A: “Good faith” means that the officer acted honestly and without any intention to deceive or cause harm, even if their actions were later found to be incorrect or irregular.

Q: What should taxpayers do to avoid similar issues?
A: Taxpayers should ensure they comply with all legal requirements, such as updating their registered address with the tax authorities in a timely manner.

Q: What is the significance of this judgment?
A: This judgment clarifies that statutory authorities are protected for actions taken in good faith while discharging their duties and that errors do not automatically imply a lack of good faith or malicious intent. It also highlights the importance of giving individuals an opportunity to be heard before adverse remarks are made against them.