Supreme Court Upholds Tax Attachment: Neeraja Pipes Case (2023) INSC 236

Date of the Judgment: 15 March 2023

Citation: 2023 INSC 236

Judges: S. Ravindra Bhat, J. and Dipankar Datta, J.

Can a tax authority enforce an attachment order if the assessee claims they never received the original assessment orders? The Supreme Court recently addressed this question in a case involving Neeraja Pipes Pvt. Ltd., where the company contested the validity of an attachment order due to alleged non-service of assessment orders. The core issue revolves around whether the tax department followed the correct procedure in serving the assessment orders before initiating recovery proceedings. This judgment clarifies the importance of proper service of orders in tax matters. The bench comprised of Justice S. Ravindra Bhat and Justice Dipankar Datta, with the opinion authored by Justice S. Ravindra Bhat.

Case Background

Neeraja Pipes Pvt. Ltd. (the assessee) was engaged in manufacturing and selling HR strips, sections, and pipes. The Commercial Tax Officer (the revenue) issued assessment orders for the years 2005-06, 2008-09, 2009-10, and 2010-11, demanding significant tax amounts. The assessee claimed that despite multiple requests, they were not provided copies of these assessment orders and were unaware of them. Consequently, the assessee argued they were unable to verify the orders’ correctness or avail of legal remedies. The revenue, however, contended that the assessment orders were duly served and that the assessee was liable for the tax arrears.

The revenue issued an attachment order on 03.02.2012 and a revised one on 20.02.2018 under the Revenue Recovery Act, 1864 (RR Act), for non-payment of tax arrears. The assessee challenged these attachment orders, stating the tax arrears were incorrect, and requested adjustments based on previous excess tax collections. The revenue, in its defense, claimed that the assessee was aware of the tax demands and had been served notices. The assessee, however, maintained that they were not served the assessment orders for the assessment years 2009-10 and 2010-11 and hence, the attachment orders were illegal.

Timeline:

Course of Proceedings

The assessee initially filed a writ petition in the Telangana High Court, challenging the attachment orders. The High Court ruled in favor of the assessee, setting aside the attachment notice dated 20.02.2018 for the tax arrears of 2009-10 and 2010-11. The High Court reasoned that the revenue failed to prove that the assessment orders for these years were served to the assessee as per Rule 64 of the Telangana Value Added Tax Rules, 2005 (“the rules”). However, the High Court upheld the attachment for the period 2005-06 to 2008-09, as the service was proved. The revenue then appealed to the Supreme Court, contesting the High Court’s decision regarding the assessment years 2009-10 and 2010-11.

Legal Framework

The case primarily revolves around the interpretation and application of the Telangana State Value Added Tax Act, 2005 (VAT Act) and the Telangana VAT Rules, 2005 (“the rules”), specifically Rule 64, which outlines the procedure for serving notices and orders. According to Rule 64(1)(b), a notice or order is considered validly served on a company if it is:

• ✓ Personally served on the nominated person; or
• ✓ Left at the registered office of the company; or
• ✓ Left at or sent by registered post to any office or place of business of that person in the State; or
• ✓ If returned unserved, put on the board in the office of local chamber of commerce or trader’s association.

Section 27 of the VAT Act allows the revenue to recover tax arrears as if they were arrears of land revenue under the Revenue Recovery Act, 1864 (RR Act). The court also noted that Section 42 of the VAT Act mandates an assessee to maintain records for a period of six years from the end of the year.

Arguments

Revenue’s Arguments:

• ✓ The revenue contended that the assessee was aware of the assessment orders and the tax liabilities. They referred to a previous writ petition filed by the assessee, where the court had allowed the assessee to file objections. Despite this, the assessee did not file objections or deposit the required amount.
• ✓ The revenue stated that when a composite attachment order was made, and the revenue had gone to the court, filing a writ petition, it had specifically stated the extent of the assessee’s liabilities, which the latter did not dispute. It never alleged non-service of orders, or that it was unaware of proceedings leading to those orders.
• ✓ The revenue argued that the assessee’s plea of non-service was an afterthought to avoid tax liabilities. They highlighted that the assessee did not raise this issue in earlier proceedings.
• ✓ They contended that the assessment orders for 2005-06 to 2008-09 were served on Mr. Pankaj Agarwal, Director of the company, and that the proceedings dated 31.03.2011 confirming the tax demand was duly acknowledged.
• ✓ The revenue argued that for AYs 2009-10 and 2010-11, assessments under the VAT Act were finalized raising a demand of ₹2,38,84,812 and ₹1,21,83,884 and that urgent notice dated 14.06.2011 was served on Mr. Neeraj Agarwal, one of the Directors of the assessee company.

Assessee’s Arguments:

• ✓ The assessee argued that they were not served with the assessment orders for the assessment years 2009-10 and 2010-11, making the attachment orders illegal.
• ✓ They emphasized that Rule 64 of the Telangana VAT Rules mandates the service of assessment orders, which is a prerequisite for initiating recovery proceedings.
• ✓ The assessee contended that they made several requests for copies of the assessment orders, which were not provided by the revenue.
• ✓ The assessee argued that the revenue did not have records evidencing the service of assessment orders for AY 2009-10 and 2010-11 as per the prescribed modes under Rule 64(1)(b).

Innovativeness of the argument: The revenue’s argument that the assessee was aware of the tax liabilities due to their participation in previous legal proceedings and failure to dispute the liabilities was innovative. The assessee’s argument was based on the strict interpretation of the service rules.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue can be summarized as:

• ✓ Whether the attachment notice in Form V dated 20.02.2018, issued under the Revenue Recovery Act, 1864, for recovery of tax arrears, is valid, considering the assessee’s claim that the assessment orders for the period 2009-10 and 2010-11 were not served on them.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Cases:

• ✓ Amina Bi Kaskar (D) by LRs. v. Union of India & Ors. [2018] 16 SCC 266: The court cited this case to emphasize that the conduct of the party is relevant when considering complaints of non-service of notice. The court observed that if a party has knowledge of an order, irregularities in the manner of service would not render the order illegal.
• ✓ Sri Budhia Swain & Ors. v. Gopinath Deb & Ors. [1999] 2 SCR 1189: This case was cited to support the view that if a notice was published, even if not in the manner prescribed by law, it would be an irregularity, not a jurisdictional defect. The court noted that the assessee had only raised objections regarding the manner of service, not the non-service of notice.

Legal Provisions:

• ✓ Section 27 of the Telangana State Value Added Tax Act, 2005: This section allows the revenue to recover tax arrears as if they were arrears of land revenue under the Revenue Recovery Act, 1864.
• ✓ Section 42 of the Telangana State Value Added Tax Act, 2005: This section mandates an assessee to maintain records for a period of six years from the end of the year.
• ✓ Rule 64 of the Telangana VAT Rules, 2005: This rule prescribes the mode of service of orders and notices.
• ✓ Revenue Recovery Act, 1864: Used for recovery of tax arrears.

Authorities Table

Judgment

The Supreme Court overturned the High Court’s decision, ruling in favor of the revenue. The court held that the attachment notice in Form V dated 20.02.2018, was valid and enforceable. The court reasoned that the assessee’s conduct in previous legal proceedings suggested that it was aware of the assessment orders and the tax liabilities. The court emphasized that the assessee did not raise the issue of non-service of assessment orders in earlier proceedings, and that the plea was an afterthought. The court also noted that the assessee did not dispute the liabilities when the revenue had specifically mentioned them in the writ petition (W.P. No. 25943/2011).

The court relied on the principle established in Amina Bi Kaskar (D) by LRs. v. Union of India & Ors. [2018] 16 SCC 266, that the conduct of the party is relevant when considering complaints of non-service of notice. It also cited Sri Budhia Swain & Ors. v. Gopinath Deb & Ors. [1999] 2 SCR 1189, to support the view that irregularities in the manner of service do not invalidate the proceedings if the party has knowledge of the order.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Supreme Court used the authorities to support its reasoning:

• ✓ Amina Bi Kaskar (D) by LRs. v. Union of India & Ors. [2018] 16 SCC 266:* The court used this case to emphasize that the conduct of the party is relevant when considering complaints of non-service of notice. The court observed that if a party has knowledge of an order, irregularities in the manner of service would not render the order illegal.
• ✓ Sri Budhia Swain & Ors. v. Gopinath Deb & Ors. [1999] 2 SCR 1189:* This case was used to support the view that if a notice was published, even if not in the manner prescribed by law, it would be an irregularity, not a jurisdictional defect. The court noted that the assessee had only raised objections regarding the manner of service, not the non-service of notice.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the assessee’s conduct and the principle that technicalities should not be used to evade legitimate tax liabilities. The court emphasized the following points:

• ✓ Assessee’s Conduct: The assessee’s failure to raise the issue of non-service in previous proceedings and its silence when the revenue specifically mentioned the tax liabilities in W.P. No. 25943/2011 weighed heavily in the court’s decision.
• ✓ Knowledge of Liabilities: The court inferred that the assessee was aware of the assessment orders and tax liabilities due to its conduct.
• ✓ Principle of Substantial Justice: The court prioritized substantial justice over technicalities, emphasizing that the assessee should not be allowed to evade tax liabilities based on procedural irregularities.
• ✓ Relevance of Previous Proceedings: The court considered the previous writ petition and the assessee’s failure to dispute the liabilities as crucial evidence.

Sentiment Analysis of Reasons

Fact:Law

Logical Reasoning

Key Takeaways

• ✓ Taxpayers must actively engage in tax proceedings and cannot remain silent, hoping for technicalities to invalidate tax demands.
• ✓ Conduct and actions in previous legal proceedings can be used as evidence to determine awareness of tax liabilities.
• ✓ Courts may prioritize substantial justice over technicalities, especially when there is evidence that a party is aware of their obligations.
• ✓ Tax authorities should ensure proper service of assessment orders, but if the assessee is aware of the order, technicalities of service may not invalidate the proceedings.
• ✓ The judgment reinforces the principle that the conduct of a party is relevant in determining the validity of service of notice.

Directions

The Supreme Court set aside the High Court’s order and revived the attachment notice in Form V dated 20.02.2018. It allowed the revenue to recover the dues as per the said notice.

Specific Amendments Analysis

There were no specific amendments discussed in the judgment.

Development of Law

The ratio decidendi of this case is that while proper service of assessment orders is important, the conduct of the assessee and their knowledge of the tax liabilities are also crucial factors. The Court emphasized that technicalities should not be used to evade legitimate tax liabilities. This judgment reinforces the principle that courts may prioritize substantial justice over procedural technicalities, especially when there is evidence that a party is aware of their obligations. There is no change in the previous position of law but the court has emphasized the importance of conduct of the assessee.

Conclusion

In the case of The Commercial Tax Officer vs. Neeraja Pipes Pvt. Ltd., the Supreme Court ruled in favor of the revenue, upholding the validity of the attachment notice. The court emphasized that the assessee’s conduct and knowledge of tax liabilities were crucial factors in its decision. The judgment underscores the importance of active participation in tax proceedings and the principle that technicalities should not be used to evade legitimate tax obligations. This case reinforces the idea that courts may look beyond procedural irregularities when there is clear evidence that a party was aware of their liabilities.