Supreme Court Upholds Tax Attachment Order: Commercial Tax Officer vs. Neeraja Pipes (2023)

Date of the Judgment: March 15, 2023

Citation: 2023 INSC 228

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

Can a company avoid tax liabilities by claiming non-receipt of assessment orders, especially after being aware of tax dues through other legal proceedings? The Supreme Court of India recently addressed this question, focusing on the importance of conduct and prior knowledge in tax recovery cases. The court examined whether the lack of formal service of assessment orders could invalidate attachment orders when the assessee was aware of the tax liabilities. The judgment was delivered by a two-judge bench comprising Justice S. Ravindra Bhat and Justice Dipankar Datta, with the majority opinion authored by Justice S. Ravindra Bhat.

Case Background

Neeraja Pipes Pvt. Ltd. (hereafter “the assessee”) was engaged in manufacturing and selling HR strips, sections, and pipes. The Commercial Tax Officer (hereafter “the revenue”) initiated assessment proceedings against the assessee for the assessment years (AYs) 2005-06, 2008-09, 2009-10, and 2010-11 under the Andhra Pradesh General Sales Tax Act, 1957 (APGST Act) and the Telangana State Value Added Tax Act, 2005 (VAT Act). The revenue claimed significant tax dues from the assessee for these periods. The assessee, however, contended that it was unaware of the assessment orders and that the revenue had not provided copies despite requests. The revenue, on the other hand, argued that the assessee was aware of the tax liabilities and had been served with the relevant notices and orders.

The assessee also challenged the attachment orders issued by the revenue under the Revenue Recovery Act, 1864 (RR Act), arguing that these orders were invalid due to the non-service of the assessment orders. The revenue had initially issued an attachment order on 03.02.2012, which was later revised on 20.02.2018, attaching the assessee’s properties for non-payment of tax arrears. The assessee argued that the tax arrears reflected in the attachment orders were erroneous and that excess tax collected in previous years should have been adjusted.

Timeline

Course of Proceedings

The assessee initially approached the High Court of Telangana, challenging the attachment orders issued by the revenue. The High Court allowed the writ petition, setting aside the attachment notice dated 20.02.2018, primarily on the grounds that the revenue failed to provide evidence of service of assessment orders for the AY 2009-10 and 2010-11. However, the High Court clarified that the revenue was free to initiate recovery proceedings for the tax dues for the period 2005-06 to 2008-09, as the assessment order for this period was considered validly served. The revenue, aggrieved by this decision, appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation and application of the following legal provisions:

• ✓ Andhra Pradesh General Sales Tax Act, 1957 (APGST Act): This act governs the levy and collection of sales tax in the state of Andhra Pradesh.
• ✓ Telangana State Value Added Tax Act, 2005 (VAT Act): This act deals with the levy and collection of value-added tax in the state of Telangana. Section 27 of the VAT Act allows for the recovery of tax arrears.
• ✓ Revenue Recovery Act, 1864 (RR Act): This act provides the mechanism for the recovery of tax dues.
• ✓ Rule 64 of the Telangana VAT Rules: This rule specifies the modes of service of orders and notices on the assessee. It states:
  
  “64. Mode of Service of orders and notices
  (1) Unless otherwise provided in the Act, or these Rules, a notice or other document required or authorized
  under the Act or these Rules to be served shall be considered as sufficiently served,-
  (a) on a person being an individual other than in a representative capacity if,-
  (i) it is personally served on that person ; or
  (ii) it is left at the person’s usual or last known place of residence or office or business in the State; or
  (iii) it is sent by registered post to such place of residence, office or business, or to the person’s usual or last
  known address in the State; or
  (b) on any other person if,-
  (i) it is personally served on the nominated person ; or
  (ii) it is left at the registered office of the person or the person’s address for service of notices under the Act; or
  (iii) it is left at or sent by registered post to any office or place of business of that person in the State; (iv) where
  it is returned unserved, if it is put on board in the office of local chamber of commerce or traders association.
  (2) The certificate of service signed by the person serving the notice shall be evidence of the facts stated
  therein.”
• ✓ Section 42 of the VAT Act: This section mandates an assessee to maintain records for a minimum of six years from the end of the year.
• ✓ Sections 25 and 26 of the VAT Act: These sections provide that tax arrears have a priority over the dues of the bank and provide for first charge over the properties of the VAT dealer.

Arguments

Arguments by the Revenue (Commercial Tax Officer):

• ✓ The assessee was a regular dealer and had contested its liabilities in the past, including the same assessments.
• ✓ The assessee was aware of the proceedings and tax liabilities. In a previous writ petition, the revenue had specifically mentioned the extent of the assessee’s liabilities, which the assessee did not dispute.
• ✓ The assessee did not raise the issue of non-service of orders in its representations to the revenue.
• ✓ The assessee’s conduct indicated a deliberate attempt to avoid tax liabilities, and the plea of non-service of orders was an afterthought.
• ✓ The revenue contended that the assessment order for AY 2005-06 to 2008-09 was served on Mr. Pankaj Agarwal, a director of the company, and the proceedings dated 31.03.2011 confirming the demand were also served and acknowledged.
• ✓ The revenue argued that for AY 2009-10 and 2010-11, assessments were finalized, and an urgent notice dated 14.06.2011 was issued for payment, which was served on Mr. Neeraj Agarwal, another director.
• ✓ The revenue argued that the tax arrears have a priority over the dues of the bank and provide for first charge over the properties of the VAT dealer.

Arguments by the Assessee (Neeraja Pipes Pvt. Ltd.):

• ✓ The revenue did not furnish copies of the assessment orders despite several requests.
• ✓ The assessee was not aware of the assessment orders and was unable to examine their correctness.
• ✓ The revenue did not effect service of the assessment orders as mandated by law, particularly Rule 64 of the Telangana VAT Rules.
• ✓ The attachment orders were invalid as they were issued without proper service of assessment orders.
• ✓ The assessee argued that the tax arrears reflected in the attachment orders were erroneous, as excess tax collected in previous years should have been adjusted.
• ✓ The assessee contended that the revenue did not have record evidencing the service of assessment order on the assessee for AY 2009-10 and 2010-11 by any of the modes prescribed under Rule 64(1)(b).

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issue:

1. Whether the attachment orders issued by the revenue are invalid due to the alleged non-service of assessment orders, particularly when the assessee had prior knowledge of the tax liabilities through other legal proceedings.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

• ✓ Amina Bi Kaskar (D) by LRs. v. Union of India & Ors. [CITATION: (2018) 16 SCC 266]*: The court used this case to emphasize that the conduct of the party is relevant, and if a party has knowledge of an order, an irregularity in the manner of service is of no consequence.
• ✓ Sri Budhia Swain & Ors. v. Gopinath Deb & Ors. [CITATION: (1999) 4 SCC 396]*: The court relied on this case to highlight that if a party raises an objection only with regard to the manner of service of notice and not non-service of the notice, it will be a case of irregularity in the proceedings but not a fact striking at the very jurisdiction of the authority passing the order.

The Supreme Court overturned the High Court’s decision, holding that the assessee’s claim of non-service of assessment orders was not sustainable due to its conduct and prior knowledge of the tax liabilities. The court emphasized that the assessee had been aware of the tax dues through previous legal proceedings and had not raised the issue of non-service at the appropriate time. The court stated that while proper service of orders is essential, the conduct of the party and their prior knowledge cannot be ignored. The court noted that the assessee had not disputed the tax liabilities in earlier proceedings and only raised the issue of non-service much later.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the assessee’s conduct and prior knowledge of the tax liabilities. The court emphasized that despite the assessee’s claim of non-service of assessment orders, the company was aware of the tax dues through previous legal proceedings. This prior knowledge and the assessee’s failure to raise the issue of non-service at an earlier stage weighed heavily in the court’s decision. The court also considered the principle that a party cannot benefit from its own inaction or deliberate silence when it had the opportunity to raise a grievance.

The court also noted that the assessee did not dispute the tax liabilities in earlier proceedings and only raised the issue of non-service much later. This conduct suggested that the claim of non-service was an afterthought, intended to thwart the revenue’s recovery efforts. The court also considered the principle that a party cannot benefit from its own inaction or deliberate silence when it had the opportunity to raise a grievance.

The court’s reasoning also highlighted the importance of not allowing technicalities to defeat the ends of justice, particularly in cases where the assessee’s conduct indicates a deliberate attempt to avoid its tax obligations. The court’s approach was to look beyond procedural irregularities to ensure that tax liabilities are not evaded through technical loopholes.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning Flowchart:

Key Takeaways

• ✓ Taxpayers cannot avoid their liabilities by claiming non-receipt of assessment orders if they have prior knowledge of the dues through other legal proceedings.
• ✓ The conduct of the taxpayer and their actions or inactions are crucial in determining the validity of their claims.
• ✓ Courts may look beyond technicalities to ensure that tax liabilities are not evaded.
• ✓ Tax authorities can proceed with recovery actions if the taxpayer was aware of the dues, even if there are some procedural irregularities.

Directions

The Supreme Court revived the attachment notice in Form V dated 20.02.2018 and allowed the revenue to recover the dues owed as per the said notice.

Development of Law

The ratio decidendi of this case is that a taxpayer cannot evade tax liabilities by claiming non-service of assessment orders if they have prior knowledge of the dues through other legal proceedings. The court emphasized that the conduct of the taxpayer and their actions or inactions are crucial in determining the validity of their claims. This judgment clarifies that the courts may look beyond technicalities to ensure that tax liabilities are not evaded. There is no change in the previous position of law, however, it clarifies the position of law.

Conclusion

The Supreme Court’s decision in Commercial Tax Officer vs. Neeraja Pipes Pvt. Ltd. emphasizes that taxpayers cannot evade their tax liabilities by claiming non-service of assessment orders when they have prior knowledge of the dues. The court upheld the attachment order, highlighting the importance of conduct and prior knowledge in tax recovery cases. This judgment reinforces the principle that procedural technicalities cannot be used to avoid genuine tax obligations.