2004 PLP 714 (PTD)

12,500 6(VII) Less paid output tax. 581 6(VIII) Less charged output tax. 967,268 6(IX) Less value addition/ suppression of sales. 11,420,000 17,484,814 PARA No. ACTION TO BE TAKEN 3(II‑B) Complete audit of these 11 units w.e.f. verification of deposit of Sale Tax by the manufacturer cum-supplier as per provi sion of subsection (4) of section (10) of the Sales Tax Act; 1990. 3(IV), Without clearance input/refund‑may not be allowed. 4(II) Without verification input/refund on these shipping bills may not be allowed. 6(I) Amount may be recovered as per R/P's declaration at Annexure‑B. 6(II) Inadmissible input on printing charges. 6(III) Inadmissible input tax Audit objection may be issued to the R/P by the Sr. Auditors assisted/conducted this audit. Based on reply of R/P further action like C/Report etc. may be taken. 6(IV) Non‑production of purchase Without production of invoices input/refund on these invoices may not be given. 6(VI) Wrong filing of sales tax return. Audit objection may be issued to the R/P by the Sr. Auditors assisted/conducted this audit. Based on reply of RIP further action like C/Report etc. may be taken. 6(VII) Less paid output tax. ‑‑As above‑‑ 6(VIII) Less charged output tax. ‑‑As above‑‑ 6(IX) Less value addition/ suppression of sales ‑‑As above‑‑ 14‑A. The Sales Tax general Order No.1 of 1999, dated 7‑1‑1999 and. No.9 of 1999, dated 22‑9‑1999 envisage the procedure to be followed in case of audit of registered persons. In the later STGO it is directed that audit of a registered person/united in routine will be conducted once during the financial year. However, the possibility of conducting another audit is not ruled out where exceptional circumstances exist. In the impugned letter as reproduced above no reason whatsoever has been stated for approval of afresh audit muchless to say of the existence of exceptional circumstances.

15. In their reply on merits to paras. 5 and 6 the Revenue has claimed that "strong suspicion" existed that no refund was due and, therefore, it was being withheld subject to the outcome of audit being carried out under the impugned instructions of the C.B.R. Also the Revenue appears to be dissatisfied with the earlier audits conducted which obviously includes the one dated 31‑8‑2002 conducted jointly by the Central Board of Revenue as well as the Collector. The Revenue in their reply has also attempted to hold out that after completion of the approved audit the petitioner will be served with a show‑cause notice under section

36. That means that the Revenue will proceed to recover refund already received without undergoing the process of adjudication proceedings. The adoption of such course per se is violative of adjudication proceedings contemplated under section 45 of the Act.

16. It needs to be noted that even in the last audit report, dated 31‑8‑2002 nothing objectionable was pointed out as regards‑the claim of the petitioner of his having made zero rated exports. The objection that local sales were designed to cover up zero rated supplies and consequently to make wrong claim of refund may be correct but to a limited extent only. For example purchases from suspected registered persons were shown at a sum of Rs.11,17,500 while at least 11 suppliers of the petitioner were recommended for audit. The only reason for such recommendation being that "most of these suppliers splitting the invoices in such a way that the total of each invoice comes by Rs.10 to Rs.100 less than Rs.50,000 to avoid compliance of section 73 of the Sales Tax Act, 1990". That justification alone is against one of the basic principles of taxing statutes that a person can adopt all legal modes to avoid taxation. The auditors perhaps are not aware of the difference between evasion and avoidance. The proposed action in this case is all the more unjustified when the petitioner is proposed to burden with the total sum of Rs.11,17,500 as sales having been made from suspected person. In the report there is also no mention of the fact as to why a number of these firms were found suspected.

17. The impugned letter conveying the approval for holding of fresh audit does not assign any reason nor shows any exceptional circumstances in respect of the petitioner or its suppliers /purchasers. In a number of similar cases it has been observed that the Sales Tax Department takes the report of an audit as gospal truth which is against law and fact, both. Most of the auditors are departmental officials with half‑cooked knowledge of accounting and transnational business transactions. Legally speaking an audit report is at best an opinion of the auditor and a material in support of the departmental version. It is nothing more than part of a charge‑sheet which needs to be established through the process of adjudication. A material collected during the course of audit is only an evidence to support the case of the Department in adjudication proceedings.

18. The petitioner is also correct in pointing out that the powers vested in C.B.R. under section 45‑A of the Sales Tax Act, 1990 could not be exercised in the manner it has been done in this case. In fact there; is no concept of recalling of an order by Central Board of Revenue of a; subordinate authority. Learned counsel for the petitioner is also correct in pointing out that nothing appears from the record to suggest that the Board ever called for the record of the Deputy Collector (Refund) and thereafter invoked the jurisdiction. If that order was illegal then why not action has so far been taken against the officer who allowed revising of stock statements. Admittedly no action, not even a show‑cause notice lot explanation has, been issued to him.

19. In view of the above facts, the case‑law relied upon .by the' learned counsel for the petitioner is relevant and supports the contention ‑made at the bar. The impugned letter conveying approval of the Central Board of Revenue for a fresh audit and exercise of revisional jurisdiction under section 45/A by the Board without notice to the petitioner is declared to be without lawful authority.

20. This order will not debar the Revenue from using the audit report, dated 31‑8‑2002 in adjudication proceedings. However, mere initiation of these proceedings will not permit the Revenue to either block the refund claim of the petitioner if it is otherwise established according to law nor initiation of proceedings against the suppliers, purchasers of the petitioner till such time the Adjudicating Officer reaches a conclusion against the petitioner and directs action against the suppliers/purchasers.

21. Petition allowed in the above terms. S.A.K./M‑2473/L Petition allowed.