Bombay High Court Quashes Show Cause Notice Issued Without Specifying Required Documents

Bombay High Court Quashes Show Cause Notice Issued Without Specifying Required Documents

The Bombay High Court has quashed a show cause notice that was issued in a printed format, with only the period, date, and time filled in, and lacking details of the information or documents required to be furnished.

The bench, comprising Justice K. R. Shriram and Justice Jitendra Jain, observed that before passing a best judgment assessment, Section 23(2) of the Maharashtra Value Added Tax (MVAT) Act, 2002, mandates that if the registered dealer fails to comply with the terms of any notice issued under this subsection, the Commissioner is required to assess the amount of tax due from the assessee to the best of his judgment. In this case, the show cause notice did not specify the documents required to be produced, thereby failing to meet the necessary pre-conditions for passing a best judgment assessment.

The petitioner/assessee, engaged in the exploration of petroleum resources in the 'Panna and Mukta' and 'Mid and South Tapti' fields off the coast of Mumbai, argued that their operations, situated between 60 to 120 nautical miles from India’s territorial baselines, fall outside the jurisdiction of the respondent, i.e., the Deputy Commissioner of State Tax under the MVAT Act. The petitioner sells petroleum, crude oil, and natural gas to government-nominated agencies, with the title transferred at the delivery point in the contract areas of the oil fields.

A show cause notice without any details was issued, summoning the petitioner to the respondent's office. The notice, as noted by the court, was in a printed format and lacked specific details. Despite the severe handicap of receiving a vague notice, the petitioner submitted annual financial statements for FY 2019-20, the auditor's report for FY 2019-20, a copy of filed VAT and CST returns for FY 2019-20, and acknowledged the audit report in Form 704.

Subsequently, the petitioner received another letter, which again lacked specific details, demanding assessment compliance within seven days. The department proceeded to pass an order under Section 23 of the MVAT Act based on best judgment, without addressing any of the points raised by the petitioner.

Under Section 23(2) of the MVAT Act, when a registered dealer files a return for any period by the prescribed date, the Commissioner, if deemed necessary to ensure the return is correct and complete, may require the dealer’s presence or the production of further documents. This requirement should be specified in a notice. However, the court found that the letter sent to the petitioner was as vague as the show cause notice and lacked any reference to the documents already submitted by the petitioner on January 6, 2024.

The court emphasized that the Commissioner must first form an opinion that it is necessary or expedient to verify the return’s accuracy and completeness before requiring the production of documents, and this requirement must be clearly communicated in the notice.

The court concluded that the order passed, which relied on the vague letter and show cause notice, did not meet the statutory requirements for passing a best judgment assessment. Consequently, the court quashed both the assessment order and the demand notice.