Sri Balaji Flour Mills Vs The Commercial Tax Officer and Others

@JUDGMENTTAG-ORDER

V.V.S. Rao, J.@mdashIn this group of writ petitions, filed by registered VAT dealers from various places in the State of Andhra Pradesh, the challenge is to the validity of Rule 59(1) of Andhra Pradesh Value Added Tax Rules, 2005 (VAT Rules) in so far as it confers the power of assessment of Value Added Tax, when it appears that the VAT return filed by the dealer is incorrect or incomplete on (i) the Commercial Tax Officer (CTO) or the Deputy Commercial Tax Officer (DCTO) in case of dealers in the territorial jurisdiction of the circle; and (ii) on any officer not below the rank of DCTO of the division as authorized by the Deputy Commissioner of the Division. The challenge is based on the Petitioners'' perception that the impugned rule does not satisfy the statutory essentials and is ultra vires the Andhra Pradesh Value Added Tax Act, 2005 (VAT Act). In W.P. Nos. 13015 and 13019 of 2009, Section 17(3) and (4) are impeached as being ultra vires Section 17(2) of the VAT Act. In addition, the Petitioners also impeach the assessment orders in Form VAT 305 for different periods passed by the authorized authority on various grounds.

FACTS

2. As a first step to resolve the controversy in these cases, we may refer to the affidavit accompanying W.P. No. 18598 of 2009 to notice the background. The Petitioner - a firm of contractors and engineers engaged in infrastructure development is a registered VAT dealer on the rolls of the second Respondent. They filed monthly VAT returns for 2005-2006 and 2006-2007. There was, however, audit by the DCTO, Hydernagar, on 11.05.2007. By a notice dated 07.06.2008, the first Respondent informed of another audit. Such audit by the first Respondent took place on 21.08.2008. Proposing best of judgment assessment in terms of Rule 59 of the VAT Rules, a notice dated 15.09.2008 was issued to the Petitioner. They filed objections on 30.10.2008 along with the books of accounts. The earlier assessment was withdrawn. A proposal was made to tax the estimated turnover at 12.5 % which was the cost of light diesel oil not covered by tax invoices. There were objections again, inter alia that, as the second Respondent was the territorial assessing authority u/s 20(1) of the VAT Act, the first Respondent had no jurisdiction to take up assessment. By assessment order, dated 05.01.2009, the first Respondent demanded a sum of Rs. 15,74,663/-.

3. The Petitioner unsuccessfully filed an appeal before the appellate Deputy Commissioner. They then filed an appeal before Sales Tax Appellate Tribunal (STAT). Even while the same was pending, the dealer filed the instant writ petition seeking invalidation of Rule 59(4) of the VAT Rules. They contend that, under substantive provision being Section 2(4) of the VAT Act, the Commissioner had authorized the second Respondent alone to take up assessment. By reason of authorization to audit under Rule 59(1)(7), the first Respondent was precluded to take up assessment for the period for which assessments stood concluded. Rule 59(4) is therefore, ultra vires Section 2(4). The Government issued the notification u/s 3-A of the Act being G.O. Ms. No. 1163, dated 14.08.2006. It was clarified therein that, if the officer authorized by Commissioner takes up assessment, the territorial officer shall not assess for that year. It is the case of the Petitioner that the assessment was already made and, therefore, the first Respondent acted without jurisdiction. It is also contended that, u/s 3-A, all the CT Os have been assigned with territorial areas for the purpose of assessment. The Commissioner, therefore, has to specifically authorize any other official to take up assessment. Rule 59(4) does not override Section 2(4) and 2(8), and is therefore ultra vires.

4. The writ petition indeed impugns Rule 59(4). Curiously, the Government of Andhra Pradesh which derives rule making power u/s 78 of the VAT Act is not arrayed as a party Respondent. Leaving this aside for a while, we may summarise the position of the Respondents from the counter affidavit filed by the first Respondent. The writ petition is not maintainable as the second appeal before STAT is pending, and for non-joinder of proper and necessary parties. Section 2(4) is a dictionary clause. It is neither a substantive provision nor does it confers power on the Commissioner. As authorities created under the statute, they cannot answer the allegations with regard to vires of Rule 59(4). The counter does not seriously dispute other allegations regarding pre and post audit action taken by the first Respondent leading to the impugned assessment order.

SCOPE, SUBMISSIONS AND ISSUES

5. There is no dispute that all the Petitioners filed VAT returns u/s 20(1) for the respective periods in the circle offices under the CT Os. The jurisdictional Deputy Commissioners issued authorization for audit in Form ADM1B presumably in accordance with the VAT Audit Manual of Commercial Taxes. Audit was done after issuing notice of audit in Form VAT 304 by the authorized officer of the Department, namely, Assistant Commissioner or CTO or DCTO, as the case may be. Pursuant to such audit, the Petitioners were served with the notice of assessment of VAT in Form VAT 305A. In some cases, objections were raised. Considering this, the officer authorized to audit passed the assessment order also in Form VAT 305. In cases where objections were not filed in response to VAT Form 305A, the audit officer made a best judgment assessment purportedly u/s 21(3) of the VAT Act. Assailing the assessment orders, mainly on the ground that there is violation of principles of natural justice, the writ petitions are filed. In addition, Rule 59(4), as stated supra, is also assailed as being ultra vires Sections 2(4) and (8) of the VAT Act.

6. M/s.M.V.J.K. Kumar, Shaik Jilani Basha, V. Bhaskar Reddy, G. Narendra Chetty and P. Girish Kumar argued for the Petitioners. The summary of their arguments is as follows. The impugned assessment by an authority, not designated as the assessing authority u/s 2(4) of the VAT Act, is bad in law and such authority cannot, therefore, levy tax. Alternatively, if Rule 59(1)(4)(b) and (d) of the VAT Rules are construed as conferring power on the officer who passed the impugned order, the said Rule is ultra vires Section 2(4) of the VAT Act. Section 2(4) of the VAT Act confers power only on the Commissioner of Commercial Taxes to prescribe and authorize an authority to make an assessment of VAT. The Government could not, therefore, have validly made Rule 59(1)(4) of the VAT Rules in exercise of its powers u/s 78(1) and (2) of the VAT Act. The impugned Rule is in violation of the notification issued by the Government under the APGST Act which has been saved u/s 80 of the VAT Act. If the DCTO, as authorized by the Deputy Commissioner, audits and assesses the VAT dealer who is within the pecuniary jurisdictional limits of another CTO/Assistant Commissioner, the very spirit of the purpose of assessment under VAT Act is defeated. Reliance is also placed on the following judicial decisions. Mangulal Chunilal Vs. Manilal Maganlal and Another, , Sri Balaji Rice Company v. Commercial Tax Officer 55 STC 292 (1983), K.V. Muthu Vs. Angamuthu Ammal, , Kunj Behari Lal Butail and Others Vs. State of H.P. and Others, , Syndicate Bank Vs. Mr. Prabha D. Naik and Another etc., , Nagrik Upbhokta M. Manch Vs. Union of India (UOI) and Others, , Kerala Samsthana Chethu Thozhilali Union Vs. State of Kerala and Others, , Dash Agency v. Sales Tax Officer (2007) 9 VST 482, Global Energy Ltd. and Another Vs. Central Electricity Regulatory Commission, , Nahalchand Laloochand Pvt. Ltd. Vs. Panchali Co-operative Housing Society Ltd., and R.C. India v. State of Karnataka (2010) 29 VST 494.

7. Mr. A.V. Krishna Kaundinya, Special Counsel for CT argued the Government''s case as follows. All the definitions in Section 2 are not conclusive. The words in dictionary clause can have meaning if the context so requires. Therefore, Section 2(4) which is only a definition clause, has to be interpreted without ignoring the rule making power of the Government u/s 78 read with Section 3-A of the VAT Act. The Government having exercised its power u/s 3-A read with Section 78, the exercise of power by the Commissioner if any cannot override the rules. The Rules empower the Deputy Commissioner of the Division to authorize AC/CTO/DCTO to conduct audit of the accounts of the VAT dealer. The impugned orders do not suffer from any illegality. The power to audit includes the power to assess and, therefore, the impugned orders are in accordance with Section 21(3) of the VAT Act. Sections 20(1), 21(1) and 21(3) empowered the authority prescribed to receive VAT return and pass order by taking up best judgment assessment. The assessment orders made in accordance with Rule 59(1) are valid. Lastly, he submits that Section 3-A empowers the Government to empower the Commissioner to confer functions of different officers. When the donor of the power has exercised power under the Rules, the delegate of the power cannot be permitted to exercise power in a different manner. The paramount owner is not divested of the power even after delegation to the delegate. The Senior Counsel relies on K.V. Muthu, and the VAT Audit Manual of the Department.

VALIDITY OF RULE 59(1)

8. So as to be intra vires the Rules made by delegate should be confined to the policy guidelines of the Statute J.K. Industries Limited v. Union of India (2007) 13 SCC 673 : (2008) 297 ITR 176. The question whether the Rules are ultra vires is required to be answered with reference to the legislative intent and the executive policy in promulgating the Rules. If the legislature has clear by demarcated the various aspects to be tackled by the delegate, the Courts scrutiny must go no further. If the legislature is not precise, the Court has to look to the object, policy and width of the legislative operation in testing whether the executive has ignored discernible statutory essentials. In either event, one should keep in mind that the delegation is a constituent element of legislative power and the Rules must receive broad interpretation with reference to the legislative policy. Unless the Rules are ex facie contra to the Act, they must receive the Court''s imprimatur.

9. The twin tests for determining the vires are (a) whether the Rules conform to the statute (conformation test); and (b) whether the Rules are manifestly arbitrary and irrational (rationality test). If there is compliance with these two, any further judicial review is barred. In Indian Express Newspapers Bombay (Private) Limited v. Union of India (1985) 1 SCC 641 : AIR 1986 SC 515, it was held that subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute and that it can be questioned on any of the grounds on which plenary legislation may be questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made as well as on the ground that it is manifestly arbitrary and unreasonable. It is also settled that the expression, "for carrying out the purpose of the Act" is not construed as to bring something in the statute which has been excluded by the Act itself (see Kunj Behari Lal Butail, Kerala Samsthana Chethu Thozhilali Union and Global Energy Ltd).

10. To be able to succeed on the ground that subordinate legislation lacks statutory essentials, it must be demonstrated that the Rules are not in accordance with the legislation or it included something which was excluded by the Act itself. Vague allegations of general hardship cannot render the rules ultra vires. One must look to the entire Act to determine the intention and purpose of the legislation in giving power to the agency to make rules for the purpose of implementing the Act. Looking to the illustrative subjects in the enabling provision, or the long title of the enactment, itself may not be pivotal nor can it be ignored. The entire Act has to be churned before coming to the conclusion that it did not empower the agency to make such policy which found echo in the Rules.

11. The ratio decidendi in Maharashtra State Board of Secondary and Higher Secondary Education and Another Vs. Paritosh Bhupeshkumar Sheth and Others, is that the validity of the rule has "to be determined with reference only to the specific provisions contained in the relevant statute conferring the power to make the rule, regulation, etc., and also the object and purpose of the Act as can be gathered from the various provisions of the enactment. It would be wholly wrong for the court to substitute its own opinion for that of the legislature or its delegate as to what principle or policy would best serve the objects and purposes of the Act, to sit in judgment over the wisdom and effectiveness or otherwise of the policy laid down by the regulation-making body, and declare a regulation to be ultra vires merely on the ground that, in the view of the Court, the impugned provisions will not help to serve the object and purpose of the Act."

12. As long as the body, entrusted with the task of framing the VAT Rules or regulations, acts within the scope of the authority conferred on it, in the sense that Rules made by it have a rational nexus with the object and purpose of the Statute, the court should not concern itself with the wisdom or efficacy of such Rules. It is exclusively within the province of the legislature and its delegate to determine, as a matter of policy, how the provisions of the Statute can best be implemented and that measures, substantive as well as procedural, would have to be incorporated in the VAT Rules or regulations for the achievement of the objects and purposes of the Act. It is not for the Court to examine the merits or demerits of such a policy because its scrutiny has to be limited to the question as to whether the impugned Rules fall within the scope of the donated power. Herein the impugned Rule is assailed only on the ground that it is ultra vires. For the reasons discussed supra, and some more to follow infra, we cannot countenance the submission.

13. At the outset, we may briefly mention about sales tax administration before shift to VAT. This is necessary because, while repealing Andhra Pradesh General Sales Tax Act, 1957 (APGST Act) by Section 80(1) of the VAT Act, the legislature has expressed its intention to continue to enforce all notifications, rules and regulations etc., as if those instruments had been made under the VAT Act. There is no gain saying that unless and until the rules, regulations, notifications etc., made under the APGST Act are replaced by similar instruments under the VAT Act, they continue to govern. This is not disputed by the parties.

14. Section 4 of the APGST Act conferred power on the State Government to appoint the Commissioner of Commercial Taxes (the Commissioner) and various other officers in the hierarchy upto the level of DCT Os and assign functions and empower such officers to perform various functions. The Commissioner so appointed is empowered to entrust duties to all the officers named therein. The State Government was also empowered to authorize any officer to make any assessment in such area or areas or the whole of State of Andhra Pradesh as per Section 2(b) of the APGST Act. In exercise of its powers u/s 4, the Government of Andhra Pradesh delegated to the Board of Revenue the power to notify the local limits within which Deputy Commissioners, CT Os or DCT Os may perform the functions respectively conferred on them by or under the said Act. Before doing so, the Government also issued notification vide G.O. Ms. No. 1091, dated 10.06.1957. Under this, the Government empowered various officers to exercise various functions like assessment, audit etc., as may be entrusted to them within the local limits. This G.O., was subsequently amended from time to time by issuing various notifications. Indisputably, the broad pattern of such exercise of taxing powers is that the commercial tax officer, who is the head of a circle, is subordinate to the head of the Division, namely Deputy Commissioner. The assessment is made by the CTO or, having regard to pecuniary limits, either by the DCTO or the CTO as the case may be. If the taxable turnover exceeds certain limit, the Assistant Commissioner is required to assess the sales tax.

15. Be it also noted that Section 4 of the APGST Act empowered the State Government to appoint a Commissioner, and as many Additional/Joint Commissioners of Commercial Taxes, Deputy Commissioners/Additional Deputy Commissioners, Assistant Commissioners, CT Os, DCT Os as are required to perform the functions conferred on them by the State Government within the specified territorial areas. The power of authorization can also be exercised by any authority empowered by the State under the said provision. Section 4A clarifies that the powers conferred on the officers by the APGST Act, or under the Rules, can also be exercised by any of the officer superior to the empowered officers subject to instructions issued by the Commissioner.

16. Section 2(b) of the APGST Act defines ''assessing authority''. It means any person authorized by the State Government, or by any other authority empowered by them in this behalf, to make any assessment in such area or areas or the whole of the State of Andhra Pradesh under the said Act. The Commissioner, Additional Commissioner, Assistant Commissioner, Appellate Deputy Commissioner, Deputy Commissioner, CTO and DCTO are also defined to mean any person appointed as such u/s 4. Section 4, as noticed supra, empowers the Government to appoint these officers who shall perform such functions as conferred on them by the Government or any authority or officer empowered by them. There is no dispute that by reason of the notification issued by the Government u/s 4 read with Section 2(b) of the APGST Act, the Deputy Commissioners heading the division and CT Os incharge of Circles exercised the powers, functions and jurisdiction as conferred by the notification in such areas in the respective divisions/circles. The situation remains the same even under the VAT Act. For ready reference, we will quote relevant provisions from it.

2. Definitions.- In this Act unless the context otherwise requires:

(1) ''Additional Commissioner'' means any person appointed to be an Additional Commissioner of Commercial Taxes u/s 3-A;

(2) ''Appellate Deputy Commissioner'' means any person appointed u/s 3-A to be an Appellate Deputy Commissioner or any other officer not below the rank of Deputy Commissioner authorized by the Commissioner to be an Appellate Deputy Commissioner;

(4) ''Assessing authority'' means any officer of the Commercial Taxes Department authorized by the Commissioner to make any assessment in such area or areas or the whole of the State of Andhra Pradesh;

(5) ''Assistant Commissioner'' means any person appointed to be an Assistant Commissioner of Commercial Taxes u/s 3-A;

(8) ''Commissioner'' means any person appointed by the Government to be the Commissioner of Commercial Taxes u/s 3-A;

(9) ''Commercial Tax Officer'' means any person appointed to be Commercial Tax Officer u/s 3-A;

(11) ''Deputy Commercial Tax Officer'' means any person appointed to be a Deputy Commercial Tax Officer u/s 3-A;

(12) ''Deputy Commissioner'' means any person appointed to be a Deputy Commissioner of Commercial Taxes u/s 3-A;

(18) ''Government'' means the State Government of Andhra Pradesh.;

(20) ''Joint Commissioner'' means any person appointed to be a Joint Commissioner of Commercial Taxes u/s 3-A;

(24) ''Prescribed'' means prescribed by the Rules made under the Act;

Various officers are those appointed u/s 3-A of the VAT Act. Section 3-A reads as under.

3-A. Appointment of Officers.- The State Government, may, appoint a Commissioner of Commercial Taxes and as many Additional Commissioners of Commercial Taxes, Joint Commissioners of Commercial Taxes, Appellate Deputy Commissioners of Commercial Taxes, Deputy Commissioners of Commercial Taxes, Assistant Commissioners of Commercial Taxes, Commercial Tax Officers and Deputy Commercial Tax Officers as they think fit, for the purpose of performing the functions respectively conferred on them by or under the Act. Such officers shall perform the said functions within such area or areas or the whole of the State of Andhra Pradesh as the Government or any authority or officer empowered by them in this behalf may assign to them.

17. After coming into force of the VAT Act, Section 3-A empowered the State Government to appoint different categories of officers who shall perform the functions conferred on them within such area or areas as the Government or any authority empowered by them may assign to officers. In exercise of the power of delegation u/s 3-A, the Government of Andhra Pradesh issued the notification vide G.O. Ms. No. 1163, dated 14.08.2006 empowering the Commissioner to empower any officer working under his control to exercise any powers under the VAT Act within such area or areas or the whole of the State of Andhra Pradesh. This is however subject to the condition that where an officer in exercise of powers delegated to him by the Commissioner undertakes the assessment of any dealer, the assessing authority of the area having jurisdiction to assess such dealer shall not exercise such jurisdiction for the relevant period.

18. The VAT Rules made u/s 78 read with Section 2(21) of the Act constitute a piece of delegated legislation. The challenge that Rule 59(1)(4)(ii)(b) and (d) is ultra vires can only be successful when it is shown on a sustainable basis that the legislature did not empower the Government to prescribe and empower (i) the Deputy Commissioner concerned to authorize CTO/DCTO to take up assessment under Rule 25(1) and/or Rule 25(5), in case of dealers in the territorial jurisdiction of the circle; and (ii) to empower Deputy Commissioner of the Division to authorize any officer not below the rank of DCTO of the Division to take up assessment. Needless to mention that the Government, while prescribing Rules, cannot overstep the power ignoring a specific bar, if any, in the Legislature itself. Probably to bring the impugned rule in such category, the Petitioners entirely rely on Section 2(4) of the Act which defines "assessing authority" as any officer of the Department authorized by the Commissioner to make any assessment in such area or areas or the whole of State of Andhra Pradesh. We are, therefore, required to consider various provisions excerpted hereinabove along with Sections 20 and 21 of VAT Act which deal with filing of returns respectively.

Scope of Section 3-A read with Section 78 and VAT Act

19. Clauses (1), (2), (5), (8), (9), (11), (12), (18) and (20) define "Additional Commissioner", "Appellate Deputy Commissioner", "Assistant Commissioner", "Commissioner", "CTO'', "DCTO", "Deputy Commissioner", "Government" and "Joint Commissioner" in that order. Except the term "Government", in all other respects these officers are those who are appointed u/s 3-A of the VAT Act, which is in two parts. The first part empowers the Government to appoint all the officers with various designations. The second part confers power on the Government to (a) assign to the officers functions that are to be paramount, or (b) empower any authority or officer to assign powers and functions to the named officers. It is also not disputed that, in exercise of their power u/s 3-A, the Government issued a notification vide G.O. Ms. No. 1163, Revenue (CT-II), dated 14.08.2006 empowering the Commissioner to empower any officer working under his control to exercise any powers under the VAT Act. The notification further clarified that when any officer empowered by the Commissioner undertakes assessment of any dealer, the assessing authority of the area having jurisdiction cannot exercise such jurisdiction for the relevant period.

20. Section 78 of the VAT Act enables the making of the Rules to carry out the purposes of the Act. As per Section 78(2)(a) and (m), without prejudice to the generality of the power, the Rules may provide for all matters expressly required or allowed by the Act to be prescribed and may provide for the duties and powers of the officers appointed for the purpose of enforcing the provisions of the VAT Act. Wherever the plenary legislation requires something to be done in accordance with the Rules prescribed, it can be done only as prescribed by the Rules made by the Government. The Commissioner except performing the powers and functions as may be entrusted to him u/s 3-A or as prescribed by the Rules has no power of making Rules to prescribe authorities to undertake assessment. Therefore, the Commissioner''s power to do something under the Act is subordinate to the power of the Government either u/s 3-A or u/s 78(1) and (2) or the Rules made by them.

21. Section 20 deals with submission of VAT returns and self-assessments. It has four Sub-sections. Sub-sections (1) and (3)(b) refer to "the authority prescribed". Every dealer registered u/s 17 has to submit the VAT returns to the authority prescribed, which shall be accepted as self-assessment. The same, however, can be scrutinized to verify the correctness of the calculation, application of the correct rate of tax, the input tax credit claimed, and payment of tax. If any mistake is detected, as a result of such scrutiny, "the authority prescribed" shall issue a notice of demand for any short payment of tax or for recovery of any excessive input tax credit claimed. Here, there is no dispute that though theoretically the authority prescribed for registering a VAT dealer, receive self-assessment returns, rectifying such returns and the authority prescribed for undertaking assessment could be different, as of now the CTO, having territorial jurisdiction, is the authority prescribed to perform these functions.

22. Section 21 deals with assessments. It has eight Sub-sections. Sub-sections (1), (3), (4), (5) and (6) employ the phrase "the authority prescribed". When a VAT dealer or Turnover Tax (TOT) dealer fails to file a return or files the return u/s 20(1), with which the receiving officer is not satisfied, the prescribed authority shall assess to the best of his judgment within four years from the date of the return or within four years of the date of filing of return whichever is later. Rule 25(1) and (5) deal with these two situations, namely, where the VAT return is not filed and where the return appears to the authority prescribed to be incorrect or incomplete. Indisputably, it is only the CTO, or the Assistant Commissioner, as the case may be having territorial jurisdiction who undertakes the assessment.

23. Rule 3(a) of VAT Rules defines "authority prescribed" as the authorities specified in Rule 59, which prescribed various authorities like Deputy Commissioners, Assistant Commissioners, CT Os, DCT Os and ACT Os to exercise powers entrusted to them. These powers have been enumerated in serial Nos. 1 to 19 in a tabular column under Rule 59(1) of the VAT Rules. To the extent relevant, it is extracted below.

59. Authority Prescribed - (1) For the purpose of exercising powers specified in column (1) of the table below. The authorities specified in column (2) therein, shall be the authorities prescribed:

(emphasis supplied)

24. Reading Sections 3-A and 78(1), 2(a) and (m) of the VAT Act and Rule 59(1)(4)(ii)(b) and (d), leads to the conclusion that the Government appointed various officers to perform various functions within their territorial jurisdiction or in the whole of Andhra Pradesh. The Government can also authorize the Commissioner as well as Additional/Joint Commissioners and Deputy Commissioners to entrust powers and functions to such officers, say, for instance, for the purpose of assessment to CT Os and DCT Os. Further, Rule 59(1)(4)(2)(b) and (d) does not in any manner exceed the delegated power. Therefore, if the Deputy Commissioner authorizes any of the officers to undertake assessment within the territorial jurisdiction or within the division, the same does not vitiate the assessment made by such officer. A VAT dealer cannot complain that the assessment having not been made by the CTO, or the Assistant Commissioner having territorial jurisdiction, the assessment made by any of the officers authorized by the Deputy Commissioner is illegal. Such an argument would ignore the various provisions of the VAT Act and the VAT Rules.

Effect of Section 2(4)

25. As already noticed, Clause (4) of Section 2 defines ''assessing authority'' as any officer authorized by the Commissioner to make any assessment. The controversy stems from the Petitioner''s plea that in view of this, Rule 59(1)(4) to the extent of empowering Deputy Commissioner to authorize other officers is contrary to Section 2(4). For reasons more than one, the submission is wholly misconceived and cannot be countenanced.

26. As already held by us, the power to appoint officers, the power to prescribe by the Rules providing for duties and functions, the power to assign the functions or the power to empower any authority to assign functions to other officers and to make rules is vested in the Government. The appointment of Commissioner is also within the exclusive power of the Government. Unless and until by Rules, the authority to register the VAT dealer, to receive the VAT returns and to assess the VAT return is prescribed, the empowerment of the Commissioner u/s 3-A for the purpose of Section 2(4) would be an empty formality. The Commissioner so appointed u/s 3-A can only authorize such authority prescribed by the Rules to make an assessment. Similar is the case when the power is assigned to Additional/Joint/Deputy Commissioners. A plain reading of Sections 20(1) and 21(1), (3) and (4) makes it clear that an officer as prescribed by the Rules can alone receive and assess the returns and not such officer authorized by the Commissioner u/s 2(4). Assuming that there is no authority prescribed to receive/assess the VAT returns, the power of the Commissioner, if any u/s 2(4), may not be effective.

27. The meaning of various words, phrases and terms used in a statute is understood essentially from the dictionary clause of the statute which defines these terms. If the words are not defined in the Statement, one has to look to the General Clauses Act. If it is not possible to do so, then one has to look to the judicial pronouncements and, thereafter, to the dictionaries see Samatha Rural Development Society v. State of Andhra Pradesh 1995 (2) ALD 234 (DB). AP High Court was reversed in Samatha Vs. State of A.P. and Others, More often than not difficulty arises in understanding the purport of the word or phrase used in the dictionary clause, due to palpable inconsistent intention of the legislature in enacting a provision. To deal with such situations, the legislative draftsman is cautious to enter a caveat that the meaning of the words in the dictionary clause would be what it is "unless the context otherwise requires". Justice G.P. Singh in his Treatise ''Principles of Statutory Interpretation'' (11th edn., 2008) after reviewing scores of Supreme Court judgments comments as follows.

When a word has been defined in the interpretation clause, prima facie that definition governs whenever that word is used in the body of the statute. ... But where the context makes the definition given in the interpretation clause inapplicable, a defined word when used in the body of the statute may have to be given a meaning different from that contained in the interpretation clause; all definitions given in an interpretation clause are therefore normally enacted subject to the qualification - ''unless there is anything repugnant in the subject or context'', or ''unless the context otherwise requires''. Even in the absence of an express qualification to that effect such a qualification is always implied. However, it is incumbent on those who contend that the definition given in the interpretation clause does not apply to a particular section to show that the context in fact so requires. ... Repugnancy of a definition arises only when the definition does not agree with the subject or context; any action not in conformity with the definition will not obviously make it repugnant to subject or context of the provision containing the term defined under which such action is purported to have been taken. When the application of the definition to a term in a provision containing that term makes it unworkable and otiose, it can be said that the definition is not applicable to that provision because of contrary context.

(emphasis supplied)

28. In K.V. Muthu the question was whether (a) foster son would be "a member of family" in relation to a landlord within the meaning of Section 2(6A) of Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. The Act defined a member of family means his spouse, son, daughter, grandchild or dependant parent. A petition was filed by landlady for eviction of Muthu from a non-residential building for personal occupation, for commencement of business by her foster son. It was opposed on the ground that a foster son is not a member of the family and, therefore, the plea of personal occupation is unsustainable. The Rent Controller ordered eviction which was reversed by the appellate authority. Before the High Court, the landlady succeeded and a view was taken that ''foster son'' would also be a member of the family. Before the Supreme Court, it was argued that "the family has to be given the meaning which is commonly understood by an ordinary man and that family would include natural sons and not foster son". The appeal was dismissed by the Supreme Court upholding the eviction observing that in every case, a foster son is not treated as a member of the family and that it would depend on the facts and circumstances of each case. As a fact it was found that the landlady''s foster son was brought up by her husband and even there was a bequeath of property in favour of his children leaving life estate to the landlady. Dealing with the question of interpreting the definition clause, the apex Court held (paras 10 and 11):

Apparently, it appears that the definition is conclusive as the word "means" has been used to specify the members, namely, spouse, son, daughter, grand-child or dependent parent, who would constitute the family. Section 2 of the Act in which various terms have been defined open with the words "in this Act, unless the context otherwise requires" which indicates that the definitions, as for example, that of "Family", which are indicated to be conclusive may not be treated to be conclusive if it was otherwise required by the context. This implies that a definition, like any other word in a statute, has to be read in the light of the context and scheme of the Act as also the object for which the Act was made by the legislature. ... While interpreting a definition, it has to be borne in mind that the interpretation placed on it should not only be not repugnant to the context, it should also be such as would aid the achievement of the purpose which is sought to be served by the Act. A construction which would defeat or was likely to defeat the purpose of the Act has to be ignored and not accepted.

(emphasis supplied)

29. As per Section 2(4) of the APGST Act ''appointing authority'' means any person authorized by the State Government or by any other authority empowered by them in this behalf to make any assessment in specified areas. Section 14 thereof empowered the assessing authority to undertake assessment if a return submitted is found to be incorrect. In VAT Act, however, the definition of ''assessing authority'', as well as the language used in Section 21(3) and (4), are different. As per Section 21(3) and (4), it is only "authority prescribed" who is competent to undertake assessment if the situation so warrants. The ''authority prescribed'' means the authority prescribed by the Rules. If the plea of the Petitioners is accepted that the assessing authority means only the officer authorized by the Commissioner, it would be repugnant to the context envisaged in Section 21(3) and (4). If the legislature intended that the assessing authority, for the purpose of Sections 21(3) and (4), is the one authorized by the Commissioner it ought to find a place there. It is not so. Indeed the paramount power to assign powers and functions to all of the officers under the VAT Act vests in the Government. The Commissioner only derives powers from delegation made under the second part of Section 3-A. Therefore, Section 2(4) has to be construed without ignoring Section 3-A and/or Section 21. So construed, it is clear that the legislature intended to confer power on the Government to prescribe various authorities for the purpose of registration, receipt of returns, assessment etc. When once the officers are prescribed it is for the Commissioner, by reason of the notification issued u/s 3-A by G.O. Ms. No. 1163, dated 14.08.2006, to assign functions. Even while doing so, the Commissioner cannot exercise power de hors the Rules which prescribes various officers, their powers and functions in such area or areas or the whole of State of Andhra Pradesh. This construction would fit into the context of Chapter v. of the VAT Act which deals with procedure and administration of tax. To emphasise further, Section 2(4) would be repugnant to Sections 20 and 21 and the Rules if it is construed as suggested. The definition does not agree with various provisions in the VAT Act especially Section 3-A. Such interpretation should be avoided and if necessary Section 2(4) has to be ignored as per the ratio in K.V. Muthu.

30. The authorities prescribed by Rules can alone perform duties and functions under the Act and the Rules. When the Rules authorize or empower such officers, no authorization is again required u/s 2(4). This, however, is subject to the condition that having regard to the language used in Rule 59(1) itself as well as the scheme of the Act, if the functions are performed by officers in the respective territorial jurisdiction, there may not be a requirement of further authorization either by the Commissioner under G.O. Ms. No. 1163, dated 14.08.2006 or the Additional/ Joint/Deputy Commissioner unless the Rules provide for such authorization. But, if any officer is required to perform the functions not assigned or outside the territorial limits - be it division or circle, the Rules require authorization by the designated higher supervisory officer including the Commissioner u/s 2(4) read with the notification vide G.O. Ms. No. 1163 issued u/s 3-A of the VAT Act. This is also supported by the particular words used in the provisions.

31. Section 2(4) uses the word ''authorise''. The word ''authorise'' means ''permitted''. (see Ramanath Aiyer, ''Advanced Law Lexicon'' Book 1, Reprint 2007, p.417). Section 3-A of the VAT Act and Rule 59(1) of the Rules in many of its entries employ the word ''empower''. As per ''Advanced Law Lexicon'' by Ramanath Aiyer, ''empower'' means ''to invest legally or formally with power or to authorize ... to give official authority or legal power to ...''. The term ''prescribe'' is used in majority provisions of the VAT Act as well as the VAT Rules. Needless to reiterate that as per Section 2(24) ''prescribe'' means ''prescribed by the Rules''. Sections 20 and 21 and various Rules including Rule 59(1), use the term ''prescribe''. Therefore, it has to be construed that the authority prescribed means ''prescribed by the Rules''. It is not the authority authorized or empowered by the Commissioner. The suggested construction of Section 2(4), in reading the substantive machinery provisions of the VAT Act would amount to ignoring the clear legislative intention in conferring the power of assessment only on the authorities prescribed, as may be authorised or empowered by the named supervisory officers. Sections 3-A, 20 and 21 are machinery provisions of the VAT Act. The strict rule of construction is applied to taxing statute without implying anything The State of West Bengal Vs. Kesoram Industries Ltd. and Others, There is however distinction between charging provisions and machinery provisions. While construing the machinery sections of taxing statute, one has to interpret so as to make a statute effective and workable. Commencing from Whitney v. IRC (1926) AC 37 and (1940) 8 ITR 442 (Privy Council) the decisions are galore. So as not to burden this judgment and order with all its authorities, we need to refer only to Associated Cement Company Limited Vs. Commercial Tax Officer, Kota and Others, J.K.Synthetics Ltd v CTO (1994) 94 STC 4222, "it is the duty of the Court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose having a full view of it. Wherever the intention to impose liability is clear courts ought to have no hesitation in giving what we may call a common sense interpretation to the machinery sections to that the charge does not fall. While observing thus, it was held that, "a distinction has to be made by court while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated".

32. Therefore, we have no hesitation in rejecting the plea that the definition of assessing authority in Section 2(4) of the VAT Act plays a crucial role in so far as exercise of the powers by the authority prescribed for the purpose of Sections 20 and 21 or for that matter any authority prescribed under the VAT Act. The Commissioner, as defined in Section 2(8), derives all or any powers by reason of the delegation under the notification vide G.O. Ms. No. 1163, dated 14.08.2006, published in A.P. Gazette Part I, Extraordinary - 463-A, dated 14.08.2006. Under this, the Government empowered the Commissioner to empower any officer working under his control to exercise any powers within such area or areas or the whole of State of Andhra Pradesh. This makes it very clear that the power of the Commissioner u/s 2(4) read with the notification is only to assign powers and functions to all the authorities prescribed. If an officer is not an authority prescribed for the purpose of registration of VAT dealer, receiving of the VAT returns or undertaking assessments, the Commissioner has no such power under the Act or the Rules made thereunder. Further, the VAT Rules promulgated u/s 78 came into force with effect from 01.04.2005. This conclusively shows that the authorities for various purposes were prescribed under the Rules in the first instance and latter the power was delegated to the Commissioner to empower authorities prescribed in his control u/s 3-A. The Commissioner was entrusted with the power only to adjust and allocate the work among various officers, and also to have control over tax administration in various divisions and/or circles. As the head of the Department, it is but natural that the Commissioner must have power to regularly conduct checks with regard to VAT administration as well as assessments undertaken. Without there being a proper appointment of the Commissioner, u/s 3-A read with Section 2(8), there would not have been any exercise of power u/s 2(4) Ajit Singh Vs. State of Punjab and Another,

33. The issue can also be viewed from a slightly different angle. If a statute so permits, the authority, entrusted with its enforcement, can delegate the powers. In law when power is delegated under authority of the statute, the order of the delegate is treated as an order of the principal or donor or paramount owner (delegator) of the power. Such an order, ordinarily, cannot be even revised or reviewed by the delegator unless such power is conferred by the statute itself OCL India Ltd. Vs. State of Orissa and Others, Further, even after delegating its power, the delegator is not divested or denuded of its power to exercise concurrently along with delegate nor is he barred from cancelling the delegation. Further more when the delegator exercises power, the delegate cannot exercise power in contravention of the order passed by the delegator Godavari S. Parulekar v. State of Maharashtra AIR 1966 SSC 1404 and Ishwar Singh Vs. State of Rajasthan and Others, Therefore, even if Section 2(4) defines assessing authority as an officer authorized by the Commissioner, the latter being a delegate of the power u/s 3-A, the Government is not precluded from exercising their statutory powers of making rules under the VAT Act. Exercising such power, the VAT Rules have been made prescribing various authorities. Section 75 of the VAT Act clarifies that the powers conferred by the Act and the Rules on any officers appointed u/s 3-A may also be exercised by any of the officers superior to the officers so empowered subject to any instructions by the Commissioners. Therefore, we do not find any infirmity in Rule 59(1)(4)(ii)(b) and (d) of the VAT Rules. It is perfectly legal for the Government to make a Rule to empower the Deputy Commissioner concerned to authorize the CTO/DCTO within the territorial jurisdiction, or within the Division, to undertake assessment either under Rule 25(1) (unilateral assessment) or 25(5) (assessment when the return is incorrect or incomplete) of the VAT Rules. Such rule is not ultra vires the provisions of the VAT Act. Section 78(1) generally, and Section 78(2)(a) and (m) specifically, confer power on the Government to provide for the duties and powers of officers appointed for the purpose of enforcing the provisions of the Act. The impugned Rules are intended to effectively enforce the provisions of the Act and cannot be invalidated on the ground that it is ultra vires.

VALIDITY OF IMPUGNED ASSESSMENT ORDERS

34. This issue requires us to deal with the audit and investigative powers of various authorities and consequences there from. It was suggested that there is no specific power of audit of the accounts of a VAT dealer. The submission, however, cannot be accepted. The VAT Act nowhere refers to audit. Does it mean that the accounts of a dealer cannot be audited or investigated or enquired into? The submission is unsustainable. Pre enacting history of the legislation; the Provisions of the Act and the Rules authorize and permit audit as per the procedure incorporated therein. Black''s Law Dictionary (sixth edition) defines ''Audit'' as ''systematic inspection of accounting records involving analysis, tests and confirmations ... hearing and investigation before an auditor ... a formal or official examination or authentication of accounts ...''.

35. Ramanath Aiyer''s ''Advanced Law Lexicon'' (Book 1, 2007 Reprint) gives the following definitions of audit. A systemic checking of account books, bills, vouchers and other relevant records in conformity with the norms set by an organization, whether business, social or charitable. The correctness of accounts and relevant reports is deemed to be authentic only after the completion of the audit.

As a verb; to draw up or present an account; to make an official investigation and examination of accounts and vouchers.

As a noun; an examination of accounts in genera; a formal or official examination and authentication of accounts; setting of accounts; the process of auditing accounts; the hearing and investigation had before an auditor.

36. Thus any systematic examination of the accounts of a VAT dealer is audit, which may or may not lead to assessment or revised assessment. Chapter VI of the Act deals with ''Records and Investigation Powers'' (Sections 41 to 44) and Chapter XI of the VAT Rules (Rules 52 to 54) prescribe the procedure for ''Search, Seizure, Confiscation and Acquisition''. A perusal of these would show that an officer not below the rank of DCTO has the power of entry, inspection, search and seizure and confiscation with full and free access to any premises, place, goods, books, records, powers and any electronically stored data at any time during business hours. If residential accommodation, not being shop-cum-residence, is to be searched, prior authorization by the Deputy Commissioner having jurisdiction over the area is required. The power to inspect and search also includes the power to break open any box or receptacle in which any goods, accounts, registers or other documents of the dealer may be contained. Under Sub-section (4) of Section 43, the inspecting officer may seal any box, godown or building etc., for a period not exceeding twenty-four hours and search any person on suspicion that such person has secreted any goods or accounts. Rule 52 of the VAT Rules mandates that an officer duly authorized u/s 43 to conduct search of any shop or office of the VAT dealer shall, as far as possible, follow the procedure prescribed by the Code of Criminal Procedure, 1973. Rule 53 contains the procedure for seizure and confiscation of the goods.

37. A perusal of Section 43 and Rules 52 and 53 would show that VAT audit is a part of tax administration. Indeed, the Empowered Committee of State Finance Ministers under the Chairman of Sri Asim Kumar Das Gupta in "the White Paper on State Level VAT'' emphasized the importance of audit in paragraph 2.13.

Audit

2.13 Correctness of self-assessment will be checked through a system of Departmental Audit. A certain percentage of the dealers will be taken up for audit every year on a scientific basis. If, however, evasion is detected on audit, the concerned dealer may be taken up for audit for previous periods. This Audit Wing will remain delinked from tax collection wing to remove any bias. The audit team will conduct its work in a time bound manner and audit will be completed within six months. The audit report will be transparently sent to the dealer also.

Simultaneously, a cross-checking, computerized system is being worked out on the basis of coordination between the tax authorities of the State Governments and the authorities of the State Governments and the authorities of Central Excise and Income Tax to compare constantly the tax returns and set-off documents of VAT system of the States and those of Central Excise and Income tax. This comprehensive cross-checking system will help reduce tax evasion and also lead to significant growth of tax revenue. At the same time, by protecting transparently the interest of tax-complying dealers against the unfair practices of tax-evaders, the system will also bring in more equal competition in the sphere of trade and industry.

38. The VAT Audit is expected to be transparent and time bound. Inconvenience to the VAT dealers is kept to the minimum by strict supervisory controls. The prior authorization by the Deputy Commissioner is required. The power of audit is conferred by the Rules on the Assistant commissioner or CTO or specially empowered DCTO working in the Vigilance and Enforcement Department. Even if the books of accounts are seized, they can only be kept with the officers for a period of one month and, when the business are seized, they cannot be retained for more than twenty four hours. All these are the safeguards for a VAT dealer who has a record of satisfactory tax compliance. The audit provisions, in a way, act as a deterrent only in respect of those VAT dealers who file incorrect returns or claim set-off which they are not entitled to. It is nobody''s case that the officers of the Commercial Tax Department take up audit of every VAT dealer and resort to re-assessments based on such audit regularly. Audit is taken up only when the Deputy Commissioner authorizes, when there is a suspicion of unsatisfactory VAT compliance.

39. The Government of Andhra Pradesh issued guidelines for tax officers conducting audit. Compiled as VAT Audit Manual, these guidelines are referable to Section 76 of the VAT Act which confers power to remove difficulties on the Government. The preface to Audit Manual brings out the extent, purpose and scope of VAT audit. It is apt to quote the same.

Audit is one of the four important pillars of VAT Administration, the other three being Registration, Returns and Refunds. The Inspection system under APGST Act, 1957 is replaced by the system of Audit under VAT Regime. The word ''Audit'' encompasses both the functionalities of Assessment and Inspection. In the context of self-assessment system under VAT, the function of Audit acquires paramount importance. The Audit under VAT shall not be confused with the internal audit or AG Audit. The Audit functionality is significant in bridging the gap between the tax due and the tax declared by the Assessee. Effective control of the tax is paramount if revenue receipts are to be maximized.

This Audit Manual is a guide for tax officers conducting audit of dealers. The manual outlines the policy, general rules and procedures to be followed. It provides a framework for planning, preparation, conducting audit and post-audit action. It is particularly important in that it sets out a different and more professional approach to audit. The manual describes many of the standard techniques used to check or assess the correctness of a dealer''s liability to VAT. This manual seeks to be comprehensive and it covers most of the recognized risk areas and the means of detecting errors and underreported VAT.

Officers conducting audits need a sound understanding of VAT Law and audits should not be seen as routine activity. In order to be effective communicators and accurate gatherers and interpreters of relevant information, auditors must be courteous but firm in their approach without being rude or arrogant. These skills can help prevent a hostile environment. Most dealers will accept a professional approach and will often voluntarily explain how their business operates. Many dealers will also accept that they make errors that must be corrected. Audit officers must nevertheless be alert to the possibility of evasion. However, it is extremely important not to treat all taxpayers as if they are trying to evade tax.

This manual is a reference book for officers who are conducting audits of dealers. Not everything in the manual will be applicable to all dealers, in fact it is doubtful if everything included in the manual will be applicable to any one dealer. The main chapters - Audit Planning, conduct of Audit visits, post audit action etc - will apply to all but the guidance should be used selectively. Officers are encouraged to use their own judgment. Routine audit does not cover investigation of potential fraud or suspected criminal evasion neither does it cover search and seizure.These functions require officers with specialist skills.

(emphasis supplied)

40. The Audit Manual contains nine Chapters, namely, Introduction, Officers, Powers and Responsibilities, Types of Audit, Audit Planning, Conduct of Audit Visits, Refund Audits, Post Audit Action, Fraud Investigation and Management Information. In addition, there are Appendix I to Appendix XVI. Appendix I prescribes 18 forms used in VAT audit. Form ADM 1B is �AUTHORISATION OF AUDIT PROGRAM�. The same reads as under.

FORM ADM 1B
GOVERNMENT OF ANDHRA PRADESH
COMMERCIAL TAXES DEPARTMENT
AUTHORISATION OF AUDIT PROGRAM

....................................................... Date:

01. Name and designation of the audit officer:

02. Period of audit program:

03. The officer _______________ is hereby authorized to audit the following VAT dealers during the period of audit program Sl.

Sl. No.                Name of the VAT dealer                    TIN

The audit officer is instructed to follow the guidelines issued in the Audit Manual for the conduct of audit, time limits for each audit, procedure of reporting and the post audit action. The non-completion of audit of any dealer should be notified to the undersigned on Form ADM 1C.

Deputy Commissioner/AC (VAT Manager) ____________ Division To The Audit Officer, _________________.

41. Chapter IV of the Audit Manual deals with audit planning. Inter alia it speaks of the structured approach to audit, audit organization and staffing, selection of general audit visits, criteria for specification selection of general audit visits etc. Paragraph 4.9 enumerates the role of officers, namely, the Joint Commissioner, Deputy Commissioner, AC (Audit/VAT Manager), CTO and DCTO. It is necessary to quote paragraphs 4.9.2, 4.9.3, 4.9.4 and 4.10.

4.9.2 Role of the Deputy Commissioner:

a) Arrange for the computerized selection of the general audits based on the parameters in this chapter. He should ensure that the VAT audit program meets the target of achieving at least one audit visit to each VAT dealer in a two-year cycle.

b) Ensure that the audit program is completed by deploying audit officers between circle offices to meet the computer-generated workload.

c) Review audit results achieved and the reasons for the under-declaration to focus audit activity to maximize revenue collection.

d) Once every quarter, select one completed audit visit each by AC (LTU) and AC (VM) where no under/over declaration was established for scrutiny as defined in paragraph 7.3 of this manual.

e) Visit each circle office not less than once per quarter and select one completed audit visit by CTO where no under/over declaration was established for scrutiny as defined in Para 7.3 of this manual.

f) Oversee and control the quality of the audits undertaken, and monitor the revenue results achieved, and check visit reports to the visiting officer program (Form VAT 309) g) Hold quarterly meetings with all audit staffing the division to exchange audit information with a view to improving the targeting high risk VAT dealers to maximize revenue collection and to improve audit officers audit techniques based on the experiences of audit colleagues. 4.9.3 Role of the AC (LTU) or present AC (Int):

a) Plan an annual audit program for the dealers allocated to the LTU based on the available audit staff.

b) Ensure the program is completed and review the results achieved to monitor under-declarations and maximize revenue collection.

c) Visit all dealers allocated to the LTU at least once in each year.

d) Allocation of audit cases to circles (not 3) as allotted by Deputy Commissioner.

e) Authorisation of audit assessments proposed by the CTO''s.

f) Investigation of cases entrusted by Deputy Commissioner.

4.9.4 Role of the AC (VAT Manager) or present AC (Audit):

a) Allocation of audit cases to circles (not > 3) as allotted by Deputy Commissioner.

b) Authorisation of audit assessments proposed by the CTO''s.

c) Audit of cases entrusted by Deputy Commissioner.

d) Inter-state investigation relating to dealer of the Division.

e) Inter-departmental co-ordination with the other revenue earning departments and exchange of information.

4.10 Control of audit cases:

a) Any case not completed in the audit quarter should be carried forward in priority order to the next month or, alternatively reported with the reason for the inability to complete the audit.

b) The allocation of audit cases should be recorded on a computerized listing in divisional and circle offices with the date of allocation, the date of audit, and the date of finalization.

c) The authority of the AC (VM) should be obtained on Form ADM 1C before an audit case is accepted for non-completion.

d) The D.C should monitor the allocation, completion and standard of all audits.

e) Any case where specific audit is done, care must be taken not to include the case in the next general audit program.

f) Due to the selection criterion, some top VAT dealers in a circle may be selected in more than two quarters for general audit by the computer. The authority in charge of audit program should restrict the general audit visits in such cases to maximum one per year. This restriction will not be applicable to cases in the Large Tax Payer Unit.

(emphasis supplied)

42. The Commissioner, Commercial Taxes issued VAT audit instructions vide Circular Ref. No. BII(2)/122/2006, dated 19.06.2006. While reminding that the Deputy Commissioners are the controlling and supervisory officers of their divisions, the Commissioner directed them to ensure that the powers u/s 43 read with Section 21 of the VAT Act are exercised by the field officers by taking up adequate and qualitative audits. Indicating the strategy for general audits, the circular enumerates the following steps for conducting general audits.

(i) The CTO/AC shall select the cases fit for audit based on sound, rational lines, and shall furnish notification of list of VAT dealers selected for audit in VAT Form ADM - IA to the Deputy Commissioner (CT) concerned, who shall maintain a record at divisional level. Any difficulty to generate the list of dealers selected for audit through VATIS, shall be promptly notify to Central Computer Wing through CCW helpdesk@apcommercialtaxes.gov.in by emails.

(ii) The Deputy Commissioners/Assistant Commissioners concerned shall issue Audit Visits authorization in Form ADM-I B.

(iii) Thereafter Notification of advisory/Audit visit to these VAT dealers shall be issued in VAT 304. Wherever 304 cannot be served in advance, it should be generated through VATIS and retained by Officer conducting audit. This should be produced if asked by dealer at the time of audit. This ensures avoidance of multiple audits by different officers for the same dealer and also prevents unauthorized audits unless VAT 304 is generated through VATIS, then any VAT-305 demand raised, cannot be entered/processed through VATIS. The Deputy Commissioners are authorized to issue specific audit orders without issuing Form 304 for purpose of effectiveness. However, before issue of 305-A notice, in all such cases Form 304 has to be generated.

(iv) In case if the audit as authorized in Form 304 cannot be completed for valid reasons the authorization for non-completion of audit in Form ADM-I C is required to be issued.

(v) The notice of assessment of Value Added Tax in Form 305A shall be issued wherever necessary.

(vi) Then the assessment of Value Added Tax shall be done in VAT 305.

(vii) The show cause notice and assessment orders (305A and 305) must be speaking order with findings in detail.

(viii) Penalty proceedings may have to be issued separately.

(ix) In the event of finding of under-declaration of Value Added Tax or over declaration of Value Added Tax, the Notice in VAT 307 and VAT 308 respectively shall be issued.

(x) All Deputy Commissioners are requested to send audits conducted in each fortnight in the proforma of Annexure-II. The Deputy Commissioners are requested to send detailed compliance/action taken through special reports besides in the Annexure-II. Performance and progress of audits will be reviewed monthly by the Commissioner of Commercial Taxes.

(emphasis supplied)

43. The audit establishment is organized in accordance with the Audit Manual. The officers, in the hierarchy from DCTO to Joint Commissioner, are assigned specific roles. The Assistant Commissioner and Deputy Commissioners are empowered to authorize audit. Indeed, as referred to supra, Section 43(2) mandates such authorization by the Deputy Commissioner when audit is conducted at the residential accommodation of the dealer. Be that as it is, no officer mentioned in Rule 59(1)(7) can take up audit without authorization. The Petitioners contend that the Audit Manual is a compendium of departmental instructions, being non-statutory, they are not binding. They also argued that when once self-assessment is accepted u/s 20(2), Section 43 does not enable any audit. The submission is misconceived. We have already considered this aspect. We hold that Section 43 empowers audit though the word is not specifically used therein. Rule 59(1)(7) lays down various authorities prescribed to conduct audit with prior authorisation. As the Audit Manual and the Circular issued by the Commissioner referred to by the Commissioner are not inconsistent with Section 43 or Rule 59(1)(7), the officers are bound to follow the instructions therein. The Petitioners cannot have any grievance if inspection and search is conducted as part of audit in accordance with the Audit Manual.

44. It is nextly contended by the Petitioners that authorization of audit by the Deputy Commissioner and/or the Assistant Commissioner by itself cannot be treated as authorization for undertaking assessment under Rule 59(1)(4)(ii)(b) and (d) of the VAT Act. Per contra, Special Counsel argues that the power to audit includes the power to assess. He relies on Section 21(3) of the VAT Act and Rule 25(5) of the VAT Rules. We are afraid we are not persuaded with the Government submission. The assessment of VAT payable by a registered dealer can be (a) deemed assessment based on the self-assessment return filed u/s 20(1) read with 20(2); (b) assessment u/s 21(1) when the dealer fails to file return; (c) assessment u/s 21(3) when self-assessment return is not satisfactory; (d) assessment u/s 21(4) pursuant to a detailed scrutiny of the accounts of any dealer within a period of four years from the end of the period for which assessment is to be made; (e) assessment u/s 21(5) when there is willful evasion of tax committed by a dealer within a period of six years of the date of filing of return; and (f) assessment u/s 32(1) (which is in fact re-assessment) when an assessment already made is found to be prejudicial to the interests of the revenue. In addition, there could also be a fresh re-assessment u/s 37 within a period of three years from the date of receipt of the order of appellate/revisional authority.

45. Of all these, the assessment of the category in the above paragraph (d), may be considered as one pursuant to an audit. As audit cannot be taken up without prior authorization of the Deputy Commissioner concerned as per Rule 59(1)(7), necessarily there ought to be a further authorization to undertake assessment. Although u/s 21(4) the authority prescribed can take up assessment, reading Section 43 of the VAT Act and Rule 59(1)(4)(ii)(b) and (d) and 59(7) of the VAT Rules, the only conclusion would be that, unless and until there is a separate authorization to undertake assessment, an officer authorized to audit the accounts of a VAT dealer cannot undertake assessment. If the rule making authority had intended that the same officer, who is authorized to audit, can also undertake assessment either under Rule 25(1) or Rule 25(5), there would not have been any necessity to separately mention about ''authority prescribed'' for the purpose of assessment and for the purpose of audit, as seen from Rule 59(1)(4) for the purpose of assessment and Rule 59(1)(7) for the purpose of audit. Therefore, assessment without authorization of the higher official as specified in Rule 59(1)(4)(ii)(b) and (d) would be certainly one without authority or jurisdiction and would contravene not only Section 21(4) but also Rule 59(1).

46. The above view is also supported by the guidelines in Chapter VII (Post Audit Action) in Audit Manual, which inter alia provides as under.

Action by audit officer

7.2 a) The audit officer should complete his visit report on Form VAT 301A/B, update Form VAT 300 and prepare Forms VAT 311 from his workbook not later than the first officer day following the date of the visit.

b) The officer should review the work completed on the visit and ensure that all the appropriate action has been completed.

c) Any uncertainities should be resolved with the VAT dealer, and any issues not settled on the visit should be decided by reference to the DC/AC(VM)/CTO and the decision conveyed to the VAT dealer on Form VAT 312 within 10 days of the visit and recorded on Form VAT 301A/B.

d) Where an under-declaration or over-declaration has been identified, the amount of tax must be calculated and the reasons for the under/over declaration stated.

e) The next higher authority should authorize the assessment/notice before the assessment/over payment forms are issued by the audit officer.

f) to k) omitted.

(emphasis supplied)

47. The VAT Audit Instructions issued by the Commissioner vide circular dated 19.06.2006 also clarify that after completion of authorization, the notice of assessment of VAT in Form 305A shall be issued "wherever necessary". This indicates that authorization of audit and completion of audit need not necessarily lead to an assessment unless the next higher authority authorises such assessment as per paragraph 7.2(e) of Chapter VII quoted above. Indeed, as rightly pointed out by the counsel for Petitioners, Section 43 is a self-contained provision dealing with inspection, search, seizure and confiscation, and does not contemplate any audit related assessment in every case. Therefore, we are convinced that authorization of audit under Rule 59(1)(7) does not have the effect of authorizing or empowering the officers mentioned in Rule 59(1)(4)(ii)(b) and (d) to undertake assessment.

MISCELLANEOUS SUBMISSIONS

48. M/s. V. Bhaskar Reddy, Narendra Chetty, Girish Kumar and Shiak Jeelani Basha also raised various other submissions, which we will deal with one after the other.

(i) In the absence of any specific authorization u/s 3-A of the VAT Act to the authorities who pass impugned orders, the self-assessment returns filed by the Petitioners should be treated as conclusive, and no further assessment can be allowed. This submission is wholly misconceived. A plain reading of Sub-sections (2) and (3) of Section 20 makes it clear that deemed acceptance of a self-assessment return is subject to Section 21(3), which is assessment to the best of judgment within four years when the return is found to be incorrect. We have already considered this aspect and hold that in every case of self-assessment, even if the assessment is taken up under any of the categories as discussed herein supra, the same cannot be amenable to any sustainable criticism.

(ii) Rule 59(1)(4)(vii) was inserted by notification vide G.O. Ms. No. 503, dated 01.05.2009. As per this, even if the original assessment order is not passed by them, in case of remand by the appellate/revisional authorities under Sections 31 to 35 of the VAT Act, the assessing authority would be the Assistant Commissioner, CTO or DCTO having territorial jurisdiction. The Petitioners would contend that the impugned Rule 59(1)(4)(ii)(b) and (d) is contrary to this new clause. This submission is also misconceived. In our considered opinion, the same is intended to facilitate completion of post appeal/revision remanded assessment within the statutory period of three years as contemplated u/s 37. For instance, if the original assessment order is pursuant to audit passed by an authorized officer, other than the regular territorial authority prescribed, insisting upon post remand assessment also by such officer would be difficult because usually the officer authorized for audit would be an officer other than the territorial officer. If the same officer is required to undertake assessment, the time frame of three years u/s 37 would not be sufficient. It may be mentioned that any assessment consequent to proceedings under Sections 31 to 35 has to be completed within three years. The submission is therefore not accepted.

(iii) The impugned rule is ultra vires Section 32. Mr. Girish Kumar, counsel in W.P. Nos. 11402 and 18552 of 2009 did not pursue the submission seriously. After considering the point, we are convinced that the impugned Rule does not in any manner goes against the suo motu revision jurisdiction. Section 32 confers suo motu revisional powers on the Additional/Joint/Deputy/Assistant Commissioner to call for and examine the record of any order passed or proceedings recorded by any authority, if such order is prejudicial to the interest of the revenue. The same does not bar the exercise of such power even in the case of an assessment order passed pursuant to the VAT audit.

(iv) The impugned assessment proceedings are contrary to Section 67(4) of the VAT Act. This submission is raised by Mr. Shaik Jeelani Basha in W.P. Nos. 16316 of 2008, 7660, 7716, 7719 and 9652 of 2009. Section 67 deals with the Authority for Clarification and Advance Rulings (AAR, for brevity). Section 67(4) is to the effect that the order of AAR shall be binding on the applicant who had sought clarification, in respect of the goods or transaction in relation to which a clarification was sought and on all the officers other than the Commissioner. A Division Bench of this Court recently considered the ambit and scope of Section 67(4)(ii) and held that the ruling of AAR is binding in respect of the goods or transaction in relation to which clarification was sought (see unreported judgment in Tirupati Chemicals v. Deputy Commercial Tax Officer, in W.P. Nos. 1582 and 2119 of 2010, dated 25.11.2010).

(v) In W.P. Nos. 13015 and 13019, it is urged that Section 17(3) and (4) are ultra vires. The challenge is not seriously pursued. Nevertheless, we are not impressed with the submission. Sub-section (3) of Section 17 requires every dealer whose turnover in the twelve preceding months exceeds Rs. 40 lakhs to be registered as a VAT dealer and as per Sub-section (4), every dealer whose taxable turnover during the period from 01.01.2004 to 31.12.2004 is more than Rs. 40 lakhs shall be registered as a VAT dealer. These are assailed as being ultra vires Section 17(2) which requires a dealer to be registered as a VAT dealer before commencement of business if the estimated taxable turnover is going to be more than Rs. 40 lakhs. One fails to understand as to how Sub-sections (3) and (4) are ultra vires Sub-section (2). It is settled rule of interpretation that all the Sub-sections in a Section have to be read harmoniously. Such a reading of three Sub-sections (2), (3) and (4) of Section 17 would show that they operate in different situations and are mutually exclusive though there is some overlapping between Sections 17(3) and (4). They should not be confused with one another nor would such confusion in the mind of the dealer render them ultra vires. The submission is wholly unsustainable.

(vi) In W.P. No. 1704 of 2009, the Petitioner''s counsel Mr. V. Bhaskar Reddy contends that the assessment of the VAT for the period from April, 2005 to March, 2006, is unsustainable for the reason that the assessment for the said period was already completed by the assessing authority. The assessing authority does not demur nor the Special Counsel seriously countered this argument. It is the case of the Petitioner that the DCTO inspected the business premises on 28.06.2006, conducted audit and issued sequential assessment order in Form VAT 305, dated 22.01.2007. Curiously, it is alleged, the CTO again issued audit advice in Form VAT 304 and conducted the audit on 16.07.2008, which was followed by another notice in Form 305A, dated 29.09.2008. This ultimately resulted in the order dated 16.12.2008 impugned in the writ petition. The case of the Petitioner is not rebutted. Therefore, we have to necessarily hold that the assessment for the period from April, 2005 to March, 2006, subject to Section 32, is unsustainable.

MAINTAINABILITY OF WRIT PETITIONS

49. Before we consider the relief to be granted in these matters, we feel compelled to make a few observations with regard to the way many counsel, who regularly appear in tax matters, file cases assailing a statute or a statutory provision or the rule or the rules. We are convinced that more often than not the Petitioners follow the rules of procedures more in breach. The glaring lapse is not impleading proper parties/authority. Equally glaring aspect is not indicating the grounds in support of the challenge to the validity of an Act, or a Rule. We are also convinced that the lapses might be due to inadvertence in drafting the petitions or may also be due to ignorance about fundamentals of administrative law and constitutional law. With a hope that at least in future the aggrieved persons would be more cautious in filing writ petition of such nature, we venture to clarify below some relevant aspects, though not intended to be exhaustive.

50. In India, the power of judicial review is exercised by the Supreme Court and the High Courts. The latter derives such power under Articles 226 and 227 of Constitution of India. Secondly, judicial review is available in different areas and fields. These are (i) judicial review of Constitutional Amendments; (ii) judicial review of the Act made by the Parliament or State Legislature; (iii) judicial review of delegated legislation i.e., testing the vires of the Rules made by the delegated legislative authority; (iv) judicial review of the orders passed by the statutory tribunals established by or under an Act of the Parliament or State Legislature; (v) judicial review of orders passed by quasi-judicial authorities exercising jurisdiction independently under the powers granted by an Act of the Parliament or State Legislature; and (vi) judicial review of administrative orders or action/inaction leading to infringement of rights and/or failure in discharging of duties. Thirdly, the relief sought and the parties against whom such relief is sought differ from case to case depending on the area of judicial review.

51. When an Act or the Rules are challenged, the common mistake noticed by us is a writ of certiorari is sought to quash the Act or the Rules. This is improper and impermissible. Judicial wing being a co-equal organ of the State is not empowered to quash the Act or the Rules which are essentially legislative functions. The proper relief that is to be sought is a writ of Mandamus declaring the impugned Act or the Rules as ultra vires the Constitution or the Act, as the case may be. A writ of Certiorari in such an event would not be the proper remedy see Prabodh Verma and Others Vs. State of Uttar Pradesh and Others,

52. If an assessment order of a taxing authority or an order passed by the statutory tribunal is challenged in a writ petition, the proper relief could be either a writ of Certiorari or a writ of Mandamus, depending on the grounds urged in support of the petition. If a quasi-judicial tribunal or assessing authority is sought to be precluded from exercising the power purportedly vested under the Statute, the proper remedy is a writ of Prohibition on the ground that such authority suffers from inherent lack of jurisdiction.

53. That brings us to ''necessary and proper'' parties. When an Act of Parliament or State Legislature is challenged as ultra vires the Constitution, a petition should be drafted keeping in view Article 13 of the Constitution. The probable grounds that may be urged are that the Parliament and/or said Legislature lacks legislative competency or that the impugned Act is violative of any of the fundamental rights in Part III of the Constitution or the impugned Act violates the basic structure of the Constitution of India or the impugned Act of the Legislature is unconstitutional otherwise. (see State of Andhra Pradesh and others, etc. Vs. McDowell and Co. and others, etc., and Company and I.R. Coelho (Dead) By LRs. Vs. State of Tamil Nadu and Others,

54. When an Act of Parliament is challenged as ultra vires the Constitution on any of the possible grounds noticed supra, the Union of India represented by the concerned Secretary to Government of India shall invariably be a necessary party. Even when a suit is filed, the Union of India and the State of A.P., as the case may be, shall be made parties. This is the requirement of Section 79 and Order XXVII of the Code of Civil Procedure, 1908 (CPC) The State of Kerala Vs. The General Manager, Southern Railway, Madras, Further Order XXVIIA of Code of CPC requires a notice to the Attorney General or the Advocate General, as the case may be, when a question as is referred to any Article 132(1) read with Article 147 of the Constitution of India is involved. In every writ petition when the validity of a statute is challenged, notice shall be given to the Government Pleader concerned, and to the authority which issued the statutory instrument like the Rules or the Regulations or the Notifications. Whenever Rules are challenged, Order XXVIIA, Rule 1(A) requires arraying of the Government of the State as a party Respondent. If a State is not impleaded as a party to a writ petition challenging an Act and/or if the Government of the State represented by Secretary to Government is not impleaded in a writ petition when the Rules are challenged, the writ petition would not be maintainable. In appropriate cases, the Court can suo motu add the Central Government or the State Government, as the case may be, as a party to the writ petition (see Rule 2 of Order XXVIII of CPC).

55. It is curious that in eleven cases being W.P. Nos. 6495, 10453, 13279, 16316, 24487 and 24535 of 2008 and W.P. Nos. 1704, 14289, 16062, 18598 and 20284 of 2009, the Government of Andhra Pradesh is not made a party. Only the assessing officer is arrayed as a party Respondent. In four cases being W.P. Nos. 20198 of 2008 and 9652, 9694 and 9695 of 2009, the Principal Secretary to the Government is impleaded. One fails to understand as to how the Principal Secretary can be equated to the State as defined under Article 12 of the Constitution. These cases ought not to have been numbered by the Registry. They ought to have been rejected in limine. Be that as it is, as these matters are being heard along with other writ petitions, where the challenge is to the impugned Rule in question, we leave the matters there with a hope that there would be better and proper compliance with the practice of rules in constitutional litigation.

Relief

(a) In the result, in the analysis and for the reasons as above, we reject the relief to declare Rule 59(1)(4)(ii)(b) and (d) of the VAT Rules as ultra vires. We also declare that Sub-sections (3) and (4) of Section 17 do not suffer from any constitutional infirmity and are valid. We also reject all other prayers for declaring the impugned rule and impugned assessment orders as ultra vires or invalid except to the extent indicated in (b) and (c) below;

(b) In view of our holding that the authorisation to audit u/s 43 read with Rule 59(1)(7) by itself does not enable audit officer to undertake assessment, we set aside all the assessment orders and consequential orders, if any u/s 53 of the VAT Act, in all the writ petitions;

(c) All the impugned assessment orders shall stand remitted to the respective audit officers who shall submit audit reports as contemplated under Chapter VII of the VAT Audit Manual for appropriate Post Audit Action. If the competent controlling and/or supervising authority like Deputy Commissioner issues separate orders authorizing assessment, it shall be open to such authorizing officer or authority prescribed, as the case may be, to undertake assessment in accordance with law;

(d) W.P. No. 1704 of 2009 is disposed of setting aside the assessment order, dated 16.12.2008 for the period from April, 2005 to March, 2006. This is, however, subject to the power and jurisdiction of the revisional authority u/s 32(1) of the VAT Act; and

(e) We direct the parties to bear their own costs.

56. All the writ petitions shall stand disposed of in terms of the relief granted as above.