2025 (6) TMI 1428 - HC - VAT / Sales Tax

Applicability of Section 72 of the Rajasthan Value Added Tax Act 2003 and Rules 38 of the Rajasthan Value Added Tax Rules 2006 - challenge to order of assessment - error in allowing Input Tax Credit (ITC) to the respondent despite violations of conditions specified in Rule 38 - HELD THAT - Having considered the entirety of facts and circumstances of the case and also the fact that the tax Board in second round of litigation has passed an order contrary to orders passed in litiagtion round-oe wherein the matter traveled upto Hon ble supreme Court therefore the effect and operation of order dated 16.08.2024 passed by the Rajasthan Tax Board Ajmer shall remain stayed till disposal of this STR - Stay application stands disposed of. A perusal of order dated 16.08.2024 passed by Rajasthan Tax Board Ajmer clearly indicate that the Bench of two members Mr. Hemant Jain and Mr. Satish Kumar Upadhyay has observed that the true position of the case could not be projected or place before Hon ble High Court that the dealer has not been charged with the offence of not issuance the invoices of transactions and dealer s purchases are not vitiated by any violation of Rule 38. The Registrar (Judicial) is directed to place order dated 16.08.2024 passed by Rajasthan Tax Board before Hon ble the Chief Justice for considering the matter of judicial indiscipline against the Division Bench of the Rajasthan Tax Board - List this matter in the month of August 2025.

Summary

The core legal questions considered by the Court in this matter are as follows:

(a) Whether the Rajasthan Tax Board was correct in holding that Section 72 of the Rajasthan Value Added Tax Act, 2003 and Rules 38 of the Rajasthan Value Added Tax Rules, 2006, do not apply in the present case;

(b) Whether the Tax Board was justified in ignoring and not following the binding precedent of the Division Bench order dated 28.01.2022 in Sales Tax Revision Petition No. 01/2022;

(c) Whether the Tax Board erred in allowing Input Tax Credit (ITC) to the respondent despite violations of conditions specified in Rule 38, given that ITC is a statutory right contingent on compliance with statutory conditions;

(d) Whether the Tax Board was correct in disallowing the addition of approximately Rs. 1.80 crores on account of enhanced turnover, when the same addition was upheld by the Tax Board's earlier order dated 17.12.2021 and was never challenged by the respondent;

(e) Whether the Tax Board was correct in overruling the judgment/order of a coordinate Bench without referring the matter to the Chairperson as mandated under Rule 17(3) of the Rajasthan Tax Board Regulation, 2017.

Issue-wise Detailed Analysis

1. Applicability of Section 72 and Rule 38

The legal framework involves Section 72 of the Rajasthan Value Added Tax Act, 2003, and Rule 38 of the Rajasthan VAT Rules, 2006, which regulate the admissibility of Input Tax Credit and prescribe conditions for claiming such credit. The Assessing Officer initially held that the respondent violated these provisions, disallowing ITC. The respondent challenged this, and the Tax Board ultimately held that these provisions did not apply to the case.

The Court scrutinized the Tax Board's interpretation and found it erroneous. The Tax Board's conclusion that Section 72 and Rule 38 were inapplicable was contrary to the statutory scheme, which clearly conditions ITC on compliance with these provisions. The Court emphasized that ITC is a statutory right, not a fundamental or constitutional right, and is available only upon fulfillment of prescribed conditions. Therefore, the Tax Board's ruling ignoring these provisions was legally unsound.

2. Binding Nature of the Division Bench Order dated 28.01.2022

The Division Bench of the High Court had earlier dismissed the respondent's Sales Tax Revision Petition No. 01/2022 on 28.01.2022, affirming the assessment order. The Tax Board's subsequent order dated 16.08.2024 set aside the assessment order, effectively overruling the Division Bench without proper authority.

The Court held that the Tax Board, being a subordinate tribunal, is bound to follow the authoritative and binding precedent set by the Division Bench. The Tax Board's failure to adhere to this binding precedent and its critical observations on the Division Bench's order amounted to judicial indiscipline. The Court cited authoritative Supreme Court and High Court precedents underscoring the necessity for subordinate tribunals to follow higher court rulings and avoid contradictory findings.

3. Allowance of Input Tax Credit Despite Violation of Rule 38

The Assessing Officer disallowed ITC on the ground of violation of Rule 38 conditions. The Tax Board, however, allowed ITC to the respondent despite these violations.

The Court reiterated that ITC is a statutory right available only upon strict compliance with statutory conditions. The Tax Board's allowance of ITC in the face of admitted violations was contrary to settled principles of tax law. The Court underscored that such statutory rights cannot be granted on equitable or discretionary grounds when statutory conditions remain unfulfilled.

4. Disallowance of Addition of Rs. 1.80 Crores on Enhanced Turnover

The Tax Board's earlier order dated 17.12.2021 had upheld the addition to turnover of approximately Rs. 1.80 crores, which was never challenged by the respondent. However, in the impugned order dated 16.08.2024, the Tax Board disallowed this addition.

The Court found this inconsistent and legally impermissible. The Tax Board cannot reverse its earlier findings without proper challenge or reference to the Chairperson as required by internal regulations. The disallowance of the addition without any challenge or fresh evidence violated principles of consistency and finality in tax adjudication.

5. Overruling Coordinate Bench Judgment Without Chairperson's Reference

Rule 17(3) of the Rajasthan Tax Board Regulation, 2017 requires that if a Bench disagrees with the judgment of a coordinate Bench, the matter must be referred to the Chairperson for appropriate direction.

The Tax Board failed to comply with this procedural requirement while overruling the coordinate Bench's earlier order. The Court held that this procedural lapse further vitiated the impugned order and constituted a breach of the Board's own regulations.

Additional Findings and Court's Reasoning

The Court noted the complex litigation history, including multiple appeals, cross-objections, and writ petitions, with the respondent initially challenging an ex-parte assessment order dated 03.07.2017. The respondent's SLP filed before the Supreme Court was withdrawn on assurances of re-opening the assessment, which was ordered and then withdrawn the same day, leading to further litigation.

The Assessing Authority subsequently passed a fresh assessment order on 13.03.2024 confirming a demand of Rs. 3,85,35,928, including interest. This order was upheld by the Appellate Authority but set aside by the Tax Board. The Court expressed concern over the Tax Board's contradictory stance in the second round of litigation compared to the first, which had been affirmed by the Division Bench, emphasizing the need for fairness, neutrality, and consistency in tax adjudication.

The Court also observed that the Tax Board's comments criticizing the Division Bench's factual findings and questioning the issuance of invoices by the respondent were inappropriate and constituted judicial indiscipline. The Court highlighted that the Tax Board has no authority to comment adversely on the Division Bench's orders.

Relying on authoritative precedents from the Supreme Court and other High Courts, the Court underscored the hierarchical judicial discipline requiring subordinate tribunals like the Tax Board to follow High Court orders and avoid contradictory or disparaging remarks.

Conclusions

The Court admitted the Sales Tax Revision petition and stayed the operation of the Tax Board's impugned order dated 16.08.2024 pending final disposal. The Court directed the Registrar (Judicial) to place the impugned order before the Chief Justice for consideration of judicial indiscipline by the Tax Board. The matter was listed for further hearing in August 2025.

Significant Holdings

The Court held:

"Input Tax Credit is neither a fundamental nor Constitutional right, but, is a statutory right and available only when the conditions specified in the statute have been complied with."

"The Tax Board, being a subordinate tribunal, is bound to follow the authoritative and binding precedent set by the Division Bench of this Court and has no authority to comment adversely on the findings of the Division Bench."

"Overruling a coordinate Bench judgment without referring the matter to the Chairperson as per Rule 17(3) of the Rajasthan Tax Board Regulation, 2017 is a procedural lapse and vitiates the order."

"Judicial indiscipline arises when a subordinate tribunal disregards binding precedent and makes adverse observations on higher court orders."

"Consistency, fairness, and adherence to statutory provisions and procedural rules are paramount in tax adjudication."