Section 39 VAT scrutiny is invalid absent the required Section 35 notice.

The petitioner, a registered dealer under the Meghalaya Value Added Tax Act, 2003 (“MVAT Act”), challenged scrutiny reports and notices dated 2023 concerning returns for tax periods from 30 June 2007 to 30 June 2017.

It contended that scrutiny under Section 39 required a prior notice under Section 35, that the proceedings were time-barred, and that the Superintendent of Taxes lacked delegated authority.

The State relied on a 27 April 2017 notice requiring production of books of account, asserted that Section 39 had no limitation period, and raised the alternative-remedy objection under Section 65.

The High Court framed issues concerning the Section 35 notice requirement, limitation, delegation, natural justice, and maintainability.

1. Whether scrutiny under Section 39 could be initiated without notice under Section 35, and whether such notice could be issued to a registered dealer given Section 35(3)’s reference to dealers other than registered dealers.

2. Whether the five-year limitation under Section 57 for assessments under Sections 55 and 56 applied to Section 39 scrutiny proceedings.

3. Whether the Superintendent of Taxes had authority to initiate Section 39 proceedings under Section 26 of the Act and Chapter II of the MVAT Rules.

4. Whether the proceedings violated natural justice and whether the writ petition was maintainable despite the alternative remedy under Section 65.

Section 39(1) of the MVAT Act makes scrutiny of returns of a registered dealer subject to the statutory qualification that the dealer has been issued notice by the Commissioner under Section 35; the Court treated that notice as a condition precedent to scrutiny.

Section 35(2) requires registered dealers to file periodic returns, while Section 35(3) concerns dealers other than those registered under subsection (2).

The Court also applied Section 57’s five-year limitation framework, holding that authorities could not use Section 39 to circumvent the Act’s limitation for assessment proceedings.

Under Section 26 of the Act and Rule 3 of the MVAT Rules, delegation was required by notification in the Official Gazette.

The Court relied on Kunwar Pal Singh v. State of U.P., (2007) 5 SCC 85, for the principle that a statutory power must be exercised in the prescribed manner, and on Shri Pankaj Bihari Saha v. State of Tripura, WP(C) Nos. 1109 and 1111 of 2019, for the analogous rule that scrutiny powers conditioned on prior notice cannot be invoked without that notice.

It also applied the Whirlpool Corporation exception permitting writ review where jurisdiction is challenged.

The Court read Section 39(1) as expressly limiting scrutiny to returns of registered dealers to whom a Section 35 notice had been issued; it rejected the State’s submission that “each and every return” allowed scrutiny without satisfying that condition.

The 27 April 2017 notice sought production of books and records for assessment purposes, not the furnishing of returns, and therefore did not meet the Section 35 requirement; in any event, Section 35(3) did not authorise such a notice to a registered dealer.

The Court further held that Section 39 could not be used to bypass the Act’s five-year assessment limitation.

No Official Gazette notification delegating Section 39 powers to the Superintendent of Taxes had been produced, so the asserted internal orders or circulars did not satisfy the statutory delegation requirement.

Given these jurisdictional defects, the Court held the writ petition maintainable notwithstanding the alternative remedy.

The petition was disposed of.