Rules of natural justice are important part of fundamental rights as enshirined in our constitution. Rules of natural justice means fair play in action i.e. to save the citizens from arbitrariness in administrative or quasi judicial action. Rules of natural justice are part of Rule of law as ensured under article 14 of our constitution. Violation of rules of natural justice result in arbitrariness and violation of fundamental rights as provided by our constitution to the citizens of India. The rules of natural justice ensures that any person is not subjected to arbitrariness and justice not only appear to have been done with him but manifestly have been done.

Since rules of natural justice are part of the fundamental rights provided by our constitution the same have to be followed while taking any quasi judicial or administrative action under every law and the taxation laws are no exception to it. Any authority wheather appellate or not has to follow the rules of natural justice while making any order.

Issue of show cause notice before taking any action against a person is also a vital part of rules of natural justice, since it provides the person a reasonable oppurtunity of being heard which ensures fair play in action.

Section 54 of the Punjab VAT Act 2005 provides for penality of Rs. 100 per day subject to a maximum of Rs. 10000 if a person without sufficient cause:

(a) fails to furnish any return or annual statement by the prescribed date; or
(b) fails to furnish along-with the return or annual statement, the proof of payment of tax in accordance with the provisions of this Act; or
(c) fails to rectify any error or omission in any return or annual statement in accordance with the provisions of this Act; or
(d) fails to comply with the requirements of any notice issued under this Act,

Thus it is clear from section 54 that if a person commits default in filling any return or statement or comply with any notice he can be subjected to penality u/s 54. But if the person concerned has sufficient cause due to which default happened he will not be subjected to penality. It is a part of ussual practice in the VAT Department which I have come accross as a taxation practitioner that once a person fails to file his return within prescribed time and files the return after the due date the officials in the department insist on depositing of penality u/s 54 before accepting his return, without issuing of any show cause notice to the person concerned. Suppose if a person files his quatarly VAT Return after two days from the due date, he is insisted to deposit Rs 200 for the default along with furnishing of the return without listening to him about why his return has been late by issuing show cause notice to him which is a clear violation of rules of natural justice.
Moreover the Rule 50 of Punjab VAT Rules which provides for the procedure for levying penality itself shows that the show cause notice has to be issued before levying any penality under the Act. But no notices are being issued by the department. Not only the penality the person who commits default in filling return within due time his TIN No is also locked under rule 51A resulting in stoppage of interstate movement of goods of the person concerned and for that too no notice is issued to the person concerned as required under rule 51A. When the person concerned files the return after the due date his TIN No is not opened untill he deposit the penality u/s 54 along with the return. But once the person has filed his return evan after the due date his TIN No should be unlocked with immidiate effect and he should not be insisted upon to deposit penality u/s 54 without issuing him show cause notice, because he has fullfilled the default for which his TIN No is locked. The penality proceedings are seperate proceedings and should be decided seperately after issuing proper show cause notice. Levying of penality without show cause notice when it is specificaly provided by the act itself is not only the violation of rules of natural justice but also the violation of Rule 50 and 51A of Punjab VAT Rules and section 54 of the Punjab VAT Act itself and results in arbitariness in administrative action.


  • Hi Amit,

    Thanks for sending link of your blog to me. Very nice info on your blog and good analysis of legal provisions.

    With regards,
    CA Sandeep Kanoi

  • The penalty imposed is not fixed but has to be considered as the maximum imposable under the Act. The fixed amount of penalty irrespective of the facts of the case is confiscatory in nature and ultra vires of the provisions of the Act and was also violative of Articles 14 and 19 of
    the Constitution of India. See judgment of the Apex Court in the case of STATE OF MADHYA PRADESH AND ORS.
    DATE OF JUDGMENT: 14/08/1997
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