2014 (12) TMI 910 - HC - VAT and Sales Tax

Validity of assessment order Extended period of limitation u/s 21(5) of A.P. VAT Act, 2005 suppression of inter-State purchases of edible oils - Held that - the show cause notice alleges that the assessee has committed willful evasion of tax - The findings recorded by the first respondent in the assessment order, which shall be referred to later in this order, also establish that the petitioner had committed willful evasion of tax - as the ingredients of Section 21(5) are attracted, there is no reason to held that the assessment, made for the tax period 2008- 09 and 2009-10, is beyond the period of limitation. Violation of principles of natural justice or not Whether failure of the assessing authority, to summon the selling dealers, for their cross-examination by the assessee, in violation of principles of natural justice Held that - Failure to summon dealers, (who were not even carrying on business in the said premises and whose whereabouts were not known), for being subjected to cross-examination by the petitioner cannot be said to be in violation of principles of natural justice - as the dealers were not even available for examination by the concerned commercial tax officers, the question of making them available for cross-examination by the petitioner does not arise. Extension of benefit of input tax credit Sale of goods on which input tax credit claimed or not - Would production of a tax invoice by itself, and without anything more, require a dealer to be extended the benefit of input tax credit and whether the assessing authority prohibited from enquiring whether or not the selling dealer had sold the goods for which input tax credit was being claimed Held that - The entitlement of a VAT dealer to claim input tax u/s 13(1), in view of Section 13(3) thereof, is only if he is in possession of a tax invoice - the mere fact that the dealer is in possession of the tax invoice does not preclude the assessing authority from ascertaining whether the selling dealer had, in fact, sold goods to the purchasing dealer; whether there was physical delivery of such goods; whether the tax invoice was issued by a registered VAT dealer; whether or not the transactions of sale are genuine, etc. If, on enquiry, the assessing authority is satisfied, on the basis of the material evidence on record, that there has been no sale of goods, or the tax invoice was not issued by the VAT dealer, or there was no physical delivery of goods, or inter-state purchases had been suppressed and bogus tax invoices raised as if the said goods had been purchased by the dealer within the State, he can deny the assessee the benefit of input tax credit. The benefit of input tax credit is given to avoid the cascading effect of levy of sales tax at multiple points of sale - while the purchasing VAT dealer would not be entitled to claim input tax credit without obtaining a tax invoice from the selling VAT dealer, mere production of a tax invoice would not disable the assessing authority from enquiring whether the sale of goods, referred to in the said tax invoice, is genuine or bogus or whether the said tax invoice has been issued by a registered VAT dealer - while the eight dealers from whom the petitioner claimed to have purchased edible oils were registered VAT dealers, they were not carrying on business; some of them had not even registered themselves as carrying on business in edible oils; the tax invoices in their name were issued by third parties; and neither had they disclosed these sales in their returns nor had they paid tax thereon - while non-payment of tax by a genuine registered VAT dealer may not disentitle the purchasing dealer from claiming input tax credit, the assessing authority would be justified in denying the assessee the benefit of input tax credit where the entire transaction is a sham and goods have neither been transported nor delivered by the selling dealer to the purchasing dealer. Adequacy or sufficiency of evidence - Whether judicial review of an assessment order adequacy or sufficiency of the evidence, based on which the assessing authority recorded his findings, can be gone into or not - Held that - In the exercise of its jurisdiction under Article 226 of the Constitution of India, the Court would not re-appreciate the evidence on record nor would it substitute its views for that of the assessing authority - even if two views are possible, and the view taken by the assessing authority, on the evidence on record, is held to be a possible view, interference by the Court would not be justified - while an appellate authority would be entitled to re-appreciate the evidence, and come to a different conclusion on the same material, such an exercise would not be undertaken by this Court in Writ proceedings under Article 226 of the Constitution of India - If the material on record supports the conclusion of the assessing authority, and the findings arrived at by him are such as a reasonable man would arrive at on the material on record, this Court would refrain from interference. The material on record does support the conclusion of the assessing authority that inter-State purchases of edible oils were suppressed and documents were created as if the petitioner had purchased edible oils from dealers within the State and had made payment to them, when, in fact, they had not purchased edible oils from dealers within the State - The conclusion of the assessing authority that this modus operandi was only to illegally claim the benefit of input tax credit, thereby evade payment of the sales tax due to the Government on the sales made by the petitioner to other VAT dealers within the State, and is only to willfully evade payment of tax, are neither findings based on no evidence nor are such findings perverse - therefore, there is no reason to exercise jurisdiction under Article 226 of the Constitution of India to interfere with the impugned assessment order Decided against the petitioner.

Summary

Issues involved:
1. Extended period of limitation under Section 21(5) of the A.P. VAT Act.
2. Violation of principles of natural justice due to failure to summon selling dealers for cross-examination.
3. Entitlement to input tax credit based on possession of tax invoices.
4. Judicial review of assessment orders.

Detailed Analysis:

I. Extended Period of Limitation under Section 21(5) of the Act:

The petitioner argued that the assessment for part of the period was barred by limitation and that the show-cause notice should explicitly mention Section 21(5) if it alleges willful evasion of tax. The respondent contended that Section 21(5) is an extension of Section 21(3), and if willful evasion is alleged, the limitation extends to six years. The court held that the show-cause notice, even without specific mention of Section 21(5), suffices if it alleges willful evasion of tax. The findings in the assessment order confirmed willful evasion, thus justifying the extended period of limitation.

II. Violation of Principles of Natural Justice:

The petitioner claimed a violation of natural justice as they were not allowed to cross-examine the selling dealers. The court noted that the selling dealers were not available for examination, as they were not conducting business and their whereabouts were unknown. Therefore, the failure to summon them did not violate principles of natural justice. The court also distinguished this case from others where cross-examination was deemed necessary, emphasizing the flexibility of natural justice principles based on case specifics.

III. Entitlement to Input Tax Credit Based on Possession of Tax Invoices:

The petitioner argued that they were entitled to input tax credit as they possessed tax invoices from registered VAT dealers. The court held that mere possession of tax invoices does not preclude the assessing authority from verifying the genuineness of transactions. The assessment revealed that the selling dealers were not conducting business, and the tax invoices were issued by third parties. The court supported the assessing authority's conclusion that the transactions were sham and aimed at evading tax, thus denying the input tax credit.

IV. Judicial Review of Assessment Orders:

The petitioner sought judicial review of the assessment order, claiming it was based on assumptions and lacked evidence. The court emphasized that judicial review under Article 226 is limited to correcting jurisdictional errors, violations of natural justice, or errors apparent on the face of the record. It does not extend to re-evaluating evidence or substituting the court's views for those of the assessing authority. The court found that the assessment order was based on substantial evidence and reasonable conclusions, thus not warranting interference.

Conclusion:

The court dismissed the writ petition, affirming the assessment order and rejecting the claims of limitation, violation of natural justice, and entitlement to input tax credit based solely on possession of tax invoices. The court upheld the findings of willful evasion of tax and the genuineness of the assessment process.