2015 (7) TMI 586 - HC - VAT and Sales Tax

Premature recovery proceedings on the basis of best judgment re-assessment order - garnishee/recovery notices - petition has submitted rectification application - Held that - order of re-assessment as well as demand notices came to be served on the petitioner namely when it was despatched by respondent under Registered Post Acknowledgement Due on 07.04.2015, and it came to be received by petitioner on 09.04.2015. Thus, 30 days period in the instant case would commence from 09.04.2015 and ends on 08.05.2015. However, even before 30 days period came to an end respondent has resorted to recover the tax determined under the impugned re-assessment orders by invoking Section 45 of the Act and calling upon the persons holding money on behalf of petitioner and which is payable to petitioner by directing them to remit the funds to the Department within three (3) days from the date of notices dated 28.03.2015. As such the impugned Garnishee notices Annexures-G and H cannot be sustained. Though Annexures-G and H cannot be sustained same is not quashed, in as much as pursuant to Demand notices respondent has issued notices dated 28.03.2015 and 30.03.2015, Annexures-J and K respectively under Section 45 of the Act to debtors of petitioner and same being held bad in law and as such they require to be quashed by reserving liberty to the respondent to issue fresh notices in the event of petitioner application for rectification Annexures - M and N being rejected. Respondent shall dispose of the applications dated 13.04.2015 Annexure-M and N filed by the petitioner expeditiously at any rate within 15 days from the date of hearing which is fixed at 12.05.2015 at 11.00 A.M. without waiting for any further notice. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Validity of reassessment orders and demand notices.
2. Compliance with principles of natural justice.
3. Legality of recovery proceedings initiated before the expiry of the statutory period.
4. Service of reassessment orders and demand notices.
5. Rectification applications and their disposal.

Detailed Analysis:

1. Validity of Reassessment Orders and Demand Notices:
The petitioner, a sole proprietary concern registered under the Karnataka Value Added Tax Act, 2003, faced reassessment proceedings for the assessment years 2008-09 and 2009-10. The reassessment orders were framed on 28.02.2015, and consequential demand notices were issued. The petitioner alleged that these orders were passed without considering the representations requesting an extension of time to produce books of account due to ill health. The court noted that the reassessment orders were issued without proper service, thus affecting their validity.

2. Compliance with Principles of Natural Justice:
The petitioner contended that the reassessment orders were in violation of the principles of natural justice as they were passed without granting sufficient time to produce the books of account. The court observed that the reassessment orders were served by affixture on 28.02.2015, and the demand notices required payment within 30 days from the date of service. The court held that the initiation of recovery proceedings before the expiry of the 30-day period was illegal and violated the principles of natural justice.

3. Legality of Recovery Proceedings Initiated Before the Expiry of the Statutory Period:
The petitioner argued that the recovery proceedings initiated under Section 45 of the Act before the expiry of the 30-day period were premature. The court agreed, stating that the demand notices were served on the petitioner on 09.04.2015, and the 30-day period would end on 08.05.2015. However, the recovery proceedings were initiated on 28.03.2015, which was before the statutory period ended. Consequently, the court quashed the garnishee notices dated 28.03.2015 and 30.03.2015.

4. Service of Reassessment Orders and Demand Notices:
The respondent claimed that the reassessment orders were served by affixture and subsequently sent by speed post and registered post. The court found that the reassessment orders were served on the petitioner only on 09.04.2015. The court emphasized the importance of following the prescribed modes of service under Rule 176 of the Karnataka Value Added Tax Rules. It was noted that the orders should have been dispatched by registered post or speed post before resorting to affixture.

5. Rectification Applications and Their Disposal:
The petitioner filed rectification applications on 13.04.2015, seeking correction of alleged errors in the reassessment orders. The respondent issued an endorsement suggesting that the petitioner could file an appeal instead of examining the rectification applications on merits. The court held that the respondent was required to examine and dispose of the rectification applications as per Section 69(1) of the Act. The court directed the respondent to dispose of the rectification applications expeditiously.

Conclusion:
The court allowed the writ petitions in part, quashing the premature demand and garnishee notices. The respondent was directed to dispose of the rectification applications within 15 days from the date of hearing. The petitioner was granted liberty to present additional material, and the respondent was instructed to pass orders on the rectification applications in accordance with the law. The court did not express any opinion on the merits of the case.