2019 (7) TMI 1594 - HC - VAT and Sales Tax

Initiation of proceedings against the petitioners beyond the period of limitation - Section 25(3) of the VAT Act - HELD THAT - The notices issued on 25.4.16 were in conformity with the provisions of Section 75(1)(b), which empowers the officer not below the rank of Assistant Commercial Taxes Officer to direct the dealer to produce accounts, registers and documents relating to business activities for examination. The subsequent notices were also issued under Section 75(1) of the VAT Act inasmuch as, pursuant to the notice dated 25.4.16, the petitioners-assessees had sought time to produce the record but failed to do so. The proceedings remained pending on account of the petitioners not producing the record. It is not disputed before this court that after the petitioners producing the requisite record, the authority conducting the survey submitted the report to the Deputy Commissioner (Administration), Commercial Taxes, Sriganganagar, and recommended to register the case against them under Section 61 of the VAT Act - the contention of the petitioners that the proceedings against them under Section 25(1) of the VAT Act were initiated after making out the case vide notice dated 25.4.16 purported to be issued under Section 75(1) of the VAT Act, cannot be accepted by this court. Apparently, the notices issued prior to the impugned notices, were the notices issued directing the petitioners to produce the relevant record so as to enable the Assessing Authority to arrive at the conclusion regarding the evasion/avoidance of tax or the petitioners wrongly availing the ITC and the same cannot be construed to be notices issued under Section 25(1) of the VAT Act - the date of notices issued under Section 25(1) of the VAT Act needs to be taken as the date of making out the case against the petitioners and the Assessing Authority would be well within its jurisdiction in passing the assessment order within the period of six months from the date of the said notice, which for the reasons recorded in writing in a particular case may be further extended by the Commissioner for a period not exceeding six months. The notices issued by the Assessing Authority initiating the proceedings against the petitioners cannot be said to have been issued acting without jurisdiction and therefore, the writ petitions deserve to be dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Authority.
2. Limitation period for initiating proceedings under Section 25 of the VAT Act.
3. Validity of notices issued under Section 75(1) of the VAT Act.
4. Reversal of Input Tax Credit (ITC).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Authority:
The petitioners contended that the Assessing Authority's action in initiating proceedings under Section 25 of the VAT Act beyond the period of limitation is ex facie without jurisdiction. They argued that the proceedings initiated for assessment under Section 25 of the Act suffer from inherent lack of jurisdiction and deserve to be quashed. However, the court found that the notices issued by the Assessing Authority were within its jurisdiction and in compliance with the relevant provisions of the VAT Act. The court held that the Assessing Authority was competent to issue the impugned notices and initiate proceedings against the petitioners.

2. Limitation Period for Initiating Proceedings under Section 25 of the VAT Act:
The petitioners argued that the assessment under Section 25(1) cannot be made after the expiry of six months from the date of making out the case, which they claimed started from the issuance of the notice dated 25.4.16. However, the court clarified that the limitation period for making an assessment under Section 25(1) starts from the date of issuance of the notice under Section 25(1) itself, which in this case was 21.3.18. The court emphasized that the earlier notices were issued under Section 75(1) for the purpose of producing records and not for making out a case under Section 25(1). Therefore, the assessment order proposed to be passed was not time-barred.

3. Validity of Notices Issued under Section 75(1) of the VAT Act:
The court examined the validity of the notices issued under Section 75(1) of the VAT Act. It was found that the notices dated 25.4.16 and subsequent notices were issued to direct the petitioners to produce sale and purchase vouchers, bilties, books of account, bank transaction statements, and VAT declarations for examination. These notices were in conformity with Section 75(1)(b) of the VAT Act, which empowers the officer to direct the dealer to produce accounts, registers, and documents relating to business activities for examination. The court concluded that these notices were valid and issued in accordance with the provisions of the VAT Act.

4. Reversal of Input Tax Credit (ITC):
The petitioners contended that the intention of the Assessing Authority was to reverse the ITC claimed by them due to bogus purchases, as indicated in the notice dated 20.5.16. The court noted that the inspection report submitted by the authority conducting the survey recommended the registration of a case against the petitioners under Section 61 of the VAT Act for evasion of tax and reversal of ITC. The court held that the decision to initiate proceedings under Section 25, 18, 55, and 61(2) of the VAT Act was taken only after the submission of the inspection report and recommendations. Therefore, the reversal of ITC was part of the legitimate proceedings initiated by the Assessing Authority.

Conclusion:
The court dismissed the writ petitions, holding that the notices issued by the Assessing Authority were within its jurisdiction and in compliance with the relevant provisions of the VAT Act. The limitation period for making an assessment under Section 25(1) starts from the date of issuance of the notice under Section 25(1), which was 21.3.18 in this case. The earlier notices issued under Section 75(1) were valid and aimed at procuring records for examination. The proceedings for evasion of tax and reversal of ITC were initiated based on the inspection report and recommendations. The interim orders staying further proceedings were vacated, and no order as to costs was made.