2016 (6) TMI 220 - HC - VAT and Sales Tax

Validity of notices issued during the pendency of this petition - Section 59(2) of the Delhi Value Added Tax Act, 2004 - Call for production of records, books of accounts, registers and other documents etc. - No rule had been framed under Section 102(2)(z) of the DVAT Act in regard to the exercise of the power under Section 59(2) thereof - whether in the absence of such a rule, the exercise of the powers under Section 59(2) of the DVAT Act can not be precluded. Held that - the provision of Section 59 of the DVAT Act indicates that the Commissioner can exercise the powers under Section 59(2) of the DVAT Act to call upon the dealer or any other person to produce records, books of accounts etc. for (i) the proper administration of the DVAT Act and (ii) subject to such conditions as may be prescribed. The expression as may be prescribed has to be interpreted as requiring Rules to be framed in the matter of inspection of production of records. The Commissioner has to exercise the power for the proper administration of the DVAT Act, he has to make assure that what is being asked to be produced, in the form of books of accounts and other documents, are related to the activities of either the person to whom such notice is issued or any other person as the Commissioner may deem necessary. The Commissioner has to decide what document should be asked to be produced. It is another matter that there have been instances of misuse of the powers. The Court has had to step in to correct such misuse. That by itself, however, does not make the provision bad in law. It also does not mean that in the absence of a Rule, the power under Section 59 (2) is incapable of being exercised. It is in this context that the language used in Section 45 of TNHRCE Act or Section 45 of the Maharashtra Cooperative Societies Act, 1960 or Section 38 of the Bangalore Development Authority Act, 1976 became relevant. In each of the above instances, the language of the provision was such that the exercise of the power was dependent on the framing of the Rules. However, Section 59 (2) of the DVAT Act is so worded that it can be given effect to even in the absence of the rules. Therefore, in the absence of any rules being framed under Section 102(2)(z) read with Section 59(2) of the DVAT Act, the power of the Commissioner under Section 59(2) of the DVAT Act to call upon a person to produce the books of accounts and other documents cannot be exercised. Issued of direction to the Respondent to frame rules in exercise of the power under Section 102(2)(z) of the DVAT Act - Held that - there are a few limitations on the scope of the powers of this Court under Article 226 of the Constitution. One such limitation is the inability to issue a mandamus to the Respondent/Executive to frame a rule in respect of any particular topic or issue and in a specific manner. That is the prerogative of the Executive. However, that does not preclude the Petitioner, along with other dealers, to make a representation to the Government of NCT of Delhi and in particular to the DT&T that Rules in terms of Section 102(2)(z) read with Section 59(2) of the DVAT Act should be framed. They can draw the attention of the GNCTD to the provisions in the ten other states which have VAT statutes. If such representation is made, the Court has no doubt that it will receive adequate and serious consideration in the hands of GNCTD and specifically, the DT&T, particularly since such a rule will serve the salutary purpose of guiding the officers in the exercise of their powers and serve to also act as a check on the possible abuse of powers. - Petition disposed of

Issues Involved:
1. Validity of system-generated notices issued under Section 59(2) of the Delhi Value Added Tax Act, 2004 (DVAT Act).
2. Requirement of rules under Section 102(2)(z) of the DVAT Act for the exercise of powers under Section 59(2).
3. Allegations of misuse of powers under Section 59(2) by VAT Officers (VATOs).

Detailed Analysis:

1. Validity of System-Generated Notices Issued Under Section 59(2) of the DVAT Act:
The petitioner challenged the system-generated notices issued by VATOs under Section 59(2) of the DVAT Act. During the hearing, it was informed that the Commissioner of VAT had passed an order delegating the jurisdiction to the Assistant Commissioner, Ward-206. The Court recorded that all the previously issued notices should be treated as withdrawn, and fresh notices would be issued under Section 59(2) of the DVAT Act.

2. Requirement of Rules Under Section 102(2)(z) of the DVAT Act:
The petitioner argued that the notices under Section 59(2) should be struck down due to the absence of rules framed under Section 102(2)(z) of the DVAT Act. The petitioner cited various judgments, including Sreenath Travel Agency & Am. Vs. Lt. Governor of Delhi & Ors., and Garware Shipping Corporation Ltd. & P.R. Sawant Vs. J.H. Joglekar, Addl, Collector of Customs, to support the argument that in the absence of prescribed rules, the exercise of power is invalid.

The respondent countered this argument by referring to the decision in The Commissioner, VAT v. A.K. Woollen Industries, which held that the absence of such a rule does not preclude the exercise of powers under Section 59(2). The Court examined statutes from other states and found that while some states had framed rules, others had not. The Court also considered the Supreme Court's decision in Dr. Subramanian Swamy v. State of Tamil Nadu, which emphasized that the term "prescribed" means prescribed by rules and that the exercise of power is conditional upon such prescription.

The Court concluded that Section 59(2) of the DVAT Act could be given effect to even in the absence of rules. The Court distinguished the wording of Section 59(2) from other statutes where the exercise of power was dependent on the framing of rules. The Court also referred to the Supreme Court's decision in Orissa State (Prevention & Control of Pollution) Board v. Orient Paper Mills, which held that the absence of rules does not invalidate the exercise of statutory power.

3. Allegations of Misuse of Powers Under Section 59(2) by VATOs:
The petitioner alleged that VATOs had exercised powers under Section 59(2) indiscriminately and as an instrument of harassment. Examples included sealing premises, making default notices of assessment, illegally denying refunds, blocking the downloading of forms, seeking explanations for shortfalls in tax deposits, reopening concluded assessments, and issuing multiple notices to maximize penalties.

The Court acknowledged that there had been instances of misuse but held that this did not make the provision bad in law. The Court emphasized that the power under Section 59(2) is for the proper administration of the DVAT Act and should be exercised with proper guidelines.

Conclusion:
The Court concluded that the absence of rules under Section 102(2)(z) does not invalidate the exercise of power under Section 59(2) of the DVAT Act. The Court concurred with the view expressed in The Commissioner, VAT v. A.K. Woollen Industries. The Court suggested that the petitioner and other dealers could make a representation to the Government of NCT of Delhi for framing rules under Section 102(2)(z) to guide the exercise of powers under Section 59(2) and prevent misuse. The writ petition and pending applications were disposed of accordingly.

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