2019 (8) TMI 909 - HC - VAT and Sales Tax

Reopening of assessment - time limitation - DVAT Act - limitation on assessment and re-assessment - Section 34 of the DVAT Act - Default assessment of tax and penalty and interest - HELD THAT - In the present case, the reopening of the assessment is sought to be done beyond the period of 4 years and before the expiry of 6 years of the assessment period. The jurisdictional requirement for invoking the extended period of 6 years is that the Commissioner should note the reasons to believe that the tax was not paid and that the failure to pay such tax should be on account of concealment, omission or failure by the Assessee to disclose full material particulars . The notings on file in the present case reveal that the trigger for the reopening of the assessment was the report of the DGCEI according to which Amit Gupta, Director of Progressive Alloys India Pvt. Ltd., along with associated registered dealers viz., M/s. Forward Minerals and Metals Pvt. Ltd., M/s. Unnati Alloys Pvt. Ltd., M/s. Moral Alloys Pvt. Ltd. and M/s. Brilliant Metals Pvt. Ltd. were passing on inadmissible CENVAT credit on the cenvatable invoice without physical delivery of goods. The report observed that the period for which the exercise was carried out by the DGCEI pertained to Financial Years 2011-12 and 2012-13 and that this period had become time barred. It was then noted that since the DGCEI had raised serious doubts over the working of the Assessee firm the possibility of evasion of tax by the firm cannot be ruled out. The twin requirements of (i) the Commissioner having to form the requisite reason to believe , and (ii) for such reasons to have a live nexus with the failure to pay tax as a result of the Assessee s concealment, omission or failure to disclose material particulars, is not fulfilled in the present case. It is trite that reason to believe is different from reason to suspect - The statutory requirement is that there must be reason to believe that there has been some omission, concealment or failure by the Assessee to disclose full material particulars. There is nothing in the file noting, much less in the notice dated 29th October, 2017, which suggests that the Commissioner had arrived at a subjective satisfaction that tax was not paid on account of the Petitioners concealment, omission or failure to disclose full material particulars. Admittedly, in the present case in the reassessment proceedings the Respondent has sought to make no distinction between the liability under the DVAT and that under the CST Act. In terms of Section 5 of the DVAT Act these two could not be combined. There is no question of treating this as a mere technical problem and permitting the Respondents to repeat the exercise by proceeding against the Petitioner separately. Apart from the facts that this is not merely a technical problem , such exercise would be clearly time barred at this stage - the Court holds that the reopening of the assessment in the present case by the Respondent by invoking the extended period of 6 years in terms of the proviso to Section 34 (1)(a) of the DVAT Act was bad in law. Impugned assessment order set aside - petition allowed.

Summary

Issues Involved:
1. Validity of the impugned order of default assessment of tax, penalty, and interest.
2. Applicability of the limitation period for framing assessment under Section 34(1) of the DVAT Act.
3. Adequacy of the reasons provided for invoking the extended period of limitation.
4. Legality of combining DVAT and CST assessments into one order.
5. Justification for reopening the assessment based on the DGCEI report.

Detailed Analysis:

1. Validity of the Impugned Order of Default Assessment of Tax, Penalty, and Interest:
The Petitioner, a private limited company engaged in the business of ferrous and non-ferrous metals, challenged the impugned order dated 18th January 2018, passed by the Assistant Value Added Tax Officer (AVATO) under Sections 32 and 33 of the DVAT Act. The Petitioner argued that the assessment was beyond the statutory limitation period and lacked justification for invoking the extended period of limitation.

2. Applicability of the Limitation Period for Framing Assessment Under Section 34(1) of the DVAT Act:
The Petitioner contended that under Section 34(1) of the DVAT Act, the AVATO was required to frame the assessment within four years from the end of the tax period, which expired on 31st March 2016. The notice issued on 11th October 2017 was beyond this four-year period. The Respondent argued that proper approval was obtained on 9th October 2017 from the Commissioner of VAT to invoke the extended period of limitation.

3. Adequacy of the Reasons Provided for Invoking the Extended Period of Limitation:
The Court examined whether the reasons to believe that tax was not paid due to concealment, omission, or failure to disclose material particulars were adequately recorded. The Court referred to the legal position established in H M Industries v. Commissioner of Value Added Tax, which mandates that the Commissioner must form "reasons to believe" and record them in writing. The reasons must have a live link with the failure to pay tax due to concealment, omission, or failure to disclose material particulars.

4. Legality of Combining DVAT and CST Assessments into One Order:
The Respondent admitted that combining the local and central turnover in the same default notice was an inadvertent error and a "technical problem." The Court held that combining DVAT and CST assessments into one order was not merely a technical problem but a significant legal issue. The Respondent's request to issue separate orders at this stage was deemed time-barred and not permissible.

5. Justification for Reopening the Assessment Based on the DGCEI Report:
The reopening of the assessment was based on a report from the Director General of Central Excise Intelligence (DGCEI), which alleged that the Petitioner, along with other firms, passed on inadmissible CENVAT credit without physical delivery of goods. The Court noted that the DGCEI report alone, without further independent inquiry, could not form the basis for reopening the assessment. The Court emphasized that "reason to believe" is different from "reason to suspect" and that the statutory requirement of forming a subjective satisfaction based on concrete evidence was not met.

Conclusion:
The Court held that the reopening of the assessment by invoking the extended period of six years was bad in law. The impugned assessment orders dated 18th January 2018, and the notices dated 11th October 2017, were set aside. The petition was allowed, and no orders as to costs were made. The pending application was disposed of accordingly.