2023 (8) TMI 843 - HC - VAT and Sales Tax

Initiation of Reassessment proceedings - time barred or not - Levy of penalty u/s 10 A of the CST Act - deliberate intent or not - Mis-utilization of Form 'C' for purchase of goods at concessional rate - assessee was carrying out manufacturing activity on job work basis and the goods manufactured by it was not sold by it but was sold by Tata Motors Limited. Whether Section 42(3) is in itself the substantive provision provided under the JVAT Act for initiation of re-assessment proceeding or it merely enumerates additional circumstances/grounds under which re-assessment proceeding can be initiated under the substantive provision of re-assessment contained under Section 40 of the JVAT Act? - HELD THAT - The Hon ble Supreme Court, in the case of Mafatlal Industries 1996 (12) TMI 50 - SUPREME COURT , has clearly laid down that the phrase levy and collection indicates that all the steps in making a man liable to pay a tax and exaction of tax from him must be in accordance with law. All steps must be taken according to statutory provisions and no one can be subjected to levy and collection of tax without authority of law. It is a settled law that completion of assessment of an assessee confers valuable right upon the said assessee and the said assessment proceeding can be subjected to re-assessment strictly in accordance with the statutory provisions contained under the Act. Pior to insertion of Section 42(3), the Assessing Authority, could have treated audit objection as an information and could have initiated re-assessment proceeding. However, Section 42(3) provides that when information is received by way of observation/objection from the Comptroller and Auditor General of India, the Assessing Authority has to proceed to re-assess the dealer. Thus, what is dispensed with under Section 42(3) is recording of reasons to believe by the Assessing Authority for initiation of re-assessment proceeding. Further, in the Judgment rendered by Hon ble Apex Court, in the case of Larsen and Toubro 2017 (3) TMI 1064 - SUPREME COURT , Hon ble Apex Court, after examining almost all earlier Judgments, although held that an audit objection would be well within the parameters of being construed as information, but at the same time, it has been held that merely because audit objection has been raised, the same would not authorize the Assessing Authority to proceed with re-assessment and the Assessing Authority has to record his satisfaction on the audit objection. In the said Judgment, Hon ble Supreme Court noticed that the Assessing Authority was not agreeing with the audit observation, but, despite the same, proceeded to issue Notice on the ground of direction issued by Audit Party and not on its personal satisfaction and it was clearly held by Hon ble Apex Court that same was not permissible under law; and the very initiation of re-assessment proceeding was declared as without jurisdiction. The law is no more res integra that a quasi-judicial authority cannot abdicate its jurisdiction on the dictate of an external authority and proceed to pass order on such external dictate - In the present case, it has been argued by learned Advocate General, Section 42(3) mandates the assessing authority to initiate re-assessment proceeding on the dictate of the Audit Party which, on the face of discussions, would amount to abdication of jurisdiction of the assessing authority being a quasi-judicial body to external dictates, which would be contrary to the ratio laid down by the Judgment of Hon ble Apex Court in the case of Indian Eastern Newspaper Society, New Dehi 1979 (8) TMI 1 - SUPREME COURT and in the case of Larsen and Toubro. Whether Section 42(3) is an independent provision conferring power of re-assessment or is merely as additional ground conferred under the Act upon the assessing authority for carrying out re-assessment proceedings? - HELD THAT - Since it is already declared that Section 42(3) is to be read with Section 40(4) of JVAT Act and limitation period for carrying out re-assessment proceeding is five years, we are not deliberating further over the said issue - However, it would be apt to also refer to the Judgment rendered by Hon ble Supreme Court in the case of State of Punjab Ors. Vs. Bhatinda District Cooperative Milk Producers Union Ltd. 2007 (10) TMI 300 - SUPREME COURT wherein Hon ble Apex Court, while examining the provisions contained under the Punjab General Sales Tax Act conferring power of suo-motu revision upon the Commissioner, held that although said Section prescribed no period of limitation but the same would not mean that suo-motu power can be exercised at any time. The Hon ble, in the said Judgment, held that if no period of limitation is prescribed, statutory authority must exercise jurisdiction within reasonable time and the reasonable period would depend upon the nature of the statute, liabilities and other relevant factors. In the said Judgment, Hon ble Supreme Court, while examining the scheme of Punjab General Sales Tax Act, held that revisional power should ordinarily be exercised within a period of three years and, in any event, the same should not exceed the period of five years. Said finding was given by the Hon ble Apex Court by considering various provisions of the Punjab Act which contains provision of limitation varying from three years to five years from the end of the tax period. Similarly, under the scheme of JVAT Act also, provisions of limitation for carrying out assessment, audit assessment, scrutiny assessment, re-assessment proceedings, etc. have been prescribed to be three years to five years. It is for the said reason also, in our opinion, while incorporating provision of Section 42(3), the Legislature, in its wisdom, had not sought to extend the period of limitation by inserting non-obstante clause. Whether imposition of penalty under Section 10A of the CST Act against the Petitioner-assessee for alleged violation of provisions of Section 10(b) of the CST Act is sustainable in the eye of law? - HELD THAT - The Assessing Authority failed to discharge its burden to prove the existence of circumstances constituting the said offence under Section 10(b). It may also be noted here that Show Cause Notice, pursuant to audit objection, was issued for alleged violation of Section 10(d) of the Act, but orders were passed for alleged violation of Section 10(b) of the Act. The first Revisional Authority i.e. Additional Commissioner of Commercial Taxes also held that the audit objection is not valid in view of the Judgment of East India Mfg. Company Ltd. 1981 (7) TMI 205 - SUPREME COURT , but still upheld the order of the Assessing Authority imposing penalty, which compelled the Petitioner to move before the second Revisional Authority i.e. Commercial Taxes Tribunal. The Commercial Taxes Tribunal, interestingly, upheld levy of penalty on a completely new ground by recording, inter alia, that in the original Registration Certificate of the Petitioner, although Petitioner was entitled to purchase goods at concessional rate for re-sale, but the word Wahi / Do was missing in the Registration Certificate and Petitioner was not entitled to purchase goods for manufacturing and processing of the goods for sale. This finding rendered by Commercial Taxes Tribunal is clearly travelling beyond the impugned orders and has been raised for the first time before the Tribunal. The imposition of penalty against the Petitioner under Section 10A of the Act is not sustainable in the eye of law, and, the assesse was under the bona fide belief that its Registration Certificate entitled it to purchase goods at concessional rate for manufacturing and processing of goods for sale and the said bona fide belief of the assesse is fortified by the stand taken by the Revenue itself, wherein at no stage it was disputed that assesse was not entitled to purchase goods at concessional rate for manufacturing and processing activity. The assesse-Petitioner, therefore, cannot be said to have falsely represented knowingly and willfully with guilty mind and, thus, we are of the opinion that the order of penalty levied against the assesse is not sustainable. Application allowed.

Summary

Issues Involved:
1. Whether Section 42(3) of the JVAT Act merely enumerates additional circumstances/grounds for re-assessment or is a substantive provision.
2. Whether re-assessment proceedings under Section 42(3) should be carried out within a reasonable time and what constitutes reasonable time under the JVAT Act.
3. Whether the imposition of penalty under Section 10A of the CST Act against the Petitioner for alleged violation of Section 10(b) of the CST Act is sustainable.

Summary:

Issue 1: Interpretation of Section 42(3) of the JVAT Act
The court examined whether Section 42(3) of the JVAT Act is a standalone provision for re-assessment or merely enumerates additional grounds under Section 40 of the JVAT Act. It was held that Section 42(3) should be read with Section 40(4) of the JVAT Act, making the limitation period for re-assessment five years. The court noted that while Section 42(1) and 42(2) contain non-obstante clauses extending the limitation period, Section 42(3) does not, indicating the legislature's intent to keep the re-assessment period within the five-year limitation.

Issue 2: Reasonable Time for Re-assessment
The court declared that in cases where no period of limitation is prescribed, proceedings should be carried out within a reasonable period of time, which should be determined based on the scheme of the Act. The court referenced the Supreme Court's judgment in the case of State of Punjab & Ors. Vs. Bhatinda District Cooperative Milk Producers Union Ltd., which held that revisional power should be exercised within three to five years.

Issue 3: Imposition of Penalty under Section 10A of the CST Act
The court examined whether the penalty imposed under Section 10A of the CST Act for alleged violation of Section 10(b) was justified. It was held that for a penalty under Section 10A, there must be a finding of mens rea, indicating deliberate and willful false representation. The court found that the Petitioner acted under a bona fide belief that its Registration Certificate entitled it to purchase goods at a concessional rate for manufacturing and processing of goods for sale. The inadvertent typographical error in the original Registration Certificate did not constitute deliberate misrepresentation. Therefore, the imposition of the penalty was not sustainable.

Conclusion:
The court allowed the writ petitions, quashing the impugned orders of the Commercial Taxes Tribunal and declaring that the re-assessment proceedings were barred by limitation and the penalty imposed under Section 10A of the CST Act was unsustainable.