2025 (1) TMI 603 - HC - VAT / Sales Tax

Cancellation of the L1 certificate issued under Section 5-G of the A.P.G.S.T Act - late filing of the monthly returns for the period April, 2002 to November, 2002 - challenge to Rule 6-B (2) (iii) of the A.P.G.S.T Act on the ground that the same is contrary under Section 5-G of the A.P.G.S.T Act - HELD THAT - The impugned order contains an order of assessment as well as an order of cancellation of the L1 certificate. The learned counsel contends that this is not permissible. However, he has not placed any provisions of law, which prohibits the passing of such a combined order. It must be noted that this order has been passed, after the petitioner was put on notice about the proposal to cancel the L1 certificate and also the proposal to tax the turnover under section 5F of the Act. In such a situation there are no reason to hold the impugned order invalid, merely because it is a combined order. Rule 6-B (2) (iii) provides for cancellation of the permission granted for composition of tax, under Section 5-G, if there has been suppression of turnover by the dealer or the dealer fails to pay tax within the specified time or if the dealer contravenes any provision or any of the Rules. This Court does not find any reason to hold that these provisions are in violation of Section 5-G. A perusal of Section 5-G would show that the said provision itself provides that such composition would be granted subject to such conditions as may be prescribed. In this case, the prescription of such conditions is set out in Rule 6-B (2) (iii). The provision of Section 5-G itself empowers the rule making authority to stipulate conditions for grant of composition. In such circumstances, it cannot be said that the conditions stipulated under Rule 6-B (2) (iii) are in any manner ultra vires of Section 5-G of the A.P.G.S.T Act. The impugned assessment order states that the permission for composition, granted under the Form L1 certificate, is being cancelled for contravention of Rule 6-B (2) (iii), because of the late filing of the monthly returns for the period April 2002 to November, 2002 and the late filing of the return, by three days, for the month of March, 2003 - The cancellation of L1 certificate, thus appear to be disproportionate to the contribution of the Act or Rules, however, it would be appropriate that this issue is considered again by the Assessing Authority. Conclusion - i) It cannot be said that the conditions stipulated under Rule 6-B (2) (ii) are in any manner ultra vires of Section 5-G of the A.P.G.S.T Act. ii) The cancellation of L1 certificate, thus appear to be disproportionate to the contribution of the Act or Rules, however, it would be appropriate that this issue is considered again by the Assessing Authority. Petition disposed off by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the late filing of monthly returns by the petitioner justifies the cancellation of the L1 certificate issued under Section 5-G of the A.P.G.S.T Act.
• Whether Rule 6-B (2) (iii) of the A.P.G.S.T Rules is ultra vires Section 5-G of the A.P.G.S.T Act.
• Whether the combined order of assessment and cancellation of the L1 certificate is permissible under the law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Late Filing of Monthly Returns and Cancellation of L1 Certificate

• Relevant Legal Framework and Precedents: Section 5-G of the A.P.G.S.T Act allows dealers to opt for a composition scheme, which permits tax payment at a reduced rate, subject to conditions. Rule 6-B (2) (iii) provides grounds for cancellation of this permission.
• Court's Interpretation and Reasoning: The Court found that the late filing of returns did not prejudice the revenue, indicating that cancellation of the L1 certificate was disproportionate to the infraction.
• Key Evidence and Findings: The petitioner filed returns late but paid the tax in advance, and the delay did not affect the revenue collection.
• Application of Law to Facts: The Court noted that while the petitioner violated procedural rules, the substantive compliance (i.e., tax payment) was maintained.
• Treatment of Competing Arguments: The petitioner argued that the delay was minor and non-prejudicial, while the respondent emphasized procedural compliance.
• Conclusions: The Court set aside the cancellation of the L1 certificate, allowing the Assessing Authority to reconsider the proportionality of the cancellation.

Issue 2: Validity of Rule 6-B (2) (iii)

• Relevant Legal Framework and Precedents: Section 5-G provides for composition of tax, subject to prescribed conditions, which are detailed in Rule 6-B (2) (iii).
• Court's Interpretation and Reasoning: The Court held that Rule 6-B (2) (iii) is not ultra vires because Section 5-G allows for conditions to be prescribed by rules.
• Key Evidence and Findings: The rule provides conditions under which the composition certificate can be canceled, aligning with the enabling provision in Section 5-G.
• Application of Law to Facts: The Court found that the rule was within the legislative framework provided by Section 5-G.
• Treatment of Competing Arguments: The petitioner argued that the rule exceeded the scope of Section 5-G, but the Court disagreed, emphasizing legislative intent.
• Conclusions: The challenge to the validity of Rule 6-B (2) (iii) was dismissed.

Issue 3: Combined Order of Assessment and Cancellation

• Relevant Legal Framework and Precedents: No specific legal provision prohibits combined orders, provided due process is followed.
• Court's Interpretation and Reasoning: The Court found no legal prohibition against issuing a combined order, especially since the petitioner was notified.
• Key Evidence and Findings: The combined order was issued after due notice to the petitioner, addressing both assessment and cancellation.
• Application of Law to Facts: The Court considered the procedural fairness and found the combined order permissible.
• Treatment of Competing Arguments: The petitioner claimed procedural impropriety, but the Court found the process followed was adequate.
• Conclusions: The combined order was upheld, with no legal basis for invalidation.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The impugned order contains an order of assessment as well as an order of cancellation of the L1 certificate. The learned counsel contends that this is not permissible. However, he has not placed any provisions of law, which prohibits the passing of such a combined order."
• Core Principles Established: The proportionality of punitive actions in tax compliance is crucial, and procedural rules must align with substantive legislative provisions.
• Final Determinations on Each Issue: The challenge to Rule 6-B (2) (iii) was dismissed; the cancellation of the L1 certificate was set aside for reconsideration; the combined order was deemed permissible.