2016 (2) TMI 895 - HC - VAT and Sales Tax

Invokation of power under Section 60 of the Delhi Value Added Tax Act, 2004 - Three premises of the petitioner sealed for non production of documents on time - Held that - there is nothing in the file which shows what reasons weighed with the Commissioner to order a survey under Section 59 of the DVAT Act and subsequently order sealing of the premises under Section 60 of the DVAT Act. The Petitioner was at the time of inspection not functioning at H-45 but from D-4 Udyog Vihar. It had recently shifted from the address at Okhla Estate to Nehru Place. The deployment order was not in respect of the aforementioned two addresses and yet those were sealed. How this was possible without a fresh deployment order being issued is unexplained. There is no indication as to what prompted the extreme step of sealing of the three premises. The order in that behalf has been passed not by the Commissioner but by the VATO but there is nothing to indicate that the VATO was authorised to do so by an order issued in Form DVAT 50 as on 15th March 2013. With the sealing order bristling with so many illegalities, there can be no manner of doubt that the sealing action was undertaken mechanically and only for the reason of failure to produce records as sought by the notice under Section 59 of the Act. There was no satisfaction arrived at by the Commissioner, as mandatorily required by Section 60 (1) of the DVAT Act, that there was any deliberate attempt by the Petitioner to avoid or evade tax or to conceal its tax liability in any manner. Therefore, the sealing order is set aside. Validity of condition of de-sealing - Demand of ₹ 600 crores - Held that - VATO simply totals up the turnover figures for 2011-12 and 2012-13, deducts 25% therefrom in terms of Rule 3 (2) of the DVAT Rules 2005 and arrives at a figure of ₹ 124.11 crores towards tax and approximately ₹ 31.02 crores as penalty. It then adverts to the assessment order for 2008-09 and the challenge thereto by the Petitioner in the Supreme Court and this Court (which is pending as of date) and in terms of the rectified assessment and penalty orders the demand created worked out to ₹ 614.60 crores. Then it seeks to create a demand on the basis of same proportions for 2009-10 to 2012-13 and arrives at a figure of approximately ₹ 2190.44 crores. It is on this basis that the VATO has ordered that as a condition for de-sealing the Petitioners three premises, the petitioner should deposit ₹ 600 crores. This figure is therefore based entirely on guess work and projections without any adjudication. The only description that can fit such a de-sealing order is that it is preposterous . Therefore, the de-sealing order which requires the Petitioner to deposit ₹ 600 crores as a condition for de-sealing is an abuse of the powers under Section 60 (4) of the DVAT Act and is unsustainable in law. - Decided in favour of petitioner

Summary

Issues Involved:
1. Legality of the sealing order dated 16th March 2013.
2. Validity of the demand for Rs. 600 crores as a precondition for de-sealing.
3. Missing files related to the case.
4. Compliance with procedural requirements under Sections 59 and 60 of the DVAT Act.
5. Authorization and jurisdiction for the actions taken.

Detailed Analysis:

1. Legality of the Sealing Order Dated 16th March 2013:
The sealing of the petitioner's premises was purportedly done under Section 60 of the DVAT Act due to a failure to produce documents as demanded. The court observed that the sealing order was not in accordance with the requirements of Section 60, which mandates that the Commissioner must have reasonable grounds to believe that the dealer is attempting to avoid or evade tax. The sealing action was undertaken mechanically and only for the reason of failure to produce records, without any satisfaction arrived at by the Commissioner that there was any deliberate attempt to avoid or evade tax.

2. Validity of the Demand for Rs. 600 Crores as a Precondition for De-sealing:
The demand for Rs. 600 crores was deemed "preposterous" and unsustainable in law. The court noted that the security required for de-sealing under Section 60(4) had no reference to the expected tax demand. The de-sealing order was based on guesswork and projections without any adjudication, and thus, the court found it to be an abuse of power under Section 60(4) of the DVAT Act.

3. Missing Files Related to the Case:
The court was informed that the relevant files of the case were not traceable. Despite efforts to trace the files, only the main survey file and court case file were available. The court directed the Commissioner, DT&T, GNCTD, to personally enquire into the matter and fix responsibility for the missing files. If the files were found to be untraceable, a first information report was to be registered for a proper investigation.

4. Compliance with Procedural Requirements Under Sections 59 and 60 of the DVAT Act:
The court highlighted that there was no indication of the reasons that prompted the extreme step of sealing the premises. The order was passed by the VATO without any indication that he was authorized to do so by an order issued in Form DVAT 50. The court referred to a recent judgment (Shree Ashtvinayak Gems & Stone Pvt. Ltd. v. Commissioner, Trade & Taxes, Delhi) which emphasized that the Commissioner's satisfaction must be based on materials available on record and should not be mechanically exercised.

5. Authorization and Jurisdiction for the Actions Taken:
The court noted that the deployment order did not cover all the addresses that were sealed, and there was no fresh deployment order issued for the additional addresses. The sealing order did not comply with the statutory requirement under Section 60(2)(f) of the DVAT Act, which mandates reasonable grounds to believe that the dealer is attempting to avoid or evade tax.

Conclusion:
The court set aside the sealing order dated 16th March 2013 and the de-sealing order dated 18th March 2013, to the extent that it required the petitioner to deposit Rs. 600 crores. The court directed the release of Rs. 5 crores deposited by the petitioner, and further directed the Commissioner to file an affidavit of compliance and explain the system for maintaining files. The matter was listed for further hearing on 15th March 2016.