2012 (12) TMI 441 - HC - VAT and Sales Tax

Assessment u/s Delhi Value Added Tax (DVAT) - Sections 32 & 33 - Default assessment of tax payable - Assessment of penalty - principles of natural justice - requirement of hearing to be given prior to assessment and imposition of penalty thereunder and raising of demand thereof. - Whether inspite of Section 74 providing for such an opportunity of hearing can any fault be found with Sections 32 and 33 in not providing such an opportunity. Held that - Though the counsels for the petitioners have argued that the remedy of objections is not available owing to Section 79 of the Act but in the face of the express provision in the explanations to Sections 32 and 33 that a person disagreeing with the notices of assessment thereunder may file an objection under Section 74 of the Act the said contention is clearly erroneous and is not accepted. Enforcement of the demand under Sections 32 and 33 if made the subject matter of objection is dependent upon the outcome of the objections and till the objections are decided the disputed demand under Sections 32 and 33 is not to be enforced. Though undoubtedly the third proviso to Section 74(1) has now given a power to the Objection Hearing Authority to direct the disputed tax or penalty or any part thereof also to be deposited but the very fact that the second proviso as well as Section 35(2) have also been retained along therewith on the statute book is indicative of the invocation of the third proviso being only if the circumstances so demand and not in the usual course. Moreover the order if any under the third proviso to Section 74 (1) is to be after giving an opportunity of hearing to the dealer. The contention of the petitioners that the third proviso to Section 74(1) is being invoked as a matter of routine is not only without any specific pleading and particulars but even otherwise does not constitute a ground for us to interfere with the scheme once the legislative policy is plain and clear. A reading of Section 74(1) and Section 35 clearly shows that the liability for payment of the disputed demand under a best judgment assessment under Sections 32 & 33 arises only on the conclusion of objections and which as aforesaid is after the decision on objections and not prior thereto. That being the position the question of the assessee during the pendency of objections having the status of a defaulter and thereby suffering any disability does not arise. The scheme of the statute itself is first allowing a unilateral assessment by the assessee thereafter a unilateral assessment by the Assessing Officer and thereafter providing for a bilateral assessment after opportunity of hearing. With such a statutory scheme it cannot be said that the post decisional hearing will be farcical or a sham. Moreover such hearing is in exercise of quasi-judicial power and is subject to an appeal to the Tribunal. Further it is the contention of the counsels for the petitioners themselves that the Assessing Authority and the Objection Hearing Authority are different. It thus cannot be said that the same officer would shy away from admitting mistakes and thereby reducing the hearing to a farce. The assessment of tax and penalty under Sections 32 and 33 to be complete. Merely because an assessment is subject to objections or appeal does not make it any less complete. Once the legislative scheme is not found to be in contravention of the Constitution of India or as causing any prejudice to the assessees this Court will not interfere therewith merely because the practioners in the field of VAT find themselves reluctant to change to the new law or because it introduces a new scheme.

Summary

Issues Involved:
1. Constitutionality of Sections 32 and 33 of the Delhi Value Added Tax Act, 2004 (DVAT Act).
2. Adequacy of opportunity for hearing before imposition of tax, interest, or penalty.
3. Legitimacy of demands raised under Sections 32 and 33.
4. Validity of the amendment to Section 74 introducing pre-deposit for objections.

Detailed Analysis:

1. Constitutionality of Sections 32 and 33:
The petitioners challenged Sections 32 and 33 of the DVAT Act, arguing that they enabled the imposition of tax, interest, or penalty without adequate opportunity for hearing, thus violating the principles of natural justice. The court noted that the legislative scheme under the DVAT Act introduced a regime of self-assessment, where the return filed by the assessee is deemed an assessment. If the Assessing Officer (AO) is dissatisfied, they can make a unilateral assessment under Section 32, which is subject to objections under Section 74. The court held that the scheme did not violate natural justice principles, as it provided for a post-decisional hearing through objections under Section 74, which sufficed to meet the requirements of fairness and reasonableness.

2. Adequacy of Opportunity for Hearing:
The petitioners argued that Sections 32 and 33 allowed for assessments without giving the assessee an opportunity to be heard, which was contrary to natural justice. The court acknowledged that while the initial assessment under Sections 32 and 33 did not provide for a hearing, the subsequent opportunity to file objections under Section 74, which included a hearing, was adequate. The court emphasized that the legislative scheme provided for a unilateral assessment by the AO, followed by a bilateral assessment through objections, thus ensuring that the assessee had a chance to be heard before any final decision was made.

3. Legitimacy of Demands Raised:
The petitioners contended that the demands raised under Sections 32 and 33 were often based on non-reconciliation of accounts and were issued without proper verification. The court noted that the AO is required to exercise judgment honestly and fairly when making assessments under Sections 32 and 33. The court found that the post-decisional hearing provided through objections under Section 74 allowed for any errors or discrepancies in the initial assessment to be addressed. The court also observed that the demand raised under Sections 32 and 33 was not enforced until the objections were resolved, thereby protecting the assessee from any undue hardship.

4. Validity of Amendment to Section 74:
The petitioners challenged the amendment to Section 74, which introduced a provision for pre-deposit as a condition for entertaining objections. The court held that the requirement for pre-deposit was introduced to deter frivolous objections and did not contravene the principles of natural justice. The court emphasized that the legislative scheme provided adequate safeguards, including the provision for a hearing before any decision on the pre-deposit requirement was made.

Conclusion:
The court concluded that the legislative scheme under the DVAT Act, including Sections 32, 33, and 74, did not violate the principles of natural justice or the Constitution of India. The court found that the post-decisional hearing provided through objections under Section 74 was sufficient to ensure fairness and reasonableness. The petitions were dismissed, and the court upheld the validity of the impugned provisions.