2013 (3) TMI 60 - HC - VAT and Sales Tax

Reassessment orders - as per department there was turnover that escaped assessment - demand of tax allegedly deductible at source u/s. 7(3) of the WC Act in respect of the payments made by the petitioner to the member-companies interest thereon and also penalty under Section 7(7) imposed - Non maintainability of Writ petition as per respondent as alternative remedy was available to the petitioner under the relevant provisions of DST Act read with Section 16 of the WC Act - Held that - Objection of the respondents on non maintainability of writ petitions is not acceptable as it is well settled that where the action of an executive authority acting without jurisdiction is likely to subject a person to dilatory proceedings and undue harassment the High Courts will issue appropriate writs to prevent such consequences. See Calcutta Discount Co. Ltd. vs. Income Tax Officer and Anr. (1960 (11) TMI 8 - SUPREME COURT) In the reason mentioned at the bottom of Form ST-15 which is the notice of re-assessment what has been stated by the respondents is that the petitioner was required to deduct tax at the rate of 2% from the payments made to the sub- contractors but failed to do so. The question is whether this can hold good as the reason to believe that taxable turnover had escaped assessment. It must be remembered that the petitioner does not effect any sales to its sub-contractors all it does and this fact has also been accepted by the respondents is to pass on the monies received from DMRC to the sub-contractors acting as a conduit. The question of turnover in the hands of petitioner would arise only if it indulges in sale of goods. The petitioner merely transfers the monies received from DMRC to the member-companies. Section 2(t) of the WC Act defines turnover of sale . Since the expression turnover of sale is defined in the WC Act it is not permissible to look at the definition of turnover in Section 2(o) of the DST Act because Section 16(1) of the WC Act does not incorporate the definition sections of the DST Act into the WC Act. It is not in dispute that the petitioner who is a dealer registered under the WC Act has not received any amount of sale price from the sub-contractors in respect of any transfer of property in goods involved in the execution of any works contract whether executed fully or partly during any period.On the contrary the petitioner has transferred or paid monies to the sub-contractors 40, 000/-

Summary

Issues Involved:
1. Refund of tax deducted at source (TDS)
2. Reassessment under Section 24 of the DST Act
3. Penalty for failure to deduct TDS
4. Jurisdiction of reassessment orders
5. Delay in issuing refunds

Detailed Analysis:

1. Refund of Tax Deducted at Source (TDS):
The petitioner, a joint venture (JV) of two companies-one Malaysian and one Indian-was awarded contracts by the Delhi Metro Rail Corporation (DMRC). The JV was registered under the Delhi Sales Tax on Works Contracts Act, 1999 (WC Act) and the Delhi Sales Act, 1975 (DST Act). The JV acted as a conduit for transferring payments from DMRC to its member companies. The assessment orders for the tax periods 2003-04 and 2004-05 determined refunds of Rs. 85,07,203 and Rs. 2,20,60,306 respectively, subject to verification. Despite submitting TDS certificates (Form IX) and declarations (Form VI) from sub-contractors, the refunds were withheld, purportedly pending verification from DMRC. The court found that the respondents' delay in issuing refunds was unwarranted and contrary to law, directing them to issue the refunds within four weeks with applicable interest.

2. Reassessment under Section 24 of the DST Act:
Reassessment orders were issued for the tax periods 2003-04 and 2004-05, alleging that the petitioner failed to deduct TDS from payments made to sub-contractors. The reassessment orders raised demands for tax, interest, and penalties. The court noted that reassessment under Section 24 requires a reason to believe that turnover has escaped assessment. The reason given-that the petitioner failed to deduct TDS-did not establish any escapement of turnover, as the petitioner merely transferred monies received from DMRC to sub-contractors and did not effect any sales.

3. Penalty for Failure to Deduct TDS:
The reassessment orders imposed penalties for the petitioner's alleged failure to deduct TDS under Section 7(3) of the WC Act. The court found that penalties should be imposed under Section 7(7) of the WC Act after providing a reasonable opportunity for the petitioner to be heard. The reassessment orders imposed penalties without following the proper procedure, rendering the orders invalid.

4. Jurisdiction of Reassessment Orders:
The court scrutinized whether the reassessment orders were within the jurisdiction. It found that the orders were issued without proper application of mind and without establishing any escapement of turnover. The reassessment notices and orders were quashed as they lacked jurisdiction and were issued without following statutory provisions.

5. Delay in Issuing Refunds:
The court observed that the respondents' delay in issuing refunds, despite the petitioner's compliance with all requirements, was arbitrary and illegal. The respondents' conduct in withholding refunds and initiating reassessment proceedings to nullify the refunds was deemed unwarranted. The court issued a writ of mandamus directing the respondents to issue the refunds with interest within four weeks.

Conclusion:
The court allowed all the writ petitions, quashed the reassessment notices and orders, and directed the respondents to issue the refunds with interest. The respondents were also ordered to pay costs of Rs. 40,000 to the petitioner.