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2013 (3) TMI 60 - HC - VAT and Sales TaxReassessment 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 & did not deduct tax under Section 7(3) of the WC Act at the rate of 2% of the payment because the payment was not for the transfer of property in goods . The payment was merely by way of passing the monies received from DMRC to the sub-contractors. Moreover, the petitioner had obtained Form VI from the sub-contractors in terms of Rule 5(1)(b) of the Delhi Sales Tax on Works Contract Rules, 1999 & submitted to the respondents when the petitioner s assessments were made. It was in these circumstances and by virtue of the relevant statutory provisions that the petitioner did not deduct tax. Thus the failure to deduct tax by the petitioner in accordance with Section 7(3) of the WC Act cannot amount to turnover of sale escaping assessment as TDS is only a mode of collecting the tax payable by the recipient of the money, the deductor of the tax acts as the agent of the Revenue. There is, therefore, no basis to reopen the assessment on the ground of the whole or part of the turnover having escaped assessment. The reason given for reopening the assessment does not establish any escapement of turnover. It only refers to the alleged failure on the part of the petitioner to deduct tax from the payments made to the sub- contractors. Even assuming for the sake of argument that there was such a failure, it does not amount to turnover escaping assessment in the petitioner s hands - reassessment notices appear to be issued without any application of mind and without having regard to any of the statutory provisions. Penalty imposed under Section 7(7) of the WC Act - Held that - No reasonable opportunity was given to the petitioner of being heard nor was a separate order imposing the penalty passed. The petitioner filed the returns for the assessment years 2003-04 and 2004-05 and had also furnished Form-VI with all the relevant particulars showing the payment of tax by the sub-contractors. Refund claim rejected - Held that - There is nothing on record to show that DMRC denied having issued the Forms No.IX to the petitioner certifying to the deduction of tax at source. The respondents have not also found any irregularities or fault with the Forms No.VI filed by the petitioner, being declarations of the sub-contractors that they have paid the tax.The refund claims had also been made in the prescribed form by the petitioner on 13.1.2008. Despite all this and without finding any fault in the certificates or pointing out any lack of compliance on the part of the petitioner, the respondents have refused to grant the refund, for the only apparent reason that verification has to be done from DMRC. That verification has been pending since March, 2006 when letters were purportedly written by the respondents to DMRC. Such circumstances, coupled with the fact that in May, 2009 steps were taken to reopen the assessments of the petitioner to raise demands of not only tax and interest but also of penalty, and that too without affording any hearing to the petitioner, make it clear that the conduct of the respondents in withholding the refund was unwarranted and contrary to law. A writ of mandamus is accordingly issued in terms of prayer (i) - all the writ petitions are allowed - respondents to pay costs to the petitioner at ₹ 40,000/-
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.
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