2013 (12) TMI 1278 - HC - VAT and Sales Tax

Reopening of assessment - Bar of limitation - Concealment of sales - Held that - in the Sales Tax Act 1969 reopening of assessment was permissible when the Commissioner had a reason to believe that any turnover of sales or turnover of purchases of goods chargeable to tax has escaped assessment or has been underassessed or assessed at a lower rate. In such cases if there was any element of concealment of sales etc. he could issue a notice for reassessment of the escaped turnover within eight years from the end of the period to which such turnover related. In other cases he could issue such a notice within five years from the said date and not later. The entire Sales Tax Act was repealed by the VAT Act. In the VAT Act provision for reassessment made significant changes. Under Section 35(1) reassessment is permissible in cases of escapement of assessment or underassessment or application of lower rate etc. Subsection (2) of Section 35 of the VAT Act however provides that no order shall be made under subsection (1) after the expiry of five years from the end of the year in respect of which or part of which the tax is assessable. Ordinarily period of limitation is considered as a procedural provision and any change in the period of limitation by an amendment in the Act or by enactment of a new statute repealing the original one is made applicable also retrospectively. This is of course subject to the exception that if under the repealed provision the cause of action had become time barred as per the period of limitation prescribed any subsequent change or extension in period of limitation would not revive such a cause. Another area where the Courts have taken slightly different view is where in the successor statute a shorter period of limitation is prescribed and by virtue of the existing provisions of the earlier Act the limitation has not yet expired but by application of the shorter period of limitation prescribed in the successor Act the cause would stand barred by limitation. In such cases the question would arise whether the period of limitation of the successor Act should be applied thereby taking away the right of the party to file proceedings for asserting his right. It would therefore be necessary to ascertain for ourselves whether it can be stated that by the time VAT Act was enacted the petitioners had under the Sales Tax Act acquired accrued or incurred any obligation or liabilities. If the case of the petitioners fall within such expression the Department would be justified in pursuing such cases under the VAT Act with reference to period of limitation contained in the Sales Tax Act despite repeal of the Sales Tax Act. petitioners had filed the returns at the relevant time under the Sales Tax Act. Such returns were also processed as per the provisions of the said Act. Till the Sales Tax Act was repealed by the VAT Act no further action was taken by the Department. To be precise no notices for reopening such assessment were issued till the Sales Tax Act was repealed. It is true that the Sales Tax Act permitted period of eight years from the end of the period to which such turnover related for issuance of notice of reassessment if the Commissioner had reason to believe that the dealer had concealed such sales or any material particulars thereof or knowingly furnished incorrect declaration or returns. However in our opinion mere right to issue notice within the said period cannot be equated with accrual or incurring of any obligation or liability. If notices were already issued it may have been possible for the Department to contend that the assesses having already been visited with such notices their liability to be so reassessed having already accrued any repeal of the Sales Tax Act would not obliterate such liabilities by virtue of proviso to subsection (1) of Section 100 of the VAT Act. In the present group of cases for reopening the assessment provisions contained in the VAT Act and in particular Section 35 thereof would apply. Admittedly when such provisions do not permit reopening beyond the period of five years from the end of the period to which the sales relate and admittedly when no notices much less final orders were passed the action of the authorities must be held to be lacking jurisdiction. All the cases of reassessment are therefore declared invalid - Decided in favour of assessee.

Summary

Issues Involved:
1. Time-barred Notices
2. Authority's Reason to Believe
3. Applicability of VAT Act's Limitation Period
4. Validity of Reopening Grounds

Detailed Analysis:

Time-barred Notices:
The petitioners challenged the notices issued by the Sales Tax Department of Gujarat on the grounds that they were time-barred. The notices were issued to reopen assessments for the financial year 2003-04, long after the Gujarat Value Added Tax Act, 2003 ("VAT Act") came into effect on 1st April 2006, replacing the Gujarat Sales Tax Act, 1969 ("Sales Tax Act"). The Sales Tax Act allowed reassessment within eight years if there was concealment, and within five years for other cases. However, the VAT Act prescribed a uniform five-year limitation period for reassessment, starting from the end of the year in which the tax was assessable. The court held that the reassessment action must be governed by the VAT Act and not the repealed Sales Tax Act, making the notices time-barred.

Authority's Reason to Believe:
The petitioners argued that the notices were invalid due to the lack of necessary satisfaction required under the law. The Sales Tax Officer issued the notice without providing reasons for reopening the assessment. The court noted that the principal reason for reopening was the non-production of the "D" form by the petitioner. The court emphasized that the reasons for reassessment must be sufficient and valid under the law, and found that in most cases, the reopening was based on evidence collected during raids by the Excise Department. However, the court did not delve deeply into the individual validity of the reasons due to the overarching issue of the limitation period.

Applicability of VAT Act's Limitation Period:
A significant legal controversy was whether the reassessment should be governed by the limitation period prescribed under the VAT Act or the repealed Sales Tax Act. The petitioners contended that with the introduction of the VAT Act, any reassessment must be governed by Section 35 of the VAT Act. The court agreed, stating that the VAT Act's provisions for reassessment, including the five-year limitation period, should apply. The court noted that the VAT Act made significant changes, including the removal of the eight-year period for cases of concealment and shifting the reference point from notice issuance to the passing of the final order. The court concluded that mere right to issue a notice under the old Act does not equate to an accrued or incurred liability, thus the VAT Act's limitation period applied.

Validity of Reopening Grounds:
The petitioners also argued that the reasons for reopening were insufficient. The court observed that in many cases, the reopening was based on evidence from raids by the Excise Department. However, since the court found the notices invalid due to the limitation period issue, it did not need to address the individual validity of the reasons for reopening.

Conclusion:
The court held that the reassessment actions must be governed by the VAT Act and its five-year limitation period. Since the notices for reassessment were issued beyond this period, they were declared invalid. The court did not stay its judgment, noting that no final orders or recoveries had been made, and staying the judgment would not benefit the respondents. All writ petitions were allowed, and the reassessment notices were quashed.