2016 (4) TMI 226 - HC - VAT and Sales Tax

Re-opening of assessment under DVAT - validity of powers of delegations - Supply of fresh reasons to believe - Default notices under Sections 32 and 33 of the DVAT time barred - Reassessment of returns done under Section 32 of the DVAT Act after the expiry of 4 years from the end of the year for which the person furnished a return - No mention made of any concealment, omission or failure by the Petitioner in furnishing any material particulars - Held that - it is not legally permissible for the DT&T at this stage to supply fresh reasons to believe, other than what is recorded in the file. While the reasons recorded in the file speak of the concealment by the Petitioner of substantial part of his turnover , the real reason as transpired during the course of hearing is regarding excessive claim of exemption made by Petitioner. There is, therefore, certainly no failure/omission on the part of the Petitioner to furnish material particulars which forms the basis of re-assessment in terms of the proviso to Section 34 of the DVAT Act. The proviso is very clear that there has to be concealment, omission or failure to disclose fully material particulars by the Petitioner. In relation to the claim for exemption there is nothing in the reasons to believe as recorded by the Respondent to show that there was any concealment or omission or failure by the Petitioner to disclose material particulars. The materials gathered by the DT&T, if any, ought to have a live nexus to the formation of the belief that there is escapement of turnover from assessment. The reasons to believe as recorded make no reference to any such material. Power and jurisdiction of the Assistant Commissioner (VAT Audit) - Issuance of notice of reopening the reassessment made by the orderSpecial Commissioner (Special Zone) under Section 67(2) of the DVAT Act - Held that - Under Section 67(2) of DVAT Act there is no power of delegation as such but the power to issue orders for the due and proper administration of the DVAT Act and all such persons engaged in the administration of this Act shall observe and follow such orders, instructions and directions of the Commissioners. It is not understood how the Special Commissioner (Special Zone) could have delegated powers in terms of Section 67(2) of DVAT Act and in particular, the power of reopening the reassessment to the Assistant Commissioner (VAT Audit). Interestingly, the impugned notice is issued by the Assistant Commissioner (VAT Audit) and not by the Assessing Officer who has been duly empowered to issue it. Re-opening of assessment - in exercise of the powers under Section 34 of the DVAT Act, - Held that - the VATO concerned is expected to act independently and not under the dictates of any superior officer. Here, the Additional Commissioner (VAT Audit) prepared a note proposing the re-opening of assessment which was approved by several of the superior officers up to the level of the Commissioner, VAT. - Decided in afvour of petitioner

Summary

Issues Involved:
1. Validity of the notice dated 9th February 2016 under Section 59(2) of the DVAT Act.
2. Limitation period for assessment under the DVAT Act.
3. Validity of the reasons to believe for reassessment.
4. Jurisdiction and power of the Assistant Commissioner (VAT Audit) under Section 67(2) of the DVAT Act.

Issue-wise Detailed Analysis:

1. Validity of the notice dated 9th February 2016 under Section 59(2) of the DVAT Act:
The Petitioner challenged the notice dated 9th February 2016 issued under Section 59(2) of the DVAT Act, arguing that it was without jurisdiction. The court noted that the notice was issued based on the belief that there was suppression of gross turnover by the Petitioner. However, the reasons recorded in the file did not substantiate this claim. The court held that the reasons to believe must have a live nexus with the failure to pay tax due to concealment, omission, or failure to disclose material particulars. The court found that the reasons recorded by the Assistant Commissioner (VAT Audit) did not meet this requirement, making the notice unsustainable in law.

2. Limitation period for assessment under the DVAT Act:
The Petitioner argued that the default notices issued on 9th July 2014 were time-barred as the limitation period of four years from the end of the year 2009-10 expired on 31st March 2014. The court observed that the proviso to Section 34(1) of the DVAT Act extends the limitation period to six years if there is reason to believe that tax was not paid due to concealment, omission, or failure to disclose material particulars. However, the court found that the reasons recorded for extending the limitation period were not in line with the proviso to Section 34(1), as they were based on other purported reasons like pendency of cases and election duty. Therefore, the court held that the default assessment notice dated 9th July 2014 was time-barred and quashed it.

3. Validity of the reasons to believe for reassessment:
The court emphasized that the reasons to believe for reopening the reassessment must be recorded in the file and have a live link with the failure to pay tax due to concealment, omission, or failure to disclose material particulars. The court found that the reasons recorded in the file spoke of suppression of gross turnover, but the real issue was the excessive claim of exemption made by the Petitioner. The court held that there was no material to support the belief that the Petitioner had concealed a substantial portion of its turnover. Therefore, the reasons to believe recorded by the Respondent were not valid, and the reassessment proceedings could not be initiated based on them.

4. Jurisdiction and power of the Assistant Commissioner (VAT Audit) under Section 67(2) of the DVAT Act:
The court examined the power and jurisdiction of the Assistant Commissioner (VAT Audit) to issue the impugned notice. The court noted that the assignment to the Assistant Commissioner (VAT Audit) was made by the Special Commissioner (Special Zone) under Section 67(2) of the DVAT Act. However, Section 67(2) does not provide for the delegation of powers but only for issuing orders for the due and proper administration of the Act. The court found that the Special Commissioner (Special Zone) could not delegate the power of reopening the reassessment to the Assistant Commissioner (VAT Audit). Additionally, the court observed that the reopening of assessment should be done independently by the VATO concerned and not under the dictates of superior officers. Therefore, the court held that the impugned notice issued by the Assistant Commissioner (VAT Audit) was without jurisdiction and quashed it.

Conclusion:
The court quashed the notice dated 9th February 2016 issued under Section 59(2) of the DVAT Act and the letter dated 24th February 2016 issued by the Assistant Commissioner (VAT Audit) as unsustainable in law. The writ petition was allowed, and the court emphasized that the reasons to believe for reassessment must be recorded in the file and have a live link with the failure to pay tax due to concealment, omission, or failure to disclose material particulars. The court also highlighted the limitations of the jurisdiction and power of the Assistant Commissioner (VAT Audit) under Section 67(2) of the DVAT Act.