2021 (7) TMI 638 - HC - VAT and Sales Tax

Re-classification of goods - rate of tax on hire charges - petitioner had been initially served with a show-cause notice calling upon him to respond why tax at the rate of 1% on the hire charges be not imposed but subsequently, by invoking Section 21(5) of the VAT Act a revised show-cause notice levying tax at a higher rate i.e., 14.5% was proposed. HELD THAT - Section 21 of the VAT Act provides for the procedure for assessment of tax in respect of a VAT or TOT dealer, who fails to file return within the prescribed time. Sub-section (4) of Section 21 inter-alia provides that such assessment shall be made within a period of 4 years from the end of the period for which the assessment is made. Sub-section (5) thereof enlarges the period of limitation to 6 years for making such assessment to 6 years from the date of filing of the return in the event there is wilful evasion of tax - Hence, a finding there is wilful evasion of tax is a condition precedent to invoke powers under Section 21(5) of VAT Act. In the present case, the assessing authority initially proceeded to issue show-cause notice upon the petitioner for payment of tax at the rate of 1% on the hire charges for the assessment year 2014-15. Subsequently, a revised show-cause notice calling upon the petitioner-assesse to pay tax at the rate of 14.5% was issued on 31.08.2020 i.e., beyond the period of 4 years from the year of assessment - This being a jurisdictional fact for invocation of powers of assessment under Section 21(5) of the VAT Act, the Writ Petition is entertained to examine the legality of the assessment order notwithstanding existence of alternative remedy. There is no averment in the revised show-cause notice that there was wilful evasion on the part of the assessee to pay the higher rate of tax. Incorrect application of a lower rate of tax per se would not amount to a wilful evasion of tax unless and until factual averments disclosing wilful evasion of tax are made out in the show-cause notice. Moreover, impugned order is also completely silent on this score. There is no finding that the assessee had wilfully evaded tax - When the assessee having not been put on notice to respond to the allegation that it had wilfully evaded the tax, the authority could not have been imposed a higher tax liability by invoking its powers under Section 21(5) of the VAT Act. In the absence of any factual averment in the show-cause notice that the assessee had wilfully evaded the tax and since the order impugned is completely silent on such issue, the entire proceedings and the impugned order dated 16.11.2020 passed therein are without jurisdiction and liable to be set-aside. The impugned order is set aside - the consequential penalty and urgent notices set aside - petition allowed.

Summary

Issues:
Challenge to tax liability and penalty imposed on the petitioner-assessee for the assessment year 2014-15 based on revised show-cause notices. Jurisdictional error in invoking Section 21(5) of the VAT Act for raising tax rate from 1% to 14.5% without proving wilful tax evasion.

Analysis:
The petitioner, a private bus operator, challenged an order imposing tax liability of ?3,06,130 for 2014-15 and penalties based on revised show-cause notices. Initially, a notice proposed tax at 1% on hire charges, but later, a revised notice invoked Section 21(5) of the VAT Act to propose a higher tax rate of 14.5%. The petitioner argued that the revised notice was beyond the 4-year limitation period and lacked factual foundation for wilful tax evasion. The Government Pleader contended that the order was appealable, highlighting the petitioner's non-compliance with statutory requirements.

The court noted the initial notice for 1% tax and the subsequent revised notice for 14.5%, invoking Section 21(5) of the VAT Act. Section 21 sets assessment procedures for VAT or TOT dealers, with sub-section (5) extending the limitation to 6 years in cases of wilful tax evasion. The court emphasized that wilful evasion is a prerequisite for invoking Section 21(5).

The assessing authority issued the revised notice beyond the 4-year limit, invoking Section 21(5) without alleging wilful tax evasion. The court found the lack of wilful evasion allegations in the notice and the order, emphasizing the importance of factual averments. As the petitioner was not notified to respond to wilful evasion claims, the authority could not impose a higher tax rate under Section 21(5). Consequently, the court held the proceedings and the order as without jurisdiction and set them aside.

The court set aside the impugned order, penalty, and notices, with no costs imposed. The Government Pleader sought permission to issue a fresh notice if further evidence of wilful evasion arises, subject to legal compliance. The court allowed the writ petition, closed pending applications, and emphasized adherence to legal procedures for future actions.