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2025 (4) TMI 1181 - HC - VAT / Sales TaxChallenge to assessment order - invocation of extended period of limitation - absence of willful evasion of tax by the petitioner - Section 21 (5) of the A.P VAT Act - Penalty order - HELD THAT - A best judgment order of assessment in the case of willful evasion of tax by the dealer would mean that the period of assessment of six years for every month would commence from the 20th day of the succeeding month where returns have been filed in time. As there is no dispute that the returns have been filed by the petitioner within the prescribed time the limitation of every month would have to be taken into account. In such circumstances the order of assessment dated 31.03.2021 is beyond the period of limitation set out for the months of April to February of the financial year 2014-15. Since the assessment order is beyond the period of limitation the order of assessment dated 31.03.2021 passed by the 1st respondent is to be set aside for the period April 2014 to February 2015. The fact remains that the period beyond limitation would have to be excluded and a fresh computation of the tax that would have paid would have to be undertaken. For this purpose it would be more appropriate that the entire order is set aside and the matter is remanded for a fresh assessment by the Assessing Officer for the period which is within limitation. Apart from this the petitioner has also raised a ground that the levy of tax @ 14.5% without giving the benefit of the composition scheme is impermissible as the Assessing Authority had not verified the forms of composition given by the petitioner and endorsed by the 1st respondent. Penalty order - HELD THAT - The order of Penalty dated 21.05.2021 is based upon the order dated 31.03.2021. Once the order of assessment itself has been set side the order of penalty would not survive. Conclusion - Since the assessment order dated 31.03.2021 is beyond the period of limitation set out for the months of April 2014 to February 2015 the order of assessment passed by the 1st respondent is to be set aside for that period. The order of assessment passed by the 1st respondent on 31.03.2021 as well as the order of penalty passed by the 1st respondent on 21.05.2021 set aside - petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of invoking extended limitation period under Section 21(5) without willful evasion The legal framework under consideration is Section 21(5) of the A.P VAT Act, 2005, which allows assessment to be made within six years from the date of filing of the return or the first return relating to the offence, but only where there is willful evasion of tax. The petitioner contended that there was no willful evasion, and thus the extended limitation could not be invoked. The Court examined the language of Section 21(5), emphasizing the necessity of establishing willful evasion to trigger the extended six-year period. The petitioner's argument that no willful evasion was made was accepted in principle, as the record did not demonstrate such evasion. Thus, the extended limitation period could not be validly invoked for the entire period assessed. The Court also noted that the petitioner had filed returns and paid tax under the composition scheme, indicating no deliberate concealment or evasion. Issue 2: Computation of limitation period with monthly returns The statute mandates filing of returns monthly, with Rule 23(1) prescribing the 20th day of the succeeding month as the deadline. The Court interpreted the limitation period as commencing from the date of filing the return for each month, not a single cumulative date for the entire year. Thus, for the tax period 2014-15, the limitation for assessment for each month would start from the 20th day of the succeeding month. For example, the return for April 2014 was due by 20.05.2014, and the six-year limitation would expire on 20.05.2020. Since the impugned assessment was passed on 31.03.2021, the Court held that the assessment for months from April 2014 to February 2015 was beyond the limitation period, even under the extended six-year period. Issue 3: Bar of limitation on the assessment order dated 31.03.2021 The assessment order levied tax @ 14.5% on turnover for the years 2014-15 and 2015-16. The petitioner argued that the assessment for months prior to March 2015 was barred by limitation. The Court agreed, finding that the assessment order was time-barred for the months from April 2014 to February 2015. The Court noted that where part of the assessment period is barred by limitation, that part must be excluded. While the petitioner relied on a Division Bench decision to argue that the entire order should be set aside, the Court found no such ratio in that precedent. Instead, the Court held that the part barred by limitation must be excluded, and a fresh assessment for the period within limitation should be conducted. Issue 4: Entitlement to composition scheme and levy of tax @ 14.5% The petitioner had opted for the composition scheme under Section 4(7)(b) & (d) of the A.P VAT Act and submitted the requisite forms, which were endorsed by the tax authority. Under the composition scheme, tax was payable at 5% of the turnover. The Assessing Officer, however, levied tax at 14.5% on the ground that the petitioner did not produce books of accounts and other VAT records, thus disallowing the composition scheme benefit. The Court found that the Assessing Authority failed to verify the composition scheme forms filed and endorsed by the authority itself, and thus the levy of tax at the higher rate without giving benefit of the composition scheme was impermissible. Issue 5: Validity of penalty order under Section 53(3) The penalty order dated 21.05.2021 was based on the assessment order dated 31.03.2021. Since the assessment order was set aside for being barred by limitation and for failure to consider the composition scheme, the penalty order could not survive independently. The Court held that once the assessment order is set aside, the penalty order based thereon must also be set aside. Issue 6: Setting aside the entire assessment order versus partial exclusion and remand The petitioner urged setting aside the entire assessment order and remanding for fresh assessment for the period within limitation. The Court, after analyzing the precedent cited, did not find authority to set aside the entire order solely because part of the assessment was barred by limitation. However, the Court opined that it would be appropriate to set aside the entire assessment order and remand the matter to the Assessing Officer for fresh assessment for the period within limitation, after giving the petitioner an opportunity of hearing and considering all objections. The Court also permitted the Assessing Officer to initiate penalty proceedings if warranted after the fresh assessment. 3. SIGNIFICANT HOLDINGS "A best judgment order of assessment, in the case of willful evasion of tax by the dealer, would mean that the period of assessment of six years for every month would commence from the 20th day of the succeeding month, where returns have been filed in time." "Since the assessment order dated 31.03.2021 is beyond the period of limitation set out for the months of April, 2014 to February, 2015, the order of assessment passed by the 1st respondent is to be set aside for that period." "The levy of tax at 14.5%, without giving the benefit of the composition scheme, is impermissible as the Assessing Authority had not verified the forms of composition given by the petitioner and endorsed by the 1st respondent." "Once the order of assessment itself has been set aside, the order of penalty would not survive." "It would be open to the 1st respondent to pass a fresh order of assessment for the tax period March, 2015 to March, 2016, after giving due opportunity of hearing to the petitioner and after considering all objections raised."
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