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TMI Blog2016 (3) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... I to undertake the search and seizure was not specifically authorized to do so in terms of the order dated 12th November 2013 issued by the Commissioner under Section 68 (2) of the DVAT Act. This therefore, vitiates the entire survey, search and seizure operation undertaken by the teams of the DT&T so deployed. There could not be a revision or reassessment of the tax computed for the periods of 2013-14 for which returns were filed, by reversal of the ITC claimed for that period without following the due process as envisaged under the DVAT Act. It was not open to the AVATO Enf-I who was not authorized to make any assessment, to adjust the ITC reversal pertaining to an earlier period ending on 31st March 2014 in the returns filed for the different quarters of 2014-15. The penalty orders under Section 86 (10) read with Section 33 of the DVAT Act were bad in law. Section 87 (6) of the DVAT Act does not enable the officers who undertake the search and seizure operation under Section 60 of DVAT Act to collect tax dues on the spot from the dealer whose premises is searched. The VAT Authorities have in these cases proceeded on a basic misconception of the scope of their powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other person. None of the above alternative grounds were checked in the order. It was inter alia stated that the dealer had wrongly claimed ITC of ₹ 5,16,028 with regard to some purchase from the non-functional dealer during 2013-14 which was being disallowed under Section 9 (2) (g) of the DVAT Act. The said order for default assessment of tax and interest for the first quarter of 2014, pegged the taxable turnover at ₹ 90,86,880 and computed the tax at ₹ 5,50,013 and interest at ₹ 5,199. By a separate order of the same date, penalty of ₹ 5,50,013 was levied under Section 86 (10) of DVAT Act. W.P. (C) 1228 of 2015 3. In this writ petition filed by Sanyog Enterprises Private Limited (SEPL), the facts are that SEPL is a registered dealer under the DVAT Act and is engaged in trading and reselling of medicines, diagnostic kits etc. SEPL was initially registered within the territorial jurisdiction of Ward 68. It filed an application for amendment for change of principal place of business which fell under the territorial jurisdiction of Ward 62 with effect from 1st April 2011. It is stated that records of SEPL have not been transferred by the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition by M/s. Nutek Establishments ('NE'), a proprietorship concern registered as a dealer under the DVAT Act, the facts are that NE is engaged in manufacturing and trading of electrical/electronic wires, other goods etc. It was initially registered with Ward 57. Due to change of place of business with effect from 1st April 2009, NE filed an amendment application in terms of which it claimed to fall under the territorial jurisdiction of Ward 63. It is stated that records of NE, however, have not been transferred by the DT T to Ward 63 till date. 8. NE filed its return for the second quarter of 2014 on 3rd November 2014 declaring a local turnover of ₹ 89,19,535. Against the gross output tax liability of ₹ 4,45,977, NE claimed ITC in the sum of ₹ 11,62,405. A search took place in the premises of NE by a team of DT T led by AC Enf-I on 9th December 2014. Stock was found short by ₹ 41,595 and cash by ₹ 3,712. 9. The AC Enf-I was informed by NE by its letter dated 12th December 2014 that there was no mismatch on the website of the DT T as regards the purchase made from M/s. Globe Enterprises in the first and second quarter of 2013-14 and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,246. By the second order dated 3rd March 2015 under Section 33 of the DVAT Act, penalty was also levied in the sum of ₹ 12,88,828. 13. It may be mentioned that while the jurisdiction qua SMC was that of VATO/AVATO of Ward 48, the aforementioned orders were passed by the AVATO Enf -I. Issues that arise for consideration 14. In all the above writ petitions, notices were issued by the Court and interim orders were passed restraining the Respondents from taking any coercive steps. The Respondents have filed a reply in each of the petitions. 15. The following common issues arise for consideration in the four petitions: (i) Whether the AVATO Enf-I who undertook the survey, search and seizure operation and later passed the default assessment orders of tax, interest and penalty, was duly empowered to do so in terms of the DVAT Act? (ii) Whether the AVATO Enf-I could have proceeded to reverse the ITC claimed during an earlier period and could such reversal take place in the order of default assessment for a different period? Analysis of the relevant provisions of the DVAT Act 16. In order to address the above questions, the provisions of the DVAT Act have to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instructions, orders and directions to any VAT Authority as he thinks fit for the due and proper administration of the DVAT Act and all such persons engaged in the administration shall observe and follow such orders, instructions and directions of the CVAT. Under Section 67 (4), the CVAT can issue general orders, instructions and directions to any person. 20. Section 68 which talks of delegation of CVAT's powers, reads as under: 68. Delegation of Commissioner s powers (1) Subject to such restrictions and conditions as may be prescribed, the Commissioner may delegate any of his powers under this Act to any Value Added Tax authorities. (2) Where the Commissioner delegates his powers under Chapter X, the delegate shall carry and produce on demand evidence in the prescribed form of the delegation of these powers when exercising the powers. (3) Where the Commissioner has delegated a power to a Value Added Tax Authority, the Commissioner may supervise, review and rectify any decision made or action taken by that Authority. Explanation- The exercise of this power of supervision, review or rectification will not lead to the issue of an assessment or re-asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons for requiring such subordinate officer to do so as well as specifying the place to be searched and as far as possible the thing for which the search is to be made. 24. The combined reading of Sections 60, 66 and 68 of the DVAT Act read with Rule 65 of the DVAT Rules reveals the following position: (i) The CVAT may delegate any of his powers to any VAT Authority. (ii) Where the CVAT delegates his powers under Chapter X of DVAT Act (which deals with audit, investigation and enforcement), the delegate shall carry and produce on demand, evidence in the prescribed form, of the delegation of these powers when exercising the powers. (iii) Where the CVAT has delegated his power to a VAT Authority, he may supervise, review and rectify any decision made or action taken by such VAT Authority. (iv) Where the CVAT wishes to appoint an officer to exercise any of the powers of audit, investigation and enforcement, he shall issue the grant of authority for the exercise of such powers notified in Form DVAT-50. The authority shall be issued by the person empowered by the CVAT in that regard. The grant of authority in terms of Rule 65 (2) is to be for a period not exceeding three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period by a single order so long as all such tax periods are comprised in one year and when such an assessment has been made, then to serve upon that person a notice of assessment of the amount of additional tax due for that tax period. All Officers appointed under sub-section (2) of section 66 of the Delhi Value Added Tax Act, 2004, not below the rank of Assistant Value Added Tax Officer 9 33 All powers to make and serve on the persons a notice of assessment of the penalty that is due under the Act. All Officers appointed under sub-section (2) of section 66 of the Delhi Value Added Tax Act, 2004, not below the rank of Assistant Value Added Tax Officer. 18 59 (1) All powers of inspection of records, books of accounts, registers and other documents, maintained by a dealer, transporter or operator of a warehouse at all reasonable times. All Officers appointed under sub- section (2) of section 66 of the Delhi Value Added Tax Act, 2004 not below the rank of Assistant Value Added Tax Officer. 21 59 (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to whom powers have been delegated are to exercise the powers and perform the duties of such powers within their respective jurisdictions . This is critical since it conveys the intention that the exercise of powers by an officer is to be restricted to a certain jurisdiction. For instance, in terms of the above order, the officer not below the rank of AVATO will not exercise the power vested under Sections 32 and 33 of the DVAT Act vis-a-vis a dealer who is outside the ordinary jurisdiction of such officer. Otherwise, officers who are delegated such powers could begin to exercise such powers in respect of dealers not within their jurisdiction. That apart, there can be an overlapping of the exercise of jurisdiction by different officers that can result in undue harassment of the dealer and administrative chaos. 28. In this light, in Commissioner of Sales Tax, UP v. Sarju Prasad Ram Kumar 1976 (37) STC 533 (SC), an order of assessment passed by the Assistant Sales Tax Officer (ASTO), Sector II, Lucknow was challenged as being without jurisdiction on the ground that only the ASTO, Sector III could exercise jurisdiction over the Assessee s circle. The Supreme Court held that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Act. 31. Another feature of the above order issued by the CVAT under Section 68 (2) of the DVAT Act is that no officer below the rank of AVATO has been authorized to exercise any other function under the DVAT Act. This is significant since in the present petitions, the powers of assessment have been exercised by the AVATO Enf-I without there being a delineation of the specific jurisdiction of the AVATO Enf-I in relation to the ward in question within the jurisdiction of which the Assessee in question falls. In the absence of such a specific order, it is the jurisdictional VATO, and not the AVATO Enf-I, who will continue to exercise the power of assessment vis-a-vis the Assessee. The order in Form DVAT-50 32. In the counter affidavit filed by the Respondent, it is contended that the Officer who carried out the survey, search and seizure operation on the dealers was duly authorised to do so by an order issued in Form DVAT-50. What has been enclosed is a grant of authority in Form DVAT-50 issued by the CVAT on 15th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Commissioner (HR) who in turn stated that he had been granted authority for issuing Form DVAT-50 by the CVAT by an order dated 25th September 2014. Although the said order dated 25th September 2014 purportedly issued by the CVAT under Section 68 (2) of DVAT Act read with Rule 65 (1) of DVAT Rules has not been produced before the Court, there is no means to doubt that there does exist such an order. 37. However, the fact remains that the order dated 15th October 2014 issued by the Special Commissioner which was valid only till 31st March 2015, directed the officers named therein only to carry out the audit, investigation and enforcement functions under Chapter X of the DVAT Act and did not delegate the assessment functions in terms of Sections 32 and 33 of DVAT Act. Consequently, the Court has no hesitation in holding that the default notices of assessment of tax and penalty passed by the AVATO Enf-I were wholly without jurisdiction. Validity of the search and seizure 38. That, however, does not bring an end to the enquiry into the validity of the search and seizure operations. As far as W.P. (C) 8913 of 2104 by CPBL is concerned, on the date of the survey condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court observed as under: 5. Section 60 of the Act sets out the jurisdictional requirement for invocation of the power under Section 60(2)(f). It mandates that the Commissioner must have reasonable grounds to believe that any person or dealer is attempting to avoid or evade tax or is concealing his tax liability in any manner . This satisfaction of the Commissioner has to be based on materials that are available on record. It ought not to be mechanically exercised, using a cyclostyled form, as has been done in the present case. The notice dated 19th January 2016, the date of the sealing, sets out only one the ground, in a pre-printed form, that the dealer failed to produce the books of accounts till 7:30 PM in spite of issue of notice under Section 59 of the DVAT Act 2004 . This obviously does not satisfy the statutory requirement under Section 60(2)(f) of the Act. 6. The facts as set out in the petition that the decision reveal that the decision to invoke the powers under Section 60(2)(f) of the Act was taken in undue haste virtually in continuation of invocation of the power under Section 59 of the Act to search the premises for information and documents. Sufficient o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (a) or (b) of Section 86 has been mentioned in the default notices of penalty. While passing these penalty orders, the returns filed by the dealers have not been taken into account. Further, no notice was separately issued to the dealers prior to the passing of the penalty orders. In similar circumstances, this Court in Bansal Dyechem Pvt. Ltd. v. Commissioner of Income Tax (2016) 87 VST 58 (Del) held the penalty order to be invalid. 47. In the above connection, the Court s attention was drawn to Section 87 (6) of the DVAT Act which reads as under: 87 (6) If (a) A person is liable to pay penalty under Section 86 of this Act; and (b) the person voluntarily discloses to the Commissioner, in writing, the existence of the tax deficiency, during the course of proceedings under Section 60; and (c) makes payment of such tax deficiency within three working days of the conclusion of the said proceedings, the amount of the penalty otherwise due, against the admitted and paid tax, shall be reduced by eighty per cent. 48. It must be noticed that the above provision only talks of the person making payment of such tax deficiencies on his own within three w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on acted without jurisdiction and contrary to the order issued by the CVAT on 12th November 2013 under Section 68 (2) of the DVAT Act. (ii) The order in Form DVAT-50 issued by the Special Commissioner on 15th October 2014 did not permit the enforcement officer to carry out any assessment and therefore, orders of default assessment of tax, interest and penalty passed by the AVATO Enf-I under Sections 32 and 33 of the DVAT Act were without the authority of law. (iii) The Joint Commissioner who issued the deployment orders authorising the AVATO Enf-I to undertake the search and seizure was not specifically authorized to do so in terms of the order dated 12th November 2013 issued by the Commissioner under Section 68 (2) of the DVAT Act. This therefore, vitiates the entire survey, search and seizure operation undertaken by the teams of the DT T so deployed. (iv) There could not be a revision or reassessment of the tax computed for the periods of 2013-14 for which returns were filed, by reversal of the ITC claimed for that period without following the due process as envisaged under the DVAT Act. It was not open to the AVATO Enf-I who was not authorized to make any assessment, to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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