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2016 (2) TMI 318 - DELHI HIGH COURT

2016 (2) TMI 318 - DELHI HIGH COURT - TMI - Assessment under DVAT - system generated orders and notices - mismatch between the data filed online in Annexure-2A with the Annexure-2B filed by the selling dealers - overlap of the period for which notices were issued - principle of natural justice - Held that:- The impugned order of default assessment dated 13th January, 2015 under Section 32 of the DVAT Act in respect of the Petitioner for the tax period pertaining to the fourth quarter of 2013 is .....

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the request of the Petitioner for issuance of C Forms in terms of the application dated 26th October 2015.

Decided in favor of assessee. - W. P. (C) 6656/2015 & CM 12140/2015, 13505/2015 - Dated:- 3-2-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr. Rajesh Jain, Mr. Virag Tiwari and Mr. K.J. Bhat, Advocates For the Respondent : Mr. Avtar Singh, Advocate ORDER Dr. S. Muralidhar, J. Introduction 1. This writ petition by Brilliant Metals Private Limited seeks to chall .....

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t of value added taxes by the DT&T. 2. On 24th July, 2015, this Court passed an interim order restraining the Respondent from taking steps pursuant to the impugned notice dated 19th June, 2015 under Section 59(2) of the DVAT Act and pursuant to the default assessment order of the same date. The Court further directed Insofar as the order dated 13.01.2015, the petitioner is at liberty to seek appropriate remedies under the Act. Background Facts 3. The background facts are that the Petitioner, .....

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e aforementioned period as available on the website of the DT&T. 4. It is stated that on 26th March, 2014, the Petitioner was constrained to deposit ₹ 10 lakhs as advance tax for the period 1st January 2014 to 31st March 2015. On 13th August 2014, the enforcement team of the DT&T visited the Petitioner's premises. The Petitioner states that the details of the sales and purchases made till then were provided. The Petitioner states that on being pressurised by the enforcement tea .....

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pies of the following documents: i. Monthly VAT & CST account specifying total output/input tax and net payable or excess tax credit due to carry forward. ii. Record of inter-state sale (C Form) and transfer (F form) of goods. iii. Purchase register in Form DVAT-30. iv. Sales Register in Form DVAT-31. v. Stock Register vi. Bank Statements vii. Copy of purchase invoice along with GR. viii. Proof of delivery of goods The impugned order dated 13th January 2015 7. It is stated that without adver .....

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hat does not comply with the requirements of Delhi Value Added Tax Act, 2004/any other reason . None of these alternatives were tick marked or selected. So it is not possible to discern which of these reasons apply. 8. The next paragraph referred to the fact that the Authorised Representative (AR) of the Petitioner was present on 1st September, 2014 in response to the notice issued under Section 59(2) of the DVAT Act and on the subsequent dates, i.e., 8th & 9th September, 2014. It noted that .....

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crutiny of the purchases of M/s. Brilliant Metals P. Ltd. it found that 8 firms are also cancelled due to adverse report of the VATI of the concerned Ward VATI/E-1 VATI. All these firms found non-functional......These firms seem bogus as in spite of very high GTO they did not try for revival. Barring the mention of CSI the names of the other seven 'bogus' dealers were not mentioned. The order dated 13th January, 2015 stated: the purchase from these dealers is rejected and ITC claimed is .....

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O issued notice of assessment of penalty under Section 33 and called upon the Petitioner to pay a penalty of ₹ 3,34,45,882/- on or before 14th March, 2015. Appeal before the OHA 10. Aggrieved by the above order dated 13th January, 2015, the Petitioner filed an appeal before the Objection Hearing Authority (OHA). By an order dated 24th March, 2015, the OHA passed an order for pre-deposit directing the Petitioner to deposit a sum of ₹ 70 lakhs as a pre-condition to entertaining the obj .....

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ne 2015, another default notice under Section 32 of the DVAT Act was uploaded on the website of DT&T. This default notice stated that being satisfied that the Petitioner was liable to pay tax and interest on the basis of mismatch between the data filed online in Annexure-2A with the Annexure-2B filed by the selling dealers , the VATO had issued a notice of default assessment dated 1st March 2014 for the tax period of the first quarter 2013-2014. The order stated that he was suo moto reviewin .....

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ice of default assessment was issued under Section 59(2) on account of purchases made from suspicious dealer(s) for "the fourth quarter of 2013-2014". The transaction noted in the said notice and the name of the dealer was as under:- S. No. Party TIN Name Tax Period Turnover Rate of tax under Dvat ITC Interest Total amount due (1) (2) (3) (4) (5) (6) (7) (8) 1 07680428741 OMEGA SALES CORPORATION Fourth Quarter-2013 1,00,20,084 5.00 5,01,004 87,298 5,88,302 Total 1,00,20,084 5,01,004 87 .....

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was directed to pay a sum of ₹ 1,19,67,436/-. This was again an unsigned order. At the foot of the order was appended the endorsement: This order has been framed on the basis of 2A & 2B data as on 10th June, 2015. On the same date, i.e., 19th June, 2015, the notice of assessment of penalty under Section 33 was passed levying a penalty of ₹ 5,01,004/- for the fourth quarter of 2013. Another separate order of penalty was passed on the same date levying a penalty of ₹ 95,81,29 .....

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uarter of 2013 and involved the purchases made from Omega Sales Corporation (OSC), the subsequent notice dated 19th June, 2015 included the very same transactions of purchases from OSC for the fourth quarter of 2013, which resulted in the order of the same date, i.e., 19th June, 2015. 16. Another notice under Section 59(2) dated 19th June, 2015 was issued in respect of two other purchases made from JBN Impex Private Limited (JBN) by the Petitioner in the second quarter of 2013. Apparently JBN wa .....

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uploaded on the website of the DT&T. They gave no reasons and were mechanically issued without the orders even being signed. Also there was a confusion with the system, on the one hand, generating verification reports matching the Annexures 2A and 2B for the purchases made and, on the other hand, those very purchases being termed as suspicious/bogus purchases in the default notices. Thirdly, there was an overlap of the period for which notices were issued. The notice dated 26th August 2014, .....

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present petition and on 24th July, 2015, the Court passed an interim order as noted hereinbefore. Response of the Department 18. In response to the writ petition, a short affidavit dated 22nd July, 2015 was filed by the DT&T. It was acknowledged that the Petitioner had filed online/revised returns for the period 1st April, 2013 to 31st March, 2014 comprising the four quarters. In this short affidavit, for the first time, a table was set out detailing the purchases made from these eight bogu .....

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A on 31st March, 2015 before the Appellate Tribunal (AT), and ought not to be permitted to bypass that remedy by filing the present writ petition. It was further stated that the notice dated 15th June 2015, pertaining to the first quarter of 2013 was issued suo moto by the VATO of Ward 77 but when the Petitioner filed its online return of first quarter on 6th November, 2014, the same got matched and in view of the changed position, the default assessment had been made nil. 19. It was then stated .....

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ion Report of Annexure-2A and 2B of all four quarters (2013-14) has been filed online by the petitioner company. 20. It was stated by the DT&T in para 13 of its short affidavit dated 22nd July 2015 that the notice (order) of default assessment dated 13th January, 2015 under Section 32 of the Act is a consolidated notice towards all four quarters (1st April, 2013 to 31st March, 2014) and the same has to be read exclusively as it pertains to purchases shown from bogus/non-functioning firms. It .....

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e should be treated as non est. In the same order, the Petitioner was asked to produce books of accounts and other evidence for the second and fourth quarter of 2013-2014 before the VATO, Ward 77. That letter was also uploaded on the website of the DT&T and this again did not contain the signature of the VATO. 21. The position that emerges from the short affidavit filed by the respondent on 22nd July, 2015 is that the system generated notices and orders dated 19th June, 2015 uploaded by the .....

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ther pointed out that the system generated notices issued under Section 59(2) of the DVAT Act, which were uploaded on 19th June 2015, were made the subject matter of a batch of writ petitions in this Court including W.P.(C) No.6788/2015 titled M/s. Hello Furniture v. Commissioner, Trade & Taxes. In the circumstances, it was prayed in the application, i.e., CM No.13505/2015, that the Court should, inter alia, restrain Respondent from taking any coercive step to recover the disputed demand in .....

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2015 an order was passed by the Court on 3rd August, 2015 issuing notice and directing that in the mean while no coercive measures be taken. 25. In reply to the said CM No.13505/2015, the DT&T more or less reiterated its earlier short affidavit and confirmed that the notice/order dated 15th June, 2015 was passed as no mismatch was detected by the system of Annexure 2A and Annexure 2B, whereas, the notice dated 13th January, 2015 was passed on special circumstances when the Department came t .....

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. At this stage, it requires to be noticed that by an order dated 28th August, 2015 passed in W.P.(C) No. 7379/2015 (Bhumika Enterprises v. Commissioner, Value Added Tax) and a batch of writ petitions (including W.P.(C) No.6788/2015 by M/s. Hello Furniture), the Court quashed all the system generated notices issued on 19th June, 2015 under Section 59(2) of the Act and noted that the consequent orders passed thereon already stood withdrawn by the letters dated 17th July, 2015. The Court clarified .....

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and 2015-2016. The attention of the VATO was drawn to Rule 5(4) of the Central Sales Tax (Delhi) Rules, 2005 ( Delhi CST Rules ). The VATO was requested to give the necessary command at the website so as to enable the applicant to proceed with its application for downloading of the C-forms for the year 2014-15 and 2015-16, respectively. However, by order dated 8th December, 2015, the VATO declined to accede to the request since no stay was granted by the High Court of the order dated 13th Januar .....

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x Officer (VATO) declining the prayer of the petitioner for issuance of C forms. 3. It would be noticed at this stage that earlier the Petitioner had filed a separate application being CM No.13505/2015 in which, inter alia, the prayer was that the respondent should not take any coercive steps against the Petitioner during the pendency of the petition. In the said application on 03rd August, 2015 this Court had passed an order to the effect that no coercive measures should be taken against the Pe .....

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give the necessary command at the website so as to enable the Petitioner to download the C forms for 2014-15 and 2015-16 respectively. It is the above request that has been rejected by the order dated 8th December 2015 passed by the VATO on the ground that there was no stay granted by the High Court and therefore, the Department was unable to allow the issuance of C forms. 5. A perusal of the impugned order shows that a reference is made to the earlier default assessment notice dated 13th Januar .....

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rms for reasons to be recorded in writing . 7. The order dated 8th December, 2015 has been passed without giving any hearing to the petitioner despite the Petitioner making a specific request in that behalf by the letter dated 26th October, 2015. On this short ground, the Court sets aside the order dated 8th December, 2015 passed by the VATO and directs that the VATO will afford an hearing to the Petitioner on 27th January 2016 and thereafter pass an order on or before 29th January 2016 on the P .....

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5 for which there was no order of stay from the competent authority and, therefore, the issuance of C-Forms could be refused under Rule 5 (4) of the Delhi CST Rules; and (ii) the Petitioner had not availed of the remedy of going before the AT under Section 76 of the DVAT Act against the order of the OHA dismissing the Petitioner s appeal and instead had filed a writ petition in this Court. 30. In the meanwhile on 5th November, 2015, yet another notice of default assessment was issued under Secti .....

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ated 24th July 2015 passed by the Court. Submissions of counsel 31. At the hearing today it was submitted by Mr. Avtar Singh, Advocate for the DT&T, that the Petitioner was trying to avoid availing the statutory remedy available to it to challenge the dismissal of its appeal by the OHA before the AT and, therefore, the Court should not entertain the present writ petition. It was submitted that although the subsequent notices and orders dated 19th June, 2015 may have been issued inadvertently .....

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essment and penalty under Section 33 of the DVAT Act of the same date being sub-judice before this Court. 32. Mr. Avtar Singh further placed on record the profiles of the eight bogus firms including GSA, OSC and JBN, which indicated that their registrations had been cancelled either with effect from the date when they were originally registered or from some other date. The essential ground for cancellation was that the said firms were non-functional. 33. In response to the above submissions, it .....

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d and fourth quarter, there was no mismatch of Annexures 2A and 2B as verified by the system and yet the DT&T was persisting with the order dated 13th January 2015 that these very purchases were bogus and suspicious. It was pointed out that neither in the notice of 26th August 2014 nor while framing the assessment was the Petitioner informed of the basis on which the transactions were termed as suspicious/bogus. 34. Mr. Jain submitted that the assessment framed on 13th January, 2015 was in v .....

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T&T in regard to the other quarters of 2013 that there was no mismatch, the order dated 13th January, 2015 has no legs to stand. According to him once the DT&T had framed an order of re-assessment on 19th June 2015, the earlier order dated 13th January, 2015 would not survive. Reliance was placed on Kundan Lal Shri Kishan v. CST (1987) 1 SCC 684 and Deputy CCT v. H.R. Sri Ramulu (1977) 1 SCC 703. As regards the failure by the DT&T to furnish the Petitioner with the material on the ba .....

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12.5 per cent but worked out to 8.5 per cent, which rate was outside the scope of Section 4 of the DVAT Act. Neither was any input tax allowed nor the tax already deposited by the Petitioner accounted or while framing the above assessment. Mr. Jain pointed out that as of date ₹ 60 lakhs deposited by the Petitioner was lying with the DT&T. As regards the penalty orders, he pointed out that no allegation in terms of clauses (a) or (b) of Section 86(10) had been levelled and the penalty .....

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the DT&T asserts that the order dated 13th January, 2015 should be treated as an order for the entire FY 2013-2014, a perusal of the order reveals that it is, in fact, issued only in respect of the fourth quarter of 2013. Even the notice of assessment of penalty under Section 33 of the DVAT Act issued on the same date pertains only to the fourth quarter of 2013. However, a reference is made in the order dated 13th January, 2015 to the response to the notice dated 26th August, 2014 issued un .....

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Petitioner to produce before the VATO on 1st September, 2014 its records, stock registers, bank records, etc. There is no mention in this notice of the names of the eight firms which were labelled as 'bogus/suspicious'. As far as the order dated 13th January, 2015 is concerned, the name of only one of the eight so-called bogus firms, i.e. CSI, finds mention. The names of the remaining seven firms were disclosed subsequently for the first time in the DT&T s short affidavit dated 22nd .....

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material on the basis of which the VATO concluded that the eight firms in question, from whom the Petitioner made purchases, were suspicious or bogus. This is another fatal flaw that vitiates the order dated 13th January, 2015. 40. Thirdly, there is no discussion in the impugned order dated 13th January, 2015 of the reply filed by the Petitioner on 1st September, 2014 together with the documents. There is no denial by the DT&T that the Petitioner furnished such a reply. As explained in Oryx .....

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t is the violation of the principles of natural justice. The Petitioner was not confronted with the documents collected and the statements, if any, recorded during the course of investigation which enabled the VATO to come to the conclusion that the eight firms were bogus firms and that the purchases made from such firms were suspicious. Yet, the said material appears to have been relied upon for issuing the order dated 13th January, 2015. Further, as pointed out in Negolice India Ltd. (supra) i .....

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orders dated 15th June and 19th June 2015 in respect of the first and fourth quarters of the same assessment period. 43. Finally, there is an even more fundamental flaw in the entire exercise. This stems from the palpable failure of the computerised system devised by the DT&T for issuing notices and framing orders of default assessments. This case is perhaps an apt illustration of the aphorism that if a computer is fed erroneous data it cannot possibly produce accurate results. As observed b .....

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;T while issuing notices under Section 59(2) of the DVAT Act to the Petitioner on 19th June 2015 for various quarters of the same period, i.e., FY 2013-2014. This was followed by the DT&T having to withdraw those notices by issuing a subsequent order on 17th July, 2015 admitting to the inadvertent error committed by it. On 19th November, 2015 the DT&T issued yet another order retracting its notice dated 5th November, 2015, which again was erroneously issued. If the Petitioner was, in the .....

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urchases made by the Petitioner in that period, consequent to which the demand for the first quarter of 2013-2014 was revised as nil. This was also reiterated in the subsequent affidavit filed by DT&T. Likewise, there were no mismatches for the second, third and fourth quarters. In the teeth of the above admissions of the DT&T, it is not understood how its case regarding bogus purchases could still be maintained. Nevertheless, if there is a problem in the system where despite the cancell .....

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usion caused by system generated notices and the corresponding orders being issued on the same day. The relevant portions of the said order read thus: "13........The 'Verification Report ' of Annexures-2A and 2-B for the third quarter of the financial year 2013-14 produced before the Court shows that the very purchase transactions involving GSA and OSC had a corresponding match and this has been verified by the computerized system. In other words, in respect of the same purchase tra .....

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n, the system cannot possibly verify the matching of Annexures 2A and 2B in respect of the transactions involving such dealer. The system will have to suitably programmed by the DT&T to remove such anomaly. 14. Added to this is the fact that in respect of the very same period for which the order dated 9th March 2015 was passed, i.e. for the third quarter of 2013, and in respect of the very same purchases transactions involving GSR and OSC, notices were again issued and order passed on 19th J .....

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13th January, 2015 appears to suffer from serious legal infirmities which have been discussed hereinbefore. As far relegating the Petitioner to the statutory remedy, the issue concerning the issuance of C Forms the Court did set aside the order dated 8th December 2015 and send the matter back to the VATO for a fresh decision. Yet, it only resulted in another erroneous order dated 29th January 29016. In the circumstances, as far as the order dated 13th January 2015 is concerned, relegating the P .....

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, 2015 under Section 32 of the DVAT Act in respect of the Petitioner for the tax period pertaining to the fourth quarter of 2013 is set aside. ii. The notice of default assessment of penalty dated 13th January, 2015 under Section 33 of the DVAT Act for the fourth quarter of 2013 is hereby set aside. iii. The order dated 29th January 2016 passed by the VATO declining to issue C Forms to the Petitioner is set aside. iv. The matter is remanded to the VATO Ward 77 to begin de novo assessment proceed .....

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is Court in the present writ petition. vi Any other material that has been gathered by the DT&T, which forms the basis of the notice dated 26th August 2014 issued under Section 59 (2) of the DVAT Act, shall also be furnished to the Petitioner by the DT&T within the same period. vii. The Petitioner shall file a comprehensive reply within a further period of two weeks of receiving the above materials. In the reply the Petitioner will indicate if it wishes to cross-examine any person(s) who .....

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