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2016 (3) TMI 378 - DELHI HIGH COURT

2016 (3) TMI 378 - DELHI HIGH COURT - [2016] 90 VST 143 (Del) - Powers of survey, search, seizure and assessment under Delhi Value Added Tax (DVAT) - writ petition for restraining the Respondents from taking any coercive steps - validity of default assessment orders of tax, interest and penalty - power to reverse the ITC claimed during an earlier period - Held that:- The survey operation undertaken in each of the petitions was without authority of law inasmuch as the Officer who undertook such o .....

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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. - There could not be a revision or reassessment of the tax computed for the periods of 2013-14 for which returns were filed, .....

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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 and authority. Interdiction by the Court, in the exercise of its powers under Article 226 of the Constitution, of the continued exercise by the VAT Authorities of powers that they do not possess becomes an imperative. - Decid .....

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ralidhar, J: 1. These are four writ petitions by the dealers registered under the Delhi Value Added Tax Act, 2004 ( DVAT Act ) raising similar questions concerning the exercise, by the officers under the DVAT Act, of the powers of survey, search, seizure and assessment. They are accordingly being disposed of by this common judgment. W.P. (C) 8913 of 2014 2. In this writ petition filed by Capri Bathaid Private Limited (CBPL), the facts are that a survey was undertaken in the premises of CBPL by t .....

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to CBPL, the claim of ITC was found matching with the output tax liability declared by the selling dealers as per the verification report in Form 2A and 2B available on the website of the DT&T. On 27th September/1st October 2014 the Assistant Value Added Tax Officer, Enforcement-I (AVATO Enf-I) issued default notices of assessment of tax, interest and penalty under Sections 32 and 33 of the DVAT Act. This was printed in pre-printed format which stated that the dealer has not furnished retur .....

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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 .....

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15,61,15,039. Against the gross output tax liability of ₹ 5,80,46,355, SEPL claimed ITC of ₹ 5,59,23,931. SEPL deposited a sum of ₹ 15,48,664. On 29th December 2014 one machine generated unsigned notice under Section 59 (2) of DVAT Act was issued by the VATO Ward 68 on the website of DT&T under the dealer's login ID directing SEPL to submit details in respect of the purchases made in the fourth quarter 2013-14 and the first quarter 2014-15 from the two dealers, M/s. Kri .....

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nformed by SEPL that there was no mismatch on the website of the DT&T in the year 2013-14 and 2014-15 with regard to the purchases from M/s. Krishna International and M/s. S.K. Enterprises and that the selling dealers duly reflected the sales made in their respective returns. At the time the purchases were made from the selling dealers, they were shown as active on the website of the DT&T. On 14th January 2015 the AVATO Enf-I issued default notices of assessment of tax, interest and pena .....

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ssed was ₹ 48,000,42 and the interest was ₹ 17,754. By a separate order passed on 14th January 2015, the AVATO Enf-I levied a penalty of ₹ 48,00,042 under Section 86 (10) read with Section 33 of the DVAT Act. W.P. (C) No. 3069/2015 7. In this petition 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 .....

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; 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 that the cheque deposited in lieu o .....

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of the local purchase of goods from M/s. Globe Enterprises amounting to ₹ 4,31,685 during financial year 2013-14. The assessed turnover was ₹ 45,307 and the tax assessment however was ₹ 4,33,950. The total tax assessment together with interest worked out to ₹ 4,40,192. The penalty levied by an order of the same date was in the sum of ₹ 4,33,950. W.P. (C) 5080/2015 11. In this petition by M/s. Shakti Metal Co. (SMC), a registered dealer under the DVAT Act, the facts .....

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pointed out by the DT&T within three days. SMC claimed in the said letter that all the purchases were genuine and there was no mismatch in the Forms 2A and 2/B as regards the purchases made from the dealers in question. 12. Nevertheless on 25th February 2015, the AVATO Enf -I passed two separate orders, the first being a notice of default assessment of tax and interest and the other for penalty. This was for the third quarter of 2013-14 and under Sections 32 and 33 of the DVAT Act in a pre- .....

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. 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 .....

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provisions of the DVAT Act have to be examined in some detail. 17. Chapter XI of the DVAT Act is titled Value Added Tax Authorities and Appellate Tribunal . Section 66 deals with the Value Added Tax (VAT) Authorities and reads as under: 66. Value Added Tax Authorities (1) For carrying out the purposes of this Act, the Government shall appoint a person to be the Commissioner of Value Added Tax. (2) To assist the Commissioner in the administration of this Act - (a) the Government may appoint as ma .....

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rm such duties as may be required, by or under this Act. (4) The powers exercised by the Value Added Tax authorities for the making of assessments of tax, the computation and imposition of penalties, the computation of interest due or owed, the computation of the entitlement and the amount of any refund, the determination of specific questions under section 84, the making of general rulings under section 85, and the conduct of audit or investigations shall, for the purposes of this Act, be the a .....

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he making of general rulings under Section 85 and the conduct of audit or investigations shall be the administrative functions . 19. Section 67 (1) of the DVAT Act states that the CVAT shall have jurisdiction over the whole of Delhi and shall have responsibility for the due and proper administration of the DVAT Act. Under Section 67 (2) the CVAT may, from time to time, issue such instructions, orders and directions to any VAT Authority as he thinks fit for the due and proper administration of th .....

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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 .....

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wer to notify and publish any forms. Under Section 70 (6), every notification issued by the CVAT shall be published in the Official Gazette and shall not have any effect prior to such publication. 22. The above delegation of CVAT's powers under Section 68 of the DVAT Act has to be read along with Rule 65 of the Delhi Value Added Tax Rules, 2005 ( DVAT Rules ) which reads as under: 65. Officers to carry and produce authorizations (1) Where the Commissioner wishes to appoint an officer or othe .....

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d by the Commissioner under sub-rule (1) shall - (a) carry the authorization in Form DVAT-50, with him when purporting to exercise any of the powers conferred under Chapter X of the Act; and (b) produce the authorization in Form DVAT-50, if requested by the owner or occupier of any premises where he proposes to exercise these powers. 23. There is another important aspect as regards search and seizure. Under Section 60 (6) of DVAT Act, every search or seizure made under this Section as far as pos .....

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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 wh .....

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ority in terms of Rule 65 (2) is to be for a period not exceeding three years. The grant of authority shall be to a specific person and expire on the retirement, resignation or transfer of the person. (v) Rule 65 (3) mandates that every officer or other person authorized by the CVAT under Rule 65 (1) shall carry the authorization in Form DVAT-50 with him when purporting to exercise any of the powers conferred under Chapter X of DVAT Act. (vi) Such officer is required in terms of Rule 65 (3) (b) .....

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ch reads as under: In supersession of all previous orders on the subject, I, Prashant Goyal, Commissioner of Value Added Tax, Department of Trade & Taxes, Government of NCT of Delhi, in exercise of the powers conferred by Section 68 of the Delhi Value Added Tax (DVAT) Act, 2004 (Delhi Act 3 of 2005) read with Rule 48 of the Delhi Value Added Tax Rules 2005 do hereby delegate my powers specified in Column Nos. 3 under Section mentioned in column No. 2 to the Officers shall exercise the powers .....

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rence can be made to Serial Nos. 8, 9, 18, 21, 22, 24, 30 and 31 of the above order which read as under: S. No. Section of the Act Description of powers Designation of the officer to whom power delegated 8. 32 All powers to assess or reassess to the best of his judgment the amount of net tax due for a tax period or more than one tax 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 .....

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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) All powers to retain, remove, take copies or extracts or cause copies or extracts to be made of the said records, books of account, registers, & doc .....

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Tax Act, 2004 not below the rank of Assistant Commissioner, VAT. 24 60 (3) All powers to serve an order to owner and any person who is in immediate possession or control of any records, books of accounts, registers, other documents or goods, that he shall not remove or part with or otherwise deal with them except with the previous permission. 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. .....

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seize of goods where dealers fails to provide information, fails to permit the inspection, seizure of goods in respect of which default is committed. 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. 27. What is significant as far as the above delegation of powers by the CVAT is concerned is that, in the first place, the officers to whom powers have been delegated are to exercise the powers .....

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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 jur .....

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y of a writ petition was to an order of the Deputy Commercial Tax Officer of the Enforcement Wing whereby a tax amount of ₹ 1 lakh was collected from the Petitioner. The ground was that the Enforcement Wing is not vested with any jurisdiction to levy tax. Referring to Section 41(3) of the Tamil Nadu General Sales Tax Act, 1959, the Madras High Court held that the levy and collection of the said tax by the Enforcement officer was without jurisdiction. 30. In a similar context under the Cust .....

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ther the Board or the Commissioner of Customs, in terms of Section 2(34) of the Act is competent to issue notice under Section 28 of the Act. Any other reading of Section 28 would render the provisions of Section 2(34) of the Act otiose in as much as the test contemplated under Section 2(34) of the Act is that of specific conferment of such functions. Moreover, if the Revenue s contention that once territorial jurisdiction is conferred, the Collector of Customs (Preventive) becomes a proper offi .....

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on the bills of entry or baggage 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 b .....

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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 October 2014. This order has been signed by the Special Commissioner (HR). The three notes appended below the said order read as under: 1. Authority for issuance of DVAT 50 has been granted under Rule 65 (1) of DVAT Rules, 2005 to Special Commissioner (HR) by Commissioner, Department .....

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d 268 named officers of designations ranging from the AC cum VATO, AVATO and VAT Inspector ( VATI ) have been authorized to carry out the audit, investigation and enforcement functions under the DVAT Act and DVAT Rules. Significantly, there is no authorization to carry out the powers of assessment. 34. It requires to be noticed that Section 68 (2) of DVAT Act talks of delegation of the CVAT's powers under Chapter X. Section 68 (3) talks of the powers to supervise, review and rectify any deci .....

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nd in the absence of the delegation of such power, the said delegate cannot exercise the power of assessment. In the present cases, nothing has been shown to the Court regarding authorization of the AVATO Enf-I to make any assessment and pass orders under Sections 32 or 33 of the DVAT Act. As already noticed, the order issued by the CVAT under Section 68 (2) of the DVAT Act on 12th November 2013 delegates such power under Sections 32 and 33 to all officers not below the rank of AVATO. 36. The se .....

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7. 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 AV .....

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Further, it appears that specific form DVAT-50 is in the form of a template order. It requires the AVATO Enf-I to carry out a search and seizure operation. It has been issued by the JC. For instance, the order dated 9th December 2014 in the case of M/s. Nutek Establishments (Petitioner in W.P. (C) No. 3069 of 2015) issued by the JC (E-I) reads as under: The under mentioned officers/ officials of the Department of Trade & Taxes are hereby deputed to enter and search the premises of MIS Nutek .....

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read with Rule 65 (1) of the DVAT Rules, he could not have issued the above order in Form DVAT-50. No such authorisation has been produced before the Court. Significantly, the Form DVAT-50 issued by the Special Commissioner on 15th October 2014 does not authorize the JC (E-I) to carry out any of the functions in respect of search and seizure. Consequently, the JC in turn could not have issued any form DVAT-50 authorizing the AC/AVATO/VATI to carry out search and seizure operations. In none of t .....

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der dated 27th January 2016 in W.P. (Civil) No. 714 of 2016 (Shree Ashtvinayak Gems & Stone Pvt. Ltd. v. Commissioner, Trade & Taxes, Delhi), the 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 .....

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r 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 opportunity was not afforded to the Petitioner to explain why, if at all, it was unable to produce the documents and information sought by the Department. Also, .....

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oticed that while the tax period in each of the assessment orders is for the various quarters of 2014, the reversal of the ITC which has resulted in enhancement of the tax amount pertains to an earlier period. In particular, in each of the cases, reversal of ITC was claimed for 2013-14, which in view of amendment to Section 11 (2) of the Act with effect from 12th September 2013 cannot be carried forward beyond 31st March 2014. The dealers had filed returns in respect of the earlier period and th .....

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about the purchases made by them being characterized as purchases from non-existent/suspicious selling dealers. No opportunity was afforded to the Petitioners of any hearing and no materials gathered substantiating the case of the DT&T were furnished to them. The specific case of the dealer in each of the petitions is that the verification report matched the Forms 2A and 2B in relation to such purchases. Therefore, the orders of default notices of assessment of tax, interest and penalty are .....

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y 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 proce .....

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87 (6) of the DVAT Act enable the officers who undertake a search and seizure operation under Section 60 of DVAT Act to collect tax dues on the spot. This is wholly impermissible in law and will lead to unhealthy practice of arm-twisting a dealer into parting with alleged tax dues without there even being an order of assessment. The tax demand crystallises only upon an assessment. In any event, even if a dealer volunteers to deposit the disputed tax amount, he should be asked to deposit the sai .....

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ground that the Petitioners had an alternative statutory remedy of filing objections before the Objection Hearing Authority and thereafter the Appellate Tribunal against the orders of default assessments of tax, interest and penalty. 50. While ordinarily the Court might have been inclined to entertain the above preliminary objection, in the facts and circumstances of the present cases, where the issue raised touches upon the jurisdiction and powers of the VAT Authorities which in turn directly i .....

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uthorities of powers that they do not possess becomes an imperative. Summary of conclusions 51. To sum up the conclusions of the Court: (i) The survey operation undertaken in each of the petitions was without authority of law inasmuch as the Officer who undertook such operation 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 di .....

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) 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 adjust the ITC reversal pert .....

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conception of the scope of their powers and authority. Interdiction by the Court, in the exercise of its powers under Article 226 of the Constitution, of the continued exercise by the VAT Authorities of powers that they do not possess becomes an imperative. Afterword 52. The Court would like to impress upon the CVAT that given the frequency with which the Court has been constrained in the recent past to interfere with the illegal exercise of powers and jurisdiction by the VAT Authorities, it has .....

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