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ITD-ITD Cem JV Versus Commissioner of Trade & Taxes

2016 (4) TMI 226 - DELHI HIGH COURT

Re-opening of assessment under DVAT - validity of powers of delegations - Supply of fresh reasons to believe - Default notices under Sections 32 and 33 of the DVAT time barred - Reassessment of returns done under Section 32 of the DVAT Act after the expiry of 4 years from the end of the year for which the person furnished a return - No mention made of any concealment, omission or failure by the Petitioner in furnishing any material particulars - Held that:- it is not legally permissible for the .....

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f the proviso to Section 34 of the DVAT Act. The proviso is very clear that there has to be “concealment, omission or failure to disclose fully material particulars” by the Petitioner. In relation to the claim for exemption there is nothing in the “reasons to believe” as recorded by the Respondent to show that there was any concealment or omission or failure by the Petitioner to disclose material particulars. The materials gathered by the DT&T, if any, ought to have a live nexus to the formation .....

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istration” of the DVAT Act and “all such persons engaged in the administration of this Act shall observe and follow such orders, instructions and directions of the Commissioners.” It is not understood how the Special Commissioner (Special Zone) could have delegated powers in terms of Section 67(2) of DVAT Act and in particular, the power of reopening the reassessment to the Assistant Commissioner (VAT Audit). Interestingly, the impugned notice is issued by the Assistant Commissioner (VAT Audit) .....

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ur of petitioner - W. P. (C) 1849/2016 & CM No. 7914/2016 (for stay) - Dated:- 30-3-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr. Rajesh Jain with Mr. Virag, Mr.K.J. Bhat and Mr V.K. Jain, Advocates For the Respondent : Mr. Gautam Narayan, Additional Standing Counsel with Mr. R.A. Iyer, Advocate and Mr Pradeep Verma, Assistant Commissioner (Audit)/Special Zone JUDGMENT Dr. S.Muralidhar, J 1. The challenge in this w .....

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issued by the Assistant Commissioner (VAT Audit). 2. The Petitioner states that it has been filing its returns regularly with the DT&T and also making other statutory compliances in terms of the provisions of the DVAT Act and Delhi Value Added Tax Rules 2005 ( DVAT Rules ). It is stated that during the year 2009-10, the Petitioner filed monthly returns in form DVAT 16, which returns were taken to be notice of assessment under Section 31 of the DVAT Act. 3. On 2nd August 2013, a notice for au .....

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deductions towards various expenses claimed in the return. 4. The limitation of four years for making the default assessment for the period 2009-10 expired on 31st March 2014. Till that time, no assessment notice under Section 32 of the DVAT Act was framed as the proceedings continued thereafter. It is stated that the audit proceedings which were initiated on 2nd August 2013 concluded on 23rd June 2014. The audit report, prepared on 4th July 2014, inter alia covered the period from 1st April 20 .....

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as made of any concealment, omission or failure by the Petitioner in furnishing any material particulars although the audit report adverted to these aspects. 6. The Petitioner filed Writ Petition (Civil) No. 5231 of 2014 in this Court challenging the aforementioned default notices, essentially on the ground of limitation. The point urged before this Court was that in terms of Section 34 (1) (a) of the DVAT Act, no assessment or reassessment under Section 32 of the DVAT Act could be carried out b .....

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son to believe that tax was not paid by reason of concealment, omission or failure to disclose fully material particulars . 8. During the course of hearing of the above Writ Petition (Civil) No. 5231 of 2014, the learned Additional Solicitor General of India appeared on behalf of DT&T and urged that although the default notices had not expressly invoked the proviso to Section 34 (1) of the DVAT Act, they impliedly did so if one were to examine in detail the ingredients of the said notices. T .....

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s shocking is the document which has been placed at page 18 of the rejoinder affidavit filed by the petitioner which is a certified copy of the file noting dated 09.03.2014 of the Assistant Commissioner (HQ). The said noting is reproduced in its entirety herein below:- Sub: Request for Extension of time to conduct Audit of Cases pertaining to CWG. May kindly see the list of cases allotted to this branch for audit of business affairs, for the year 2009-10 & 2010-11. These cases have been reco .....

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ek extension of time limit for these cases for the year 2009- 10. If, agree, we may request the Competent Authority to kindly consider for extension of time-limit as per provision of the Act & Rules (u/s 34 of DVAT). Sd/- 9-3-14 Asst. Commissioner (HQ) Addl. Commissioner. (VAT Audit) Sd/ 10-3-14 (underlining added) From the above extract it is evident that the reasons for extending the time for completing the re-assessment proceedings were not the reasons indicated in the proviso to Section .....

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assed an order under Section 67 (2) of the DVAT Act assigning the Petitioner s case to Mr. Praveen Verma, Assistant Commissioner to take recourse to such other action in light of the judgment dated 14th May 2015 passed by this Court in Writ Petition (Civil) No. 5231 of 2014. 11. Pursuant to the above order passed by the Special Commissioner (Special Zone), a note was prepared by the DT&T on 26th November 2015 regarding coercive action available to it. The note referred to opinion of an advoc .....

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pire on 31st March 2016. In the note, it was inter alia observed as under: In the case of M/s. ITD ITD CEM JV, while scrutinizing DVAT-16 (returns filed by the dealer for the year 2011-12) it has been observed that the dealer has claimed exemption/deduction towards labour, services and like charges more than the permissible limit as specified under Rule 3 of DVAT Rules, 2005. In the financial year 2009-10, the dealer has shown his taxable turnover as ₹ 88,89,16,555 whereas he has claimed d .....

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he part of the dealer. 12. The note therefore proposes that the Commissioner, VAT is to allow extension of time for assessment for the period 2011-12 up to six years in terms of the proviso to Section 34 of the DVAT Act and the above extension is required for the purpose of verifying concealment etc. after scrutiny of records of the dealer for the year 2009-10. 13. When the above note was placed before the Additional Commissioner (Audit) who made, in his handwriting, an endorsement referring to .....

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ground that it was without jurisdiction. When the VATO disagreed with the objection, Writ Petition (Civil) No. 713 of 2016 was filed by the Petitioner challenging the re-initiation of the audit proceedings. 15. When the writ petition was finally disposed of on 1st February 2016, Mr. Gautam Narayan, learned panel counsel for the DT&T produced a letter dated 30th January 2016 written by the Assistant Commissioner (VAT Audit Branch) in which it was stated that DT&T did not want to insist o .....

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to the Petitioner by the Commissioner, Department of Trade and Taxes, Government of NCT of Delhi (GNCTD) and pursuant thereto an Audit Report dated 4th July, 2014 was prepared after scrutinizing the books of account of the Petitioner. This led to a notice of default assessment of tax being issued under Section 32 of the Act on 9th July, 2014. Additionally, a notice of penalty of the same date was issued under Section 33 of the Act. Both these were challenged by the Petitioner in this Court by fi .....

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ed and is quashed. The revenue may, however, take recourse to such other action as may be permissible in law. 4. It is, thereafter, that the impugned Audit Notice dated 7th January, 2016 was issued stating that an audit is required to be undertaken for the very same period, i.e., 1st April, 2009 to 31st March, 2010. 5. On the previous date, i.e., 27th January, 2016, this Court had, while directing notice to be issued to the Respondent, ordered that the Value Added Tax Officer (VATO) would not pa .....

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epartment of Trade and Taxes, GNCTD does not want to insist on fresh audit proceedings under Section 58 of the DVAT Act, 2004 and the Audit Notice issued for the same shall be withdrawn with the permission of the Hon ble High Court . The letter proceeds to state that the Department intends to initiate fresh assessment proceedings under Sections 32 and 33 of the DVAT Act on the basis of the records available with it and other material facts/documents submitted by the dealer during the audit proce .....

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the letter dated 30th January 2016 addressed to him, the prayer in the present petition does not survive. The said letter states that the Respondent does not wish to proceed with the Audit proceedings and is withdrawing the Audit Notice dated 7th January, 2016. The said statement is taken on record and the impugned notice dated 7th January 2016 is treated as having been withdrawn by the Respondent. 9. As far as further action that the Respondent states it intends to take is concerned, this Cour .....

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d notice dated 9th February 2016 was issued by the Assistant Commissioner (VAT Audit) to the Petitioner, which reads as under: Assessment of tax liabilities of M/s. ITD ITD CEM JV is required to be done under Section 32 and 33 of DVAT Act for the year 2009-10 as there are reasons to believe that there has been suppression of gross turnover as shown by the dealer in DVAT returns filed by the dealer for the period concerned. Accordingly, Section 34 of DVAT Act is being invoked with the approval of .....

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, directed that the same may be submitted to the undersigned on or before 16th February 2016. 17. The Petitioner then filed a detailed objection, by its letter dated 15th February 2016 wherein various grounds were taken why re-assessment proceedings under Sections 32 and 33 of the DVAT Act could not be initiated. 18. On 24th February 2016 the Assistant Commissioner (Special Zone VAT) responded to the above letter dated 15th February 2016 in which the Petitioner was asked to furnish additional in .....

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will be passed pursuant to the impugned notice issued to the Petitioner under Section 59 (2) of the DVAT Act, 2004. 20. Thereafter, the petition was finally heard on 16th March 2016. Mr. Narayan produced the original file and also prepared a compilation of the relevant documents filed by the Petitioner. 21. The file contains the notings, already referred to hereinabove. At the outset it requires to be noticed that on a perusal of the records produced before the Court, it is seen that in the cha .....

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8377; 1096,81,44,236. The emphasis was inter alia, on what ought to have been the gross turnover. The basis for this estimation was the permissible standard deduction of 25% of the total value of the contract towards labour, services and other like charges, where the actual expenses on these heads is not ascertainable and an Assessee is unable to provide the requisite documentation as proof of the expenses incurred. In this context, Rules 3 (1) and (2) of the DVAT Rules are relevant. 22. There i .....

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to justify the claim of the above entry, i.e., far above the permissible limit of 25% in terms of Rule 3 (2) of DVAT Rules. Mr. Narayan repeatedly urged before this Court that this rule must be read as forming part of the reasons to believe recorded by the Assistant Commissioner (VAT Audit) in the noting dated 29th January 2016 of the file and this formed the basis of issuance of the notice to the Petitioner. Mr. Narayan further submitted that since it was only a notice and not an assessment ord .....

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ST 382 (Del) : The said reasons to believe have to be formed by the Commissioner. Secondly, the said expression reasons to believe must have nexus and live link with failure to pay tax because of concealment, omission or failure to disclose material particulars by the Assessee. Thus, the Commissioner is required to form an opinion in the nature of reasons to believe that there was failure, omission or concealment to disclose material particulars which had the effect of short-payment or non-payme .....

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turnover , the real reason as transpired during the course of hearing is regarding excessive claim of exemption made by Petitioner. 25. There is, therefore, certainly no failure/omission on the part of the Petitioner to furnish material particulars which forms the basis of re-assessment in terms of the proviso to Section 34 of the DVAT Act. The proviso is very clear that there has to be concealment, omission or failure to disclose fully material particulars by the Petitioner. In relation to the .....

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no reference to any such material. In fact, a tabular chart prepared by the DT&T placed before the Court refers to the very figures of gross turnover, works contract and sale of capital goods, as disclosed by the Petitioner in the return filed. 26. Mr Narayan referred to the audit report and urged that the said report should form the basis for the reasons to believe that exemption far in excess of what was permissible and supported by the disclosed documents had been claimed by the Petitione .....

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the notice of default assessment of tax dated 9th July, 2014 was based on the said audit report and the said notice was quashed by this Court by the order dated 14th May 2015 in W.P.(C) 5231/2014 on the ground that it was time barred. Merely because the Court in the said order reserved the right of the DT&T "to take recourse to such other action as may be permissible in law" did not permit it to initiate one more round of litigation on the very same material. That would be an abus .....

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