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2016 (4) TMI 273 - DELHI HIGH COURT

2016 (4) TMI 273 - DELHI HIGH COURT - TMI - Period of limitation - Demand notices of default assessment of tax and interest - Section 32 of the DVAT Act, 2004 - Petitioner sold IT related TFT/LCD/LED Monitors by charging VAT at 4% or 5% although the said item is not covered under the Third Schedule to the DVAT Act. Pursuant to the receipt of the assessment and penalty notices, the Petitioner sent a letter dated 24th April 2014 to the VATO stating, that no show cause notice was issued to them ask .....

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s furnished incomplete returns that do not satisfy the requirements of the Act or for any reason the return filed is not satisfactory then the Commissioner will ‘reassess’ to the best of his judgment the amount of net tax due for the tax period.

Section 34 of the DVAT Act spells out the maximum period within either an assessment or, where the circumstances so warrant, a reassessment under Section 32 of the DVAT Act can be made. The outer limit for either is four years from “the end o .....

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ng of the assessment for the months comprising the Assessment Year 2009-10 ought to have been issued before the expiry of the respective dates as shown in the above table. Barring the reopening of the assessments for February and March 2010, where the dates of the notices of default assessment were prior to the completion of four years, i.e., 26th March and 23rd April 2014, in respect of all other returns by way of self-assessment made by the Petitioner from April 2009 to January 2010, the re-op .....

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Act is crucial for determining the expiry of the limitation of four years for completion of the reassessment. Therefore, the Court is satisfied that barring the default notices of assessment pertaining to the months of February and March 2010, all the other notices of default assessment issued for the remaining months of AY 2009-10 by the impugned notices dated 31st March 2014 are barred by limitation and deserve to be set aside.

Another ground on which the default notices of assessm .....

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41A of the Third Schedule - Held that:- the Court would like to observe that the determination by the Commissioner in the case of NEC under Section 84 of the DVAT Act was not binding on the present Petitioner as it was not a party to those proceedings. In the present case the DT&T has not been able to persuade the Court that LCD/LED/TFT monitors sold by the petitioner during the period under consideration is not classifiable as ‘Monitors’ under Item 3 below Entry 41A of the Third Schedule to the .....

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f NEC which, as it transpired, was one of the reasons for reopening the assessments. In other words, the Assessee was not put on notice as to the grounds on which the assessments were sought to be reopened.

Existence of Alternative Remedy - Held that:- in the present case the entire proceedings for the months of AY 2009-10 (barring February and March 2010) are barred by limitation. There has also been an obvious violation of the principles of natural justice.

Therefore, the .....

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pondents : Mr. Gautam Narayan, Additional Standing Counsel for GNCTD with Mr. R.A. Iyer, Advocate JUDGMENT Dr. S. Muralidhar, J. 1. The challenge in this writ petition by Samsung India Electronics Private Limited is to the demand notices of default assessment of tax and interest dated 31st March 2014 under Section 32 of the Delhi Value Added Tax Act, 2004 ( DVAT Act ) and the penalty notice of the same date under Section 33 of the DVAT Act issued by the Value Added Tax Officer ( VATO ). Backgrou .....

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of the DVAT Act in respect of the goods specified in the III Schedule, 5% tax is leviable on the taxable turnover of a dealer. Entry 41 of the Third Schedule covers IT products including computers, telephones and parts thereof, cellular phones and accessories, etc. Entry 41A deals with the IT products and covers IT products as described in column 2 as covered under the headings or sub-headings mentioned in column 3 of the Central Excise Tariff Act, 1985 ( CET Act ). 4. In the table given below .....

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84 is different in any manner from the corresponding description in the Central Excise Tariff Act, 1985, then, only those commodities described in this entry and in the entry number 84 will be covered by the scope of this notification and other commodities though covered by the corresponding description in the Central Excise Tariff will not be covered by the scope of this notification. Note-(3). Subject to Note (2), for the purpose of any entry contained in this notification, where the descript .....

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ompany dealing with electronic products, i.e., NEC India Private Limited ( NEC ) filed, on 8th July 2008, an application under Section 84 of the DVAT Act for determination of the following question: Whether LCD Monitors, LCD Displays/Plasma Displays are exempt from tax as being meant for educational purposes like books, periodicals and journals including maps, charts and globes which are covered by Entry No.5 of the First Schedule to the Delhi Value Added Tax Act, 2004 and are exempt from tax or .....

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nels and parts thereof , the LCD Monitors were distinct from LCD panels and, therefore, were not classifiable as such under any of the entries in the III Schedule to the DVAT Act. 8. In the determination dated 8th July 2008, the Commissioner DT&T held that since the products in question were not classifiable under Clause (18) of Entry 41-A to the Third Schedule of the DVAT Act and since LCD displays/plasma displays do not find any reference in any of the Schedules, they were unclassified ite .....

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ind any discrepancy in the Petitioner s business as well as its books of accounts. 10. On 25th May 2014, the Petitioner received a letter dated 8th March 2014 from the VATO, Ward-202 (KCS-II) seeking certain documents/information. Reference was made to an earlier letter dated 11th February 2014 which according to the Petitioner it did not receive. That letter sought additional information from the Petitioner under Section 59 of the DVAT Act in respect of sales of LCD/LED/TFT monitors made during .....

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The Petitioner states that on 17th April 2014 it received 12 notices of default assessment of tax and interest under Section 32 of the DVAT Act for the period April 2009 to March 2010 raising a demand of more than ₹ 15 crores. 12. In the impugned notice it was stated that the Petitioner had sold IT related TFT/LCD/LED Monitors by charging VAT at 4% or 5% although the said item is not covered under the Third Schedule to the DVAT Act. Asserting that it has to be classified only under the res .....

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was issued to them asking why LCD/LED/TFT Monitors should not be treated as unclassified and charged VAT at 12.5%, that they were not confronted with the determination dated 8th July 2008 in the case of M/s. NEC India Pvt. Ltd. and therefore, the notice of default assessment and demand of tax, interest and penalty were in violation of the principles of natural justice. When no response was forthcoming, the Petitioner filed the present writ petition seeking the reliefs referred to hereinbefore. 1 .....

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the Objection Hearing Authority (OHA). If not satisfied with the said determination, the Petitioner could file an appeal before the Appellate Tribunal, Value Added Tax ( AT ). It is pointed out that initially the Petitioner was issued notice under Section 59(2) of the DVAT Act on 11th February 2014 and again on 8th March 2014 seeking additional information about the sales details of LCD/LED/TFT Monitors. The said notice also stated that if the Petitioner failed to comply with the said notice, th .....

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re well aware that the rate of tax applicable on the goods in question was 12.5%. It is submitted that the term year as defined Section 2(1)(zp) of the DVAT Act means the financial year from the first day of April to the last date of March. The notices had to be issued before the completion of four years after the concerned year, i.e., March 2010. Therefore, the assessments could be made under Section 32 of the DVAT Act up to 31st March 2014 and, therefore, were within time. Submissions of couns .....

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arring the months of February and March 2010, were barred by limitation. 17. Mr Bagaria next pointed out that when a thorough audit was conducted by the DT&T of the Petitioner's business in 2012, no discrepancy was found. The notice dated 8th March 2014 issued by the VATO only sought information under Section 59(2) of the DVAT Act. This notice was received on 25th March 2014. The earlier letter dated 11th February 2014 was not received by the Petitioner. There is no indication in the sai .....

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determination. Under Section 84 of the DVAT Act, the said determination was in personam and not in rem. Reliance was placed on the decisions in Vistar Construction (P) Ltd. v. Union of India 2013 (31) STR 129 (Del) and Dhirajlal Girdharilal v. Commissioner of Income Tax, Bombay 26 ITR 736. 18. Mr. Bagaria submitted that what was covered by Item 3 below Entry 41-A to the Third Schedule was Monitor and the LCD/LED/TFT Monitors sold by the Petitioner did fall within the purview of the said Entry a .....

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id statutory items . Reliance was also placed on the decisions in Dunlop India Ltd. v. Union of India 1983 (13) ELT 1566; HPL Chemicals Ltd. v. Commissioner of Central Excise 2006 (197) ELT 324 (SC) and Jain Exports Private Limited v. Union of India 1992 (61) ELT 173 (SC). Relying on the decision in Sun Export Corporation v. Collector of Customs, Bombay 1997 (93) ELT 641 (SC), it was submitted that the interpretation that favours the Assessee must be preferred. 19. It was submitted by Mr Bagaria .....

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e Respondents, submitted that the correct way to interpret Section 34 in light of Section 32 of the DVAT Act was to compute the expiry of the period of four years from the end of the year. The word 'assessment' in Section 34 (1) DVAT Act related only to an assessment under Section 32 of the DVAT Act and not a self-assessment under Section 31(1) of the Act. 21. Referring to the decision in L.G. Electronics India Pvt. Ltd. v. Commissioner, Value Added Tax (decision dated 21st January 2014 .....

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erits of the case Mr Narayan submitted that the action to reopen the assessment was taken only after notice was issued under Section 59(2) of the Act and only after the authorised representative of the Petitioner appeared and submitted the sales details. He submitted that while Item 3 of Entry 41A of Third Schedule did mention Monitor , it did not mention LCD/LED/TFT Monitors and the same was, therefore, treated as an unclassified item. Admittedly, the dealer had sold the said Monitors by collec .....

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t of tax, interest or penalty or other amount in the nature of tax, interest or penalty except by the making of an assessment for the amount. 25. Sections 31, 32 and 34 of the DVAT Act read thus: 31. Self assessment.- (1) Where a return is furnished by a person as required under section 26 or section 27 of this Act which contains the prescribed information and complies with the requirements of this Act and the rules (a) the Commissioner is taken to have made, on the day on which the return is fu .....

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tax period under another section of this Act. 32. Default assessment of tax payable.- (1) If any person (a) has not furnished returns required under this Act by the prescribed date; or (b) has furnished incomplete or incorrect returns; or (c) has furnished a return which does not comply with the requirements of this Act; or (d) for any other reason the Commissioner is not satisfied with the return furnished by a person; the Commissioner may for reasons to be recorded in writing assess or re-asse .....

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dgment the amount of net tax due for such tax period or tax periods and all subsequent tax periods. (2) Where the Commissioner has made an assessment under this section, the Commissioner shall forthwith serve on that person a notice of assessment of the amount of any additional tax due for that tax period. (3) Where the Commissioner has made an assessment under this section and further tax is assessed as owed, the amount of further tax assessed is due and payable on the same date as the date on .....

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issioner made an assessment of tax for the tax period, whichever is the earlier: Provided that where the Commissioner has reason to believe that tax was not paid by reason of concealment, omission or failure to disclose fully material particulars on the part of the person, the said period shall stand extended to six years. (2) Notwithstanding sub-section (1) of this section, the Commissioner may make an assessment of tax within one year after the date of any decision of the Appellate Tribunal or .....

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is furnished, an assessment of the tax payable of the amount specified in the return; (b) the return is deemed to be a notice of the assessment and to be under the hand of the Commissioner; and (c) the notice referred to in clause (b) is deemed to have been served on the person on the day on which the Commissioner is deemed to have made the assessment. 27. The word assessment , although not defined under the DVAT Act, includes self-assessment. Section 31(1)(a) of the DVAT Act makes this explici .....

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not comply with the requirements of the DVAT Act; or (d) for any other reason the Commissioner is not satisfied with the return furnished. 29. Where the a dealer has not furnished returns as envisaged under Section 32 (1) (a) of the DVAT Act, then the Commissioner, for reasons to be recorded in writing, can assess the taxable turnover using his 'best judgment' . Where in terms of Section 32 (1)(b), (c) or (d) of the DVAT Act, the dealer has furnished incomplete returns that do not satis .....

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he person furnished a return under Section 26 or 28 of the Act or the date on which the Commissioner made an assessment of the tax for the tax period whichever is earlier (emphasis supplied). 31. Although Mr. Narayan urged that Section 34(1)(b) of the DVAT Act talks only of a Commissioner making an assessment under Section 32 of the DVAT Act, the Court is unable to agree to such a narrow interpretation of the word 'assessment'. Given the context in which it occurs, and the scheme and str .....

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Act would have to be reckoned from the date of the filing of the return by way of self assessment. The Petitioner has calculated the limitation on the above basis in a tabular form as under: Month & Year Original Return Filed on Four years completed on April 2009 23rd May 2009 22nd May 2013 May 2009 23rd June 2009 22nd June 2013 June 2009 24th July 2009 23rd July 2013 July 2009 21st August 2009 20th August 2013 August 2009 24th September 2009 23rd September 2013 September 2009 23rd October 2 .....

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complete the assessment in terms of Section 34(1)(b) of the DVAT Act. 34. The Court is unable to accept with the above submission of the DT&T. Given the overall scheme of the DVAT Act and Section 31, 32 and 34 in particular, the Court accepts the manner of computation of the four year period as depicted by the Petitioner. The notices for reopening of the assessment for the months comprising the Assessment Year 2009-10 ought to have been issued before the expiry of the respective dates as sh .....

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ded Tax (decision dated 26th September 2014 in ST.Appl. 32/2013), this Court held that unless the conditions of Section 32(1) of the DVAT Act are satisfied, default assessment cannot be made and if made will be liable to be struck down. In a recent decision dated 14th May 2015 in Writ Petition (C) No. 5231/2014 (ITD-ITD Chem JV v. Commissioner of Trade and Taxes) it was emphasised by this Court that for invoking the powers under Section 34 read with Section 32 of the DVAT Act, the jurisdictional .....

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phrase whichever is earlier occurring in Section 34 (1) of the DVAT Act is an indication that the date on which the Petitioner makes an assessment in terms of Section 31(1)(a) of the DVAT Act is crucial for determining the expiry of the limitation of four years for completion of the reassessment. 37. In that view of the matter, the Court is satisfied that barring the default notices of assessment pertaining to the months of February and March 2010, all the other notices of default assessment iss .....

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he Entry Monitors is broad enough to cover particular types of monitors or whether such special varieties of monitors should be treated as unclassified and brought under the residuary entry to be taxed at 12.5%. 39. As was cautioned by the Supreme Court in Bharat Forge and Press Industries (P) Ltd. v. Collector of Central Excise, Baroda, Gujarat (supra), the residuary entry ought not to be lightly resorted to. In that case the Court was concerned with Item 26-AA(iv) of the Central Excise Tariff .....

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to be brought under the residuary entry . It was held that Tariff Item 26-AA(iv) encompasses all sorts of pipes and tubes. Therefore, there was no reason why a similar item cannot be prescribed as pipes and tubes. Likewise, in the present case, it is not shown by the DT&T that LCD/LED/TFT Monitors cannot be brought under the broad classification of 'Monitors'. 40. In Jain Exports Private Limited v. Union of India (supra), it is held that coconut oil without qualifying words would cov .....

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was whether milk occurring in Entry 36 of Schedule A of the Bombay Sales Tax Act, 1959 includes milk powder as well. It was held that milk would not only include milk in liquid form but all types of milk. It was held that while looking at the words of an Entry in the Sales Tax legislation, it was permissible to examine the legislative history of the said Entry. It was pointed out that while interpreting a general term used for describing any commodity in any fiscal legislation, the general term .....

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the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause . 43. In HPL Chemicals Ltd. v. Commissioner of Central Excise (supra), the question was of classification of denatured salt . The Court disagreed with the Department of Excise in that case that the said product was classifiable under the residuary Heading No. 38.23 and not Heading 25.01 of the Central Excise Tariff Act, 1985 which was a specific heading. The Court observed as unde .....

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ment, from the report of the Chemical Examiner, CRCL and from HSN, it is quite clear that the goods are classifiable as Denatured Salt falling under Chapter Heading No. 25.01. The Department has not shown that the subject product is not bought or sold or is not known or is dealt with in the market as Denatured Salt. Department s own Chemical Examiner after examining the chemical composition has not said that it is not denatured salt. On the other hand, after examining the chemical composition ha .....

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Petitioner as it was not a party to those proceedings. 46. In the present case the DT&T has not been able to persuade the Court that LCD/LED/TFT monitors sold by the Petitioner during the period under consideration is not classifiable as Monitors under Item 3 below Entry 41A of the Third Schedule to the DVAT Act. Non-compliance with the requirements of Section 32 47. Turning to the impugned notices in the present case, it is seen that although the VATO was required to be satisfied, for the p .....

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t. It showed that none of the above alternatives were specifically tick marked by the VATO. It is, therefore, unclear as to the precise ground on which the VATO was proceeding to exercise its powers under Section 32(1) of the DVAT Act. In this context, the observation of the Supreme Court in Dhirajlal Girdharilal v. Commissioner of Income Tax, Bombay (supra) is significant. There it is observed that It is well established that when a Court of fact acts on material, partly relevant and partly irr .....

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were also in violation of the principle of natural justice. 51. The notices under Section 59(2) of the DVAT Act issued to the Petitioner asked for additional information in respect of the LCD/LED/TFT Monitors. There was no indication in the said notices regarding any erroneous classification of the monitors as forming the basis for reopening the assessments. There was also no whisper of the determination under Section 84 of the DVAT Act in the case of NEC which, as it transpired, was one of the .....

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ice are required to be followed. In such an event, although no express provision is laid down in this behalf, compliance with principles of natural justice would be implicit. In case of denial of principles of natural justice in a statute, the same may also be held ultra vires Article 14 of the Constitution . Existence of Alternative Remedy 53. Lastly, on the issue of the existence of an alternative remedy, the Court notes that in the present case the entire proceedings for the months of AY 2009 .....

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