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2016 DIGILAW 1417 (GUJ)

Dhanani Imp. Exp. Pvt. Ltd. v. State of Gujarat

2016-07-21

A.J.SHASTRI, AKIL ABDUL HAMID KURESHI

body2016
JUDGMENT : Akil Abdul Hamid Kureshi, J. 1. These petitions arise in common background, we may record facts from Special Civil Application No. 9519 of 2016. 2. Petitioner No. 1 is a company registered under the Companies Act and is engaged in business of manufacturing of tyres and tubes for bicycles. The company is a registered dealer under the Gujarat Value Added Tax Act ('VAT Act' for short) and had paid VAT at the rate of 4% relying on Entry 6 of Schedule-II of the VAT Act, which includes bicycles, tricycles, cycle rickshaws, pedal rickshaws, and cycles combination and accessories and parts thereof. For the year 2006-07, the assessee had filed the return under the local as well as Central Sales Tax Acts. Such return was accepted by the Assessing Officer, who passed an order of assessment on 23.02.2010. For many years thereafter, there were no further developments regarding this assessment till on 03.02.2016, the Commercial Tax Officer, Jamnagar, issued a show cause notice to the petitioner company, why for the period between 01.04.2006 to 28.04.2006 instead of collecting tax at the rate of 4%, the same should not be charged at 12.5% with interest and penalty. In the notice, it was conveyed that the Government notification granting exemption from tax on excess of 4%, was issued only on 24.09.2016 and that therefore, till then, the tax had to be paid at the normal rate. Notice also suggested that the item in question was covered in the residuary clause. 3. The petitioner opposed such proposals by raising objections under letter dated 23.02.2016 and raised several legal contentions. It was contended that the assessment was over long back. The same cannot be reopened now. The petitioner also contended that the classification was correctly done under Entry No. 6 to the schedule and the item cannot be taken in residuary clause. It was also contended that when the show cause notice was issued, no proceedings were pending and that therefore, the authorities could not have invoked sub section (8A) of section 34 of the VAT Act. 4. Unlettered by such opposition, the respondent proceeded to pass impugned order dated 29.04.2016 purportedly under exercise of powers under section 34(8A) of the VAT Act and demanded tax with interest and penalty of Rs. 4.73 lacs. 5. 4. Unlettered by such opposition, the respondent proceeded to pass impugned order dated 29.04.2016 purportedly under exercise of powers under section 34(8A) of the VAT Act and demanded tax with interest and penalty of Rs. 4.73 lacs. 5. Learned counsel for the petitioner raised following contentions: "I. The original assessment was completed upon passing of the order of assessment on 23.02.2010. The same also became time barred upon completion of four years from the end of the assessment year in terms of sub-section (9) of section 34. Such concluded assessment could not have been reopened in exercise of powers under section 34(8A) of the Act. II. Sub-section (8A) was introduced in section 34 with effect from 01.04.2013. The same has not been given retrospective effect and therefore, cannot be applied to cases long past closed. III. Powers under sub-section (8A) of section 34 can be exercised only when during the course of any proceedings, the prescribed authority arrives at a satisfaction that tax has been evaded. In the present case, no proceeding was pending. IV. Even otherwise, the classification was correctly accepted under Entry 6 and would not fall within the residuary clause." 6. On the other hand, learned AGP Shri Vora opposed the petition contending that sub-section (8A) of section 34 empowers the prescribed authority with ample powers to levy tax when it is found that the tax has been evaded. The legislature has not laid down any time limit for exercise of such power. The assessment of the petitioner was under scrutiny of the audit party. During such examination, it was noticed that the petitioner was wrongly given benefit of the reduced VAT at 4% when the exemption notification issued by the Government was effective from 29.04.2006 only. 7. Section 32 of the VAT Act pertains to return, scrutiny and provisional assessment. Sub-section (1) of section 32 provides that returns or revised returns furnished by the dealers in accordance with section 39 shall be subject to scrutiny by the Commissioner. 8. The said section provides for the assessment of returns by the Commissioner. Section 33 pertains to self assessment. Section 34, on the other hand pertains to audit assessment. Sub-section (1) of section 32 provides that returns or revised returns furnished by the dealers in accordance with section 39 shall be subject to scrutiny by the Commissioner. 8. The said section provides for the assessment of returns by the Commissioner. Section 33 pertains to self assessment. Section 34, on the other hand pertains to audit assessment. Sub-section (1) of section 34 provides that subject to the provisions of sub-section (2), the amount of tax due from a registered dealer shall be assessed in the manner provided hereafter separately for each year, during which he is liable to pay tax. Sub-section (9) of section 34 provides that no assessment under subsections (2), (5), (6) or (7) shall be made after the expiry of four years from the end of year in respect of which the tax is assessable. Sub-section (10) however lays down the time limit of eight years for assessment under sub-section (8), which pertains to cases where the Commissioner finds that a dealer who has been liable to pay tax has failed to get himself registered with the Commissioner. Sub section (8A) was introduced in section 34 with effect from 01.04.2013 and reads as under: "(8A) (a) During the course of any proceedings under this Act, if the prescribed authority is satisfied that the tax has been evaded or sought to be evaded or the tax liability has not been disclosed correctly or excess tax credit has been claimed by any dealer in respect of any period or periods by not recording or recording in an incorrect manner, any transaction of sale or purchase, or that any claim has been incorrectly made, then in such a case notwithstanding any notice for assessment has been issued under other provisions of this section or any other section of this Act. The prescribed authority may, after giving such dealer a reasonable opportunity of being heard, initiate assessment of the dealer in respect of such transaction or claim: Provided that where such proceedings are under section 73 or section 75, the prescribed authority shall transfer the proceedings relating to such transaction or claim directing the concerned assessing authority to assess the dealer in respect of such transaction or claim: Provided further that the prescribed authority shall, notwithstanding anything contained in section 17, be deemed to have the requisite jurisdiction and power to assess such dealer in respect of such transaction of sale or purchase or claim, covered by clause (a) and such assessment proceedings shall, for all purposes of this Act, be deemed to have been transferred to such authority. (b) The assessment proceedings under this subsection shall be without prejudice to the assessment proceedings in respect of the said period or periods under any other provisions of this Act by any authority who otherwise has the jurisdiction to assess such dealer in respect of other transaction of sale or purchase or any other claim. (c) The assessment under this sub-section shall be made separately in respect of the transaction or claim relating to the said period or periods to the best of the judgment of the prescribed authority where necessary and irrespective of any assessment made under this sub-section, the dealer may be assessed separately under the other provisions of this section in respect of the said period or periods: Provided that, once the dealer is assessed under this sub-section, no tax from such transaction or claim and penalty and interest, if any, shall be levied or demanded from such dealer, at the time of assessment to tax under the other provisions of this section in respect of the said period or periods relating to such transaction or claim. Explanation - For the purpose of this subsection, "prescribed authority", "the said authority", "such authority" and "any authority" shall mean, the Commissioner or, as the case may be, the authorities appointed under section 16 and other officers or persons to whom the Commissioner has delegated his power in this behalf."] 9. Section 35 pertains to turn over escaping assessment. Explanation - For the purpose of this subsection, "prescribed authority", "the said authority", "such authority" and "any authority" shall mean, the Commissioner or, as the case may be, the authorities appointed under section 16 and other officers or persons to whom the Commissioner has delegated his power in this behalf."] 9. Section 35 pertains to turn over escaping assessment. Sub-section (1) thereof provides that where after a dealer has been assessed under sections 32, 33 or 34 for any year or part thereof, the Commissioner has reason to believe that whole or any part of the taxable turnover in respect of any period has escaped assessment or has been under assessed or has been assessed at the lower rate or wrongly been allowed in deduction or wrongly allowed a credit, the Commissioner may serve a notice to the dealer and after giving opportunity to the dealer and making an inquiry, if found necessary, proceed to the best of his judgment the amount of tax due to the dealer in respect of such turnover. Sub-section (2) of section 35 provides that no order under sub-section (1) shall be made after the expiry of 5 years from the end of the year in which or part of which the tax is assessable. 10. It can thus, be seen that detailed provisions are be made in chapter-V of the VAT Act for dealers to file returns and for the prescribed authorities to assess such returns and thereby compute the dealers' correct tax liability. The VAT Act also contains detailed provisions for appeal and revisions against such orders of assessment. Sub-section (8A) of section 34 therefore needs to be seen in background of such statutory provisions, particularly, bearing in mind facts of the case. 11. Facts of the case are that by the time the respondents issued notice for revising the tax of the petitioner under sub-section (8A) of section 34, the original assessment was already completed in February 2010. In any case, in terms of sub-section (9) of section 34, such assessment became time barred by 31.03.2011. In terms of sub-section (1) of section 35, the Commissioner, if was of the opinion that the dealer was assessed at a rate lower than the rate it was assessable, could have passed an order after giving an opportunity of being heard to the dealer. In terms of sub-section (1) of section 35, the Commissioner, if was of the opinion that the dealer was assessed at a rate lower than the rate it was assessable, could have passed an order after giving an opportunity of being heard to the dealer. However, even such order could be passed as provided under sub-section (2) of section 35 only within five years from the end of the year in which such tax liability arose. 12. When the petitioner's assessment thus became final and by efflux of time, even exercise of powers by the Commissioner under section 35(1) became barred by limitation, sub-section (8A) was not even yet introduced in the statute book. We have serious doubt whether this provision could be applied to the periods prior to the date when the provision was enacted. However, at any rate, to apply to such a situation where the original assessment and any scope by the Commissioner to revise the tax in terms of sub-section (1) of section 35 has long pass, been barred by limitation, would expose the provision to vulnerability on the ground of virus. 13. There is yet another strong reason why we cannot upheld the action of the respondent authorities. Clause-(a) of sub-section (8A) which empowers the prescribed authority to collect tax when it is found that tax has been evaded or sought to be evaded or tax liability has not been disclosed correctly or excess tax has been claimed, the same can be done during the course of any proceedings if the prescribed authority is so satisfied. The pendency of proceedings therefore, would be sine-qua-non for exercise of such powers. Admitted facts are that no proceedings for assessment of the petitioner were pending on that day. The return filed by the petitioner for the relevant year was long past assessed and closed. We are not inclined to accept the contention of the counsel for the petitioner that the proceedings referred to in clause-(a) of sub-section (8A) must relate to the assessment of that period alone. Nevertheless, when the legislature has used the expression "during the course of any proceedings under this Act..." It must have reference to proceedings for assessment of liability of dealer for the tax at any stage that may be pending. Mere internal scrutiny or examination of file cannot be said to be pendency of proceedings envisaged in clause-(a) of sub-section (8A). 14. Mere internal scrutiny or examination of file cannot be said to be pendency of proceedings envisaged in clause-(a) of sub-section (8A). 14. Under the circumstances, impugned order dated 29.03.2016 is quashed. Both the petitions are allowed and disposed of.