2014 (9) TMI 620 - HC - VAT and Sales Tax

Court Invalidates Re-Opening of Assessments on DEPB Sales, Ruling Notices Lack Specificity

P. Sreekumar Versus Commercial Tax Officer

The court held that the re-opening of assessments based on a declaration by a Division Bench regarding the sale of Duty Entitlement Pass Book (DEPB) ... Re-opening of the assessments - Duty Entitlement Pass Book - inter-State sales of such 'entitlements' at concessional rate by virtue of the 'C' Forms issued by the outside purchasing dealer - Held that:- re-opening effected under the various notices and also the order passed in one of the cases are to be set aside for reason of the same being illegal and directly conflicting with the decision of the Hon'ble Supreme Court. If DEPB involves sale of goods, necessarily inter-State sale could be effected on the strength of 'C' Forms, if the purchasing dealer intends it inter alia for sale or for purposes of manufacture. Even if resale of DEPB entitlements are not effected and the purchasing dealer imports goods for purposes of manufacture, then again the very same principle would apply. In any event, any defalcation or violation of the declaration, at the hands of the purchasing dealer, who issued the 'C' Form; would be liable to be proceeded against only against that purchasing dealer and not against the selling dealer; in the absence of any collusion being found against the selling dealer within the State. - Decided in favour of assessee. Issues:Re-opening of assessments based on a declaration made by a Division Bench regarding the sale of Duty Entitlement Pass Book (DEPB) entitlements at concessional rates using 'C' Forms in inter-State sales.Analysis:1. The writ petitions challenged the re-opening of assessments based on a declaration by a Division Bench regarding the sale of DEPB entitlements. The petitioner, a trader, had purchased Import Licences like DEPB, VKUYL, and FPS, and conducted inter-State sales. The contention was that such licences hold value and are bought and sold accordingly, as established in the Vikas Sales Corporation case. DEPB is an entitlement for exporters to avail duty concessions on imports, and it can be sold to others for further sale or utilization. The issue revolved around inter-State sales of these entitlements at concessional rates using 'C' Forms issued under the CST Act.2. The Sales Tax Revision order revealed that no 'C' Forms were presented to support the claim of concessional rates. The Division Bench upheld the Tribunal's findings but made an observation regarding the applicability of 'C' Forms for transferring credit in the DEPB Scheme. However, this observation was not a subject of consideration in the revision, as no 'C' Forms were provided. The notices for re-opening assessments did not specify the source of the alleged declaration, causing unwarranted harassment to dealers.3. The judgment highlighted the importance of providing specific references for legal declarations leading to re-opening of settled issues. The Division Bench's passing observation on 'C' Forms in the DEPB Scheme did not amount to a definitive ruling. The Yasha Overseas case clarified that DEPB falls under the category of goods for sales tax purposes, similar to REP licences. The judgment emphasized that DEPB credits represent goods and are taxable accordingly.4. The re-opening of assessments and related orders were deemed illegal and conflicting with the Supreme Court's decision in the Yasha Overseas case. It was established that DEPB transactions involve the sale of goods, enabling inter-State sales using 'C' Forms. Any discrepancies or violations by the purchasing dealer issuing 'C' Forms should be addressed against them, not the selling dealer, unless collusion is proven. The notices and orders were declared unlawful, and the writ petitions were allowed, with parties bearing their respective costs.