2014 (11) TMI 880 - HC - VAT and Sales Tax

VAT appeal success due to lack of 'reasons to believe' - Procedural adherence emphasized

M/s. HM. Industries Versus Commissioner of Value Addes Tax

M/s. HM. Industries Versus Commissioner of Value Addes Tax - [2015] 78 VST 382 (Del) Issues Involved:1. Applicability of the proviso to Section 34(1) of the DVAT Act.2. Limitation period for default assessment under Section 32 of the DVAT Act.3. Requirement for the Commissioner to record 'reasons to believe.'4. Jurisdiction of the Objection Hearing Authority in recording 'reasons to believe.'5. Compliance with procedural requirements for default assessment.Detailed Analysis:1. Applicability of the Proviso to Section 34(1) of the DVAT Act:The central issue was whether the VAT Tribunal was correct in applying the proviso to Section 34(1) of the DVAT Act, which extends the limitation period from four to six years if the Commissioner has 'reasons to believe' that tax was not paid due to concealment, omission, or failure to disclose material particulars by the assessee. The Tribunal held that the extended period of six years was applicable due to the appellant's failure to submit 'C' forms quarter-wise, which constituted an omission.2. Limitation Period for Default Assessment under Section 32 of the DVAT Act:Section 34(1) of the DVAT Act stipulates a four-year limitation period for completing assessments or reassessments. The proviso extends this period to six years if specific conditions are met. The court emphasized that the normal limitation period is four years, and the extended period is an exception that must be justified by recorded reasons to believe.3. Requirement for the Commissioner to Record 'Reasons to Believe':The court highlighted that the Commissioner must form and record 'reasons to believe' that there was concealment, omission, or failure to disclose material particulars, resulting in non-payment or short payment of tax. This requirement is a jurisdictional precondition and must be satisfied to invoke the extended limitation period. The court noted that the default assessment order did not contain any recorded reasons to believe, which is a mandatory requirement under the DVAT Act.4. Jurisdiction of the Objection Hearing Authority in Recording 'Reasons to Believe':The court clarified that the Objection Hearing Authority does not have the jurisdiction to record 'reasons to believe.' This responsibility lies solely with the Commissioner or the competent authority, and it must be done before or at the time of passing the default assessment order. The Objection Hearing Authority's role is limited to adjudicating objections and cannot retrospectively justify the extended limitation period.5. Compliance with Procedural Requirements for Default Assessment:The court found that the default assessment order dated 11.05.2011 did not meet the statutory requirements as it lacked specific reasons for the belief that there was concealment, omission, or failure to disclose material particulars. The assessment was made within six years but after the four-year period, without the necessary recorded reasons to justify the extended period. The court emphasized that every error or mistake in the return does not automatically invoke the proviso to Section 34(1); the conditions must be explicitly satisfied and recorded.Conclusion:The court concluded that the VAT Tribunal erred in upholding the default assessment order based on the extended limitation period without the Commissioner recording 'reasons to believe.' The appeal was disposed of in favor of the appellant, and the question of law was answered against the revenue. The judgment underscores the importance of procedural compliance and the necessity for the Commissioner to explicitly record reasons when invoking the extended limitation period under the DVAT Act.