2016 (2) TMI 318 - HC - VAT and Sales Tax

Court overturns default assessment, stresses natural justice principles, orders reevaluation by human interface.

The court set aside the default assessment notices and penalty, emphasizing the lack of natural justice principles in the case. It found the ... Assessment under DVAT - system generated orders and notices - mismatch between the data filed online in Annexure-2A with the Annexure-2B filed by the selling dealers - overlap of the period for which notices were issued - principle of natural justice - Held that:- The impugned order of default assessment dated 13th January, 2015 under Section 32 of the DVAT Act in respect of the Petitioner for the tax period pertaining to the fourth quarter of 2013 is set aside. - The notice of default assessment of penalty dated 13th January, 2015 under Section 33 of the DVAT Act for the fourth quarter of 2013 is hereby set aside. - The order dated 29th January 2016 passed by the VATO declining to issue C Forms to the Petitioner is set aside. The matter is remanded to the VATO Ward 77 to begin de novo assessment proceedings pursuant to the notice dated 26th August, 2014 issued under Section 59(2) of the DVAT Act. The VATO will also consider afresh the request of the Petitioner for issuance of C Forms in terms of the application dated 26th October 2015. Decided in favor of assessee. Issues Involved:1. Challenge to default assessment notices of tax, interest, and penalty.2. Validity of unsigned, system-generated notices and orders.3. Allegations of bogus/suspicious purchases.4. Non-issuance of C-Forms.5. Violation of principles of natural justice.6. Adequacy of alternative remedies.Detailed Analysis:1. Challenge to Default Assessment Notices of Tax, Interest, and Penalty:The petitioner, a registered dealer under the DVAT Act, challenged the default assessment notices dated 13th January 2015 and 19th June 2015 issued by the DT&T. The petitioner claimed that the transactions matched with the corresponding purchase transactions as per the verification report of Annexures 2A and 2B. Despite this, the VATO passed a default assessment order on 13th January 2015, creating a demand of Rs. 3,73,90,663/- without considering the petitioner's detailed reply submitted on 1st September 2014. The petitioner also filed an appeal before the OHA, which was dismissed for non-compliance with the pre-deposit condition.2. Validity of Unsigned, System-Generated Notices and Orders:The impugned orders were system-generated and unsigned, leading to confusion and errors. The DT&T acknowledged that the notices dated 19th June 2015 were system-generated and inadvertently issued, leading to their withdrawal. The court noted that the system-generated notices and orders lacked human interface and were unsustainable in law. The court emphasized the need for a human interface while making orders of assessment to avoid such confusion.3. Allegations of Bogus/Suspicious Purchases:The VATO concluded that the petitioner made purchases from eight bogus firms, including CSI, OSC, and JBN Impex, without providing detailed reasons or confronting the petitioner with the evidence. The court found that the order dated 13th January 2015 was non-speaking and failed to set out the reasons for concluding that the firms were bogus. The court emphasized that an order by a quasi-judicial authority should set out the reasons in the body of the order itself and should not rely on subsequent affidavits to supply the reasons.4. Non-Issuance of C-Forms:The petitioner's request for C-Forms for the years 2014-15 and 2015-16 was rejected by the VATO on the ground that there was no stay granted by the High Court on the order dated 13th January 2015. The court set aside the order dated 8th December 2015 and directed the VATO to afford the petitioner a hearing before deciding to withhold the issuance of C-Forms, as required under Rule 5(4) of the CST Delhi Rules. The VATO again rejected the request on 29th January 2016, citing the outstanding demand and the petitioner's failure to avail of the statutory remedy.5. Violation of Principles of Natural Justice:The court found that the petitioner was not confronted with the documents and statements forming the basis of the conclusion that the purchases were bogus. The failure to consider the petitioner's reply and the lack of confrontation with the evidence violated the principles of natural justice. The court emphasized that the petitioner should be given an adequate opportunity to meet the case against it, including the opportunity to cross-examine the persons whose statements were relied upon.6. Adequacy of Alternative Remedies:The court acknowledged that relegating the petitioner to the statutory remedy would generate more rounds of litigation due to the serious legal infirmities in the order dated 13th January 2015. The court decided to set aside the impugned orders and remand the matter to the VATO for de novo assessment proceedings, ensuring that the petitioner is given an adequate opportunity to present its case.Conclusion and Directions:The court issued the following directions:i. The impugned order of default assessment dated 13th January 2015 under Section 32 of the DVAT Act is set aside.ii. The notice of default assessment of penalty dated 13th January 2015 under Section 33 of the DVAT Act is set aside.iii. The order dated 29th January 2016 rejecting the issuance of C-Forms is set aside.iv. The matter is remanded to the VATO for de novo assessment proceedings and reconsideration of the request for C-Forms.v. The DT&T shall furnish all material forming the basis of the cancellation of the eight firms' registrations to the petitioner.vi. The petitioner shall file a comprehensive reply and may request to cross-examine the persons whose statements are relied upon.vii. The VATO shall afford a hearing to the petitioner and allow cross-examination if requested.viii. A fresh assessment order shall be passed independent of earlier orders.ix. Necessary orders regarding the deposit of Rs. 60 lakhs by the petitioner shall be passed.x. The final assessment order and decision on the issuance of C-Forms shall be completed within twelve weeks.The writ petition and applications were disposed of with no orders as to costs.