2016 (3) TMI 378 - HC - VAT / Sales Tax

Survey, search, seizure under DVAT Section 68(2) void; related assessments, penalties, ITC reversals, on-spot tax collections quashed

HC held that the survey, search, and seizure operations under DVAT were without authority since the concerned officers lacked proper jurisdiction under ... Powers of survey, search, seizure and assessment under Delhi Value Added Tax (DVAT) - writ petition for restraining the Respondents from taking any coercive steps - validity of default assessment orders of tax, interest and penalty - power to reverse the ITC claimed during an earlier period - Held that:- The survey operation undertaken in each of the petitions was without authority of law inasmuch as the Officer who undertook such operation acted without jurisdiction and contrary to the order issued by the CVAT on 12th November 2013 under Section 68 (2) of the DVAT Act. The order in Form DVAT-50 issued by the Special Commissioner on 15th October 2014 did not permit the enforcement officer to carry out any assessment and therefore, orders of default assessment of tax, interest and penalty passed by the AVATO Enf-I under Sections 32 and 33 of the DVAT Act were without the authority of law. The Joint Commissioner who issued the deployment orders authorising the AVATO Enf-I to undertake the search and seizure was not specifically authorized to do so in terms of the order dated 12th November 2013 issued by the Commissioner under Section 68 (2) of the DVAT Act. This therefore, vitiates the entire survey, search and seizure operation undertaken by the teams of the DT&T so deployed. There could not be a revision or reassessment of the tax computed for the periods of 2013-14 for which returns were filed, by reversal of the ITC claimed for that period without following the due process as envisaged under the DVAT Act. It was not open to the AVATO Enf-I who was not authorized to make any assessment, to adjust the ITC reversal pertaining to an earlier period ending on 31st March 2014 in the returns filed for the different quarters of 2014-15. The penalty orders under Section 86 (10) read with Section 33 of the DVAT Act were bad in law. Section 87 (6) of the DVAT Act does not enable the officers who undertake the search and seizure operation under Section 60 of DVAT Act to collect tax dues on the spot from the dealer whose premises is searched. The VAT Authorities have in these cases proceeded on a basic misconception of the scope of their powers and authority. Interdiction by the Court, in the exercise of its powers under Article 226 of the Constitution, of the continued exercise by the VAT Authorities of powers that they do not possess becomes an imperative. Decided in favor of appellants. Issues Involved:1. Empowerment of AVATO Enf-I under the DVAT Act.2. Reversal of ITC claimed during an earlier period in the default assessment for a different period.3. Validity of the search and seizure operations.4. Validity of penalty orders under Section 86 (10) read with Section 33 of the DVAT Act.5. Collection of tax dues on the spot during search and seizure operations.6. Existence of an alternative remedy and the jurisdiction of the Court under Article 226 of the Constitution.Issue-wise Detailed Analysis:1. Empowerment of AVATO Enf-I under the DVAT Act:The Court examined whether the AVATO Enf-I was duly empowered to undertake survey, search, and seizure operations and pass default assessment orders of tax, interest, and penalty. It was found that the powers exercised by the AVATO Enf-I were not authorized as per the order issued by the Commissioner of Value Added Tax (CVAT) on 12th November 2013 under Section 68 (2) of the DVAT Act. The order in Form DVAT-50 issued by the Special Commissioner on 15th October 2014 did not permit the enforcement officer to carry out any assessment. Consequently, the orders of default assessment of tax, interest, and penalty passed by the AVATO Enf-I were without the authority of law.2. Reversal of ITC claimed during an earlier period in the default assessment for a different period:The Court noted that the reversal of ITC claimed for the period 2013-14 in the assessment orders for various quarters of 2014 was improper. The ITC reversal could not be carried forward beyond 31st March 2014, as per the amendment to Section 11 (2) of the DVAT Act effective from 12th September 2013. The AVATO Enf-I, who was not authorized to make any assessment, could not adjust the ITC reversal pertaining to an earlier period in the returns filed for different quarters of 2014-15 without following the due process under the DVAT Act.3. Validity of the search and seizure operations:The search and seizure operations were found to be invalid as the officers who conducted these operations were not properly authorized. The JC (E-I) issued deployment orders authorizing the AVATO Enf-I to undertake search and seizure without specific authorization to do so under the order dated 12th November 2013 issued by the Commissioner under Section 68 (2) of the DVAT Act. The survey conducted on 4th September 2014 in one of the premises was without authority as the authorization in Form DVAT-50 was dated 15th October 2014.4. Validity of penalty orders under Section 86 (10) read with Section 33 of the DVAT Act:The penalty orders were passed mechanically without considering the returns filed by the dealers and without issuing a separate notice to the dealers prior to passing the penalty orders. The Court held that the penalty orders under Section 86 (10) read with Section 33 of the DVAT Act were invalid.5. Collection of tax dues on the spot during search and seizure operations:The Court clarified that Section 87 (6) of the DVAT Act does not enable officers to collect tax dues on the spot during search and seizure operations. The tax demand crystallizes only upon an assessment, and any voluntary payment by the dealer should be deposited in the designated counter. The CVAT should issue clear instructions to ensure no VAT Authority collects tax dues on the spot.6. Existence of an alternative remedy and the jurisdiction of the Court under Article 226 of the Constitution:The Court addressed the objection regarding the maintainability of the petitions due to the availability of an alternative statutory remedy. It held that in the present cases, where the issue raised touches upon the jurisdiction and powers of the VAT Authorities, relegating the Petitioners to the statutory remedies would neither be expedient nor efficacious. The VAT Authorities had proceeded on a basic misconception of their powers and authority, necessitating the Court's intervention under Article 226 of the Constitution.Summary of Conclusions:(i) The survey operations were without authority of law as the officers acted without jurisdiction.(ii) The orders of default assessment of tax, interest, and penalty passed by the AVATO Enf-I were without authority.(iii) The JC who issued deployment orders was not authorized to do so, vitiating the entire survey, search, and seizure operations.(iv) The reversal of ITC for 2013-14 in the returns for 2014-15 was improper.(v) The penalty orders were invalid.(vi) Section 87 (6) does not allow collection of tax dues on the spot during search and seizure operations.(vii) The VAT Authorities proceeded on a misconception of their powers, necessitating the Court's intervention.Afterword:The Court emphasized the need for the CVAT to issue clear instructions to VAT Officers regarding their powers and jurisdiction to prevent overlapping and ensure no VAT Authority collects tax dues on the spot during search and seizure operations. The CVAT should also hold regular training courses for VAT Authorities on the law and procedure governing VAT collection. If the DT&T seeks to proceed against the Petitioners afresh, it must do so strictly in accordance with the law. The writ petitions were allowed, with no orders as to costs.