2016 (7) TMI 1150 - HC - VAT and Sales Tax

High Court Invalidates Tax Revision Notice under VAT Act, Emphasizes Legal Certainty

The Gujarat High Court ruled in favor of the petitioner, a bicycle manufacturing company, in a case challenging the reopening of assessment under section ... Reopening of assessment after the 4 years - GVAT - Rate of VAT - 4% or 12.5% - bicycles, tricycles, cycle rickshaws, pedal rickshaws, and cycles combination and accessories and parts thereof. - Held that:- 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, subsection (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 subsection (1) of section 35 has long pass, been barred by limitation, would expose the provision to vulnerability on the ground of virus. There is yet another strong reason why we cannot upheld the action of the respondent authorities. Clause( a) of subsection (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 sinequanon 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. Demand set aside - Decided in favor of assessee. Issues:1. Reopening of assessment under section 34(8A) of the VAT Act.2. Application of subsection (8A) to past closed cases.3. Interpretation of the term 'during the course of any proceedings' in section 34(8A).4. Validity of the impugned order demanding tax, interest, and penalty.Analysis:Issue 1: Reopening of assessment under section 34(8A) of the VAT ActThe petitioner, a registered company engaged in manufacturing bicycles, challenged a show cause notice issued by the Commercial Tax Officer demanding higher tax rates for a past period. The petitioner contended that the assessment was completed long back and could not be reopened under section 34(8A) of the VAT Act. The respondent argued that the prescribed authority had the power to levy tax if evasion was found, without a specified time limit. The court examined the provisions of sections 32, 33, and 34 of the VAT Act related to assessment and concluded that the notice for revising tax under section 34(8A) was invalid as the original assessment was completed and time-barred.Issue 2: Application of subsection (8A) to past closed casesThe court highlighted that the assessment of the petitioner had become final due to the lapse of time, and any revision by the Commissioner was time-barred under section 35. The introduction of subsection (8A) after the completion of the original assessment raised doubts about its retrospective application. The court expressed concerns about applying this provision to closed cases, as it could lead to legal vulnerabilities.Issue 3: Interpretation of the term 'during the course of any proceedings' in section 34(8A)The court analyzed the requirement of pending proceedings for exercising powers under section 34(8A). It emphasized that the term 'during the course of any proceedings' implied ongoing assessment proceedings related to tax liability. The court rejected the argument that internal scrutiny alone constituted proceedings, emphasizing the need for active assessment proceedings to invoke subsection (8A).Issue 4: Validity of the impugned order demanding tax, interest, and penaltyBased on the above analysis, the court quashed the impugned order dated 29.03.2016, demanding tax, interest, and penalty from the petitioner. Both petitions were allowed, and the court disposed of the matter in favor of the petitioner.This detailed analysis of the judgment from the Gujarat High Court provides insights into the interpretation of statutory provisions, retrospective application of laws, and the necessity of active proceedings for exercising powers under the VAT Act.