2024 (6) TMI 901 - HC - VAT and Sales Tax

Assessment orders issued beyond limitation period under Section 21(3) and 21(4) held invalid

The HC allowed writ petitions challenging show-cause notices and assessment orders issued under the Telangana Value Added Tax Act, 2005. The court held ... Limitation for assessment under Section 21(3) and (4) of TSVAT Act - exclusion of period under Section 21(7) for proceedings pending on account of stay or appeal - assessment beyond limitation is void for want of jurisdiction - deferment power must be expressly conferred; exclusion cannot revive time-barred assessments - violation of principles of natural justice vitiates assessmentLimitation for assessment under Section 21(3) and (4) of TSVAT Act - assessment beyond limitation is void for want of jurisdiction - Validity of show-cause notices and assessment orders issued beyond the four-year limitation prescribed by Section 21(3) and (4) of the TSVAT Act. - HELD THAT: - The Court held that Section 6 of the Entry Tax Act imports the provisions of the TSVAT Act for assessment purposes and, on a plain reading, assessments must be completed within the four-year periods specified in Section 21(3) and (4). Where show-cause notices or assessment orders are issued beyond those periods, the statutory limitation has expired and the authority's power to assess is extinguished; such proceedings are therefore without jurisdiction and liable to be set aside. The petitions in the batch showed, on the face of the record, that in most matters the notices or orders were issued after the four-year period had lapsed, rendering them unsustainable on the ground of limitation. [Paras 3, 8, 30]Show-cause notices and assessment orders issued beyond the four-year period under Section 21(3) and (4) are time-barred and are set aside.Exclusion of period under Section 21(7) for proceedings pending on account of stay or appeal - deferment power must be expressly conferred; exclusion cannot revive time-barred assessments - Whether the period of limitation is extended by operation of Section 21(7) of the TSVAT Act by reason of pendency of Supreme Court decisions in other cases (e.g., Jindal Stainless and Sree Rayalseema) so as to render the assessments within time. - HELD THAT: - The Court examined Section 21(7) and the authorities relied upon by the respondents. It held that Section 21(7) operates to exclude from computation those periods during which assessment was expressly deferred on account of stays or when an appeal or proceeding involving a directly bearing question of law was actually pending in respect of the same assessment. The provision does not confer a general power to defer assessments nor permit exclusion of time merely because similar questions were pending in other proceedings; the exclusion cannot be used to revive assessments already time barred. Reliance on pendency of connected Supreme Court litigation in other matters was not sufficient to extend limitation where the statutory period had already expired or where no deferment in respect of the particular assessment was shown to have been ordered. [Paras 16, 20, 21]Section 21(7) does not operate to extend limitation in the present cases merely because similar questions were under adjudication elsewhere; the respondents' reliance on that provision is rejected.Limitation for assessment under Section 21(3) and (4) of TSVAT Act - Whether the Assessment Orders in Writ Petition Nos. 26152 of 2023 and 26297 of 2023 are time barred. - HELD THAT: - For WP No. 26152 of 2023 (Assessment Year 2016-17) the four year period expired on 31.03.2021 but the assessment order was dated 30.09.2021, hence beyond the limitation. For WP No. 26297 of 2023 (April 2017 to June 2017) the four year period ran up to June 2021 but the assessment order was dated 13.09.2021, also beyond the four year period. The Court applied the statutory limitation rule and found both assessment orders to be time barred. [Paras 27, 28]Writ Petitions No. 26152 of 2023 and No. 26297 of 2023 are allowed; the impugned assessment orders are set aside as time barred.Limitation for assessment under Section 21(3) and (4) of TSVAT Act - violation of principles of natural justice vitiates assessment - Sustainability of the Assessment Order in Writ Petition No. 7562 of 2021 for the year 2014-15 which partly falls within the four year period. - HELD THAT: - The assessment for 2014-15 had a four year limitation window up to 30.01.2019; the show cause notice was issued on 30.01.2019 and assessment passed on 09.02.2019. The Court found that the assessment insofar as it related to February and March 2015 fell within limitation. However, the proceedings were concluded in an unduly hasty manner (show cause to final order in about ten days), with defects in service and denial of effective hearing. Those breaches of principles of natural justice and statutory procedure rendered the assessment unsustainable. Accordingly, even the portion within limitation was set aside on grounds of procedural unfairness. [Paras 29]Writ Petition No. 7562 of 2021 is allowed; the assessment is set aside insofar as it is time barred and also on account of violation of principles of natural justice in respect of the period sought to be assessed within limitation.Final Conclusion: The batch of writ petitions are allowed. Show cause notices and assessment orders issued after the four year limitation prescribed by Section 21(3) and (4) of the TSVAT Act are time barred and set aside; the respondents' reliance on Section 21(7) and on pendency of other litigation is rejected; in one petition the assessment portion within limitation was nevertheless set aside for breach of natural justice. No costs. Issues Involved:1. Period of limitation for issuing show cause notices and assessment orders u/s 21(3) and 21(4) of the Telangana Value Added Tax Act, 2005 (TSVAT Act).2. Validity of the assessment orders and show cause notices issued beyond the prescribed period.3. Applicability of Section 21(7) of the TSVAT Act for extending the period of limitation.Summary:Issue 1: Period of LimitationThe primary issue examined was whether the show cause notices or assessment orders in the writ petitions were sustainable given the period of limitation prescribed u/s 21(3) and 21(4) of the TSVAT Act. Section 21(3) states that the authority must assess within four years of the due date of the return or the date of filing, whichever is later. Section 21(4) mandates that any assessment resulting from detailed scrutiny must be made within four years from the end of the period for which the assessment is made.Issue 2: Validity of Orders Issued Beyond Prescribed PeriodThe court noted that most of the show cause notices and assessment orders were issued beyond the four-year limitation period stipulated by the TSVAT Act. The petitioners argued that any assessment initiated beyond this period is void ab initio and without jurisdiction. The court agreed with this contention, emphasizing that once the period of limitation lapses, the right to assess extinguishes, making any subsequent assessments invalid.Issue 3: Applicability of Section 21(7)The respondents contended that u/s 21(7) of the TSVAT Act, the period during which appeals or proceedings were pending before higher judicial forums should be excluded from the limitation period. They argued that since the issue of Entry Tax was sub judice before the Supreme Court in related cases, the limitation period should be extended. However, the court found this argument unsustainable. It noted that the judgment in the related Supreme Court cases was delivered on 11.11.2016, and the impugned notices and orders were issued much later, beyond the four-year period from the date of the judgment. The court also highlighted that the respondents did not uniformly apply this argument, as some notices were issued before the Supreme Court's decision.Conclusion:The court held that the show cause notices and assessment orders issued beyond the period prescribed u/s 21 of the TSVAT Act were invalid. The writ petitions were allowed, and the impugned notices and orders were set aside. Specific writ petitions (No. 26152 of 2023, No. 26297 of 2023, and No. 7562 of 2021) were discussed in detail, with the court finding that the assessments were either beyond the limitation period or violated principles of natural justice. All writ petitions were allowed, and the impugned actions were set aside. No costs were awarded.