2025 (2) TMI 98 - HC - VAT / Sales Tax

Entry Tax assessments quashed after 17-year delay deemed unreasonable despite no statutory time limit

The HC quashed belated assessment orders passed in 2021 for assessment years 2003-2004 and 2004-2005 under the Entry Tax Act, 2001. The court held that ... Challenge to Impugned Assessment Orders - no period of limitation prescribed - challenge to the Impugned Assessment Orders are primarily on the ground that confirmation of demand for the respective Assessment Years viz., 2003-2004 and 2004-2005 are long after the period covered by the Impugned Assessment Orders - HELD THAT:- The Entry Tax Act, 2001 is not a self contained enactment. It is dependent on the provisions of the Tamil Nadu General Sales Tax (TNGST) Act, 1959 and later under the provisions of the Tamil Nadu Value Added Tax (TNVAT) Act, 2006 after the Tamil Nadu General Sales Tax (TNGST) Act, 1959 was repealed and stood substituted with the Tamil Nadu Value Added Tax (TNVAT) Act, 2006 - Assessment under the provisions of the Entry Tax Act, 2001 and under the provision of the Tamil Nadu General Sales Tax (TNGST) Act, 1959 have to be made coterminously as the basic documents required for assessment are one and the same. These documents have to be maintained for a period of five years though separate returns have been filed under these enactments. A reading of Rule 4(1) of the Entry Tax Rules, 2001, also makes it clear that, after the close of the year, for which the returns referred to in Sub- Rule (1) of Rule 3 of the Entry Tax Rules, 2001 have been filed or where an importer has discontinued the business the course of the year, the Assessing Authority has to finally assess the tax payable in a single order on the basis of the return for the year to which the return relates - Such assessment has to be completed after scrutiny of the accounts and making such enquiry as may be considered necessary to complete and finalize the assessment on the basis of a single order. Thus, the scheme of the Entry Tax Act is to finalize the assessment as expeditiously as possible although no time limit is prescribed. Since no time limit has been prescribed for completing the assessment under Rule 3(4), Rule 4(3) of the Entry Tax Rules, 2001, assessment has to be completed within a reasonable period of time and thereafter assessment for escaped turnover under Section 16 of the Tamil Nadu General Sales Tax (TNGST) Act, 1959 within a period of 5 years. Conclusion - i) There was no justification in passing the Impugned Assessment Orders belated in the year 2021 in respect of the Assessment Year 2003-2004 and the Assessment Year 2004-2005. It has to be assumed that the Department has accepted the returns filed by the petitioner for the respective Assessment Years and the assessment was completed under Rule 4(1) of the Entry Tax Rules, 2001. ii) The powers could have been invoked within 5 years after deemed assessment under Rule 4(1) of the Entry Tax Rules, 2001 and after the date of filing of returns. Petition allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are as follows:1. Whether the Impugned Assessment Orders dated 14.07.2021 for the assessment years 2003-2004 and 2004-2005 were issued within a reasonable period, given the absence of a prescribed time limit under the Tamil Nadu Tax on Entry of Goods into Local Areas Act, 2001 (Entry Tax Act, 2001) and the Tamil Nadu Tax on Entry of Goods into Local Area Rules, 2001 (Entry Tax Rules, 2001).2. Whether the assessment proceedings were validly initiated under Rule 4 of the Entry Tax Rules, 2001, in light of the alleged incorrectness and incompleteness of the returns filed by the petitioner.3. Whether the penalty imposed under Section 10 of the Entry Tax Act, 2001, read with Section 12(3)(b)(iv) of the Tamil Nadu General Sales Tax (TNGST) Act, 1959, was justified.4. Whether the assessments could be considered original assessments or re-assessments, and the implications of this classification on the validity of the proceedings.ISSUE-WISE DETAILED ANALYSIS1. Reasonable Period for Issuing Assessment OrdersThe Court examined the legal framework and precedents regarding the reasonable period for issuing assessment orders when no specific limitation period is prescribed. The Court referred to the Supreme Court's decision in State of Punjab Vs. Bhatinda District Co-operative Milk Producers Union Limited, which established that statutory authorities must exercise their jurisdiction within a reasonable period, even in the absence of a prescribed limitation period. The Court emphasized that the reasonable period depends on the nature of the statute, rights, and liabilities involved.The Court noted that the Entry Tax Act, 2001, borrows machinery provisions from the TNGST Act, 1959, which requires maintaining records for only five years. The Court found that the assessments were initiated more than 15 years after the relevant assessment years, which was deemed unreasonable. The Court concluded that the Impugned Assessment Orders were issued beyond a reasonable period and were therefore invalid.2. Validity of Assessment Proceedings under Rule 4 of the Entry Tax Rules, 2001The Court analyzed whether the assessment proceedings were properly initiated under Rule 4 of the Entry Tax Rules, 2001. It was argued that the returns filed by the petitioner were incorrect and incomplete, justifying the initiation of assessment proceedings. However, the Court observed that the assessment process should have included a provisional assessment under Rule 3(4) followed by a final assessment under Rule 4(2), which was not adhered to in this case.The Court found that the assessment proceedings were not conducted in accordance with the prescribed rules, as the necessary provisional assessment was not carried out. This procedural lapse further invalidated the Impugned Assessment Orders.3. Justification for Imposing PenaltyThe Court examined the imposition of penalties under Section 10 of the Entry Tax Act, 2001, read with Section 12(3)(b)(iv) of the TNGST Act, 1959. The penalty was based on the alleged incorrectness of the returns and the non-payment of entry tax for certain imported goods. However, given the Court's finding that the assessments were invalid due to being issued beyond a reasonable period and procedural lapses, the penalty imposition was also deemed unjustified.4. Classification of Assessments as Original or Re-assessmentsThe Court considered whether the assessments should be classified as original assessments or re-assessments. The respondents argued that the proceedings were original assessments based on incorrect returns, while the petitioner contended that the proceedings were effectively re-assessments initiated beyond a reasonable period. The Court concluded that the assessments could not be justified as original assessments due to the significant delay and procedural deficiencies, rendering the proceedings invalid.SIGNIFICANT HOLDINGSThe Court held that the Impugned Assessment Orders were invalid as they were issued beyond a reasonable period and were not conducted in accordance with the procedural requirements under the Entry Tax Rules, 2001. The Court emphasized the importance of completing assessments within a reasonable timeframe, particularly when no specific limitation period is prescribed. The Court also highlighted the procedural lapses in the assessment process, which further invalidated the orders.In conclusion, the Court allowed the writ petitions, quashing the Impugned Assessment Orders and closing the connected writ miscellaneous petitions without costs.