2025 (10) TMI 327 - HC - VAT / Sales Tax

Writs allowed: Rule 4(2) read with Section 31 notices quashed as time-barred; Sections 6 and 22 invalidated

South West Port Limited, JSW Infrastructure Limited Versus The State of Goa Through the Chief Secretary, Goa Legislature Secretariat, Goa Legislative Assembly, State Tax Officer / Commercial Tax Officer Goa, Commissioner of State Tax Altinho, Panaji, Goa.

The HC allowed the petitioners' writs, quashing the impugned show-cause notices issued under Rule 4(2) read with Section 31 of the GVAT Act as time-barred ... Constitutional validity of the Green Cess Act of 2013 - Challenge to Rule 4(2) of the Goa Cess on Products and Substances Causing Pollution (Green Cess) (Functions and Duties of the Competent Authority, Assessment, Levy and Collection of Cess) Rules 2014, framed in exercise of power conferred by the Goa Cess on Products and Substances causing pollution (Green Cess) Act, 2013 - reasons to believe - HELD THAT:- Perusal of the impugned show cause notices issued to the petitioners do not disclose expression of any opinion being communicated to the petitioners or existence of any ground as regards specific, of any alleged discovery made after the completion of assessment on 13.12.2023 or any tangible evidence gathered, resulting into an inference of the turnover escaping assessment and in absence thereof, there are substance in the argument advanced on behalf of the petitioners that there do not exist any cogent reason to believe that the “turnover has escaped assessment” as the power to open the assessment as per the Constitutional Court is well defined. It is consistently held that reopening by the Assessing Officer must be based on the existence of “tangible material” and there can be no review of assessment in the guise of its reopening and any such attempt without existence of any tangible material would amount to abuse of power. In the absence of any such material, the jurisdiction to initiate assessment do not vest in the officer and assessment cannot be reopened on a mere change of opinion by the Assessing Officer. Another relevant aspect as to why the exercise of the power in reopening the assessment cannot be justified is that the impugned show cause notices purportedly issued under Rule 4(2) of the Rules of 2014 read with Section 31 of the GVAT Act, 2005, are evidently time-barred. Section 31(1) of the Act prescribed an outer limit of “eight years from the expiry of the year to which the tax relates” for passing an order on reassessment. The assessment, which is sought to be reopened by issuance of the impugned show cause notices covered the period from FY 2014-15 to FY 2023-24, notice being issued on 13.02.2025 and hence the proceedings are hopelessly time-barred. Section 6, which confers a power to refuse or grant the permission, was too wide in terms without indicating the nature of such direction or the extent within which the authority should confine itself while exercising the power. So was the provision of exemption contained in Section 22 and despite an argument advanced by the State that with reference to Section 4, the competent authority had to take into consideration the particulars supplied in the application and which would be guiding factor for refusing or allowing the permission, it was held that the impugned sections were invalid as it confer uncanalised, unlimited and arbitrary power as the Act did not lay down any principle or policy for the guidance of exercise of the discretion in the authority. It is a trite position in law that when it comes to the power of taxation, it is necessarily a legislative function. Delegation of the fixation of rates of tax to a subordinate authority with proper guidance and subject to safeguards and limitations, is not unknown, but definitely the legislature must provide guidance for such fixation - Holding that the needs of the State are unlimited, the result of making delegation of a tax like sales tax to the State Government means a power to fix the tax without any limit, even if the needs and purposes of the State are to be taken into account. The writ petitions filed by the petitioners are allowed by quashing and setting aside the show cause notices dated 13.02.2025 and 23.05.2025 issued to the respective petitioners for the respective years. ISSUES PRESENTED AND CONSIDERED 1. Whether the levy under the Green Cess Act is enforceable against entities who merely provide cargo-handling or port services (service-providers) and do not 'bring or cause to be brought' specified products/substances into the State, having regard to Section 4 of the Act and Rule 3(1) of the Green Cess Rules, 2014. 2. Whether the Assessing Authority validly invoked re-assessment proceedings under Section 31 of the GVAT Act (by notice invoking Section 31 read with Section 4 of the Green Cess Act and Rule 3), without stating or disclosing 'reasons to believe' that turnover had escaped assessment, and whether such reassessment is barred by limitation. 3. Whether sub-section (2) of Section 4 of the Green Cess Act and the Rules framed thereunder (in particular Rule 3 and Rule 4(2)) constitute excessive or unguided delegation of legislative power making the Rules invalid. 4. Whether the procedural provisions of the GVAT Act and Rules can be applied/ imported for assessment, levy and collection of the Green Cess in the absence of expressly detailed procedures in the Green Cess Act/Rules. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Liability of service-providers under Section 4 and Rule 3(1) Legal framework: Section 4(1) levies cess on 'handling, utilization, consumption, combustion, transportation or movement' of specified products/substances; Section 4(2) provides that cess shall be assessed, levied and collected in such manner as may be prescribed. Rule 3(1) prescribes collection 'from every person who brings or causes to be brought within the State any products and/or substances at the entry point of the State.' Precedent treatment: Court relied upon statutory interpretation principles and analogies (including authorities discussing meaning of 'cause' and 'permit') to construe 'brings or causes to be brought.' Interpretation and reasoning: The charging provision (Section 4) defines the taxable event (activities causing pollution). Rule 3 furnishes the identity of the person from whom collection is to be made (one who brings or causes goods into the State at entry point). The Court distinguished the charging event (what activity is taxed) from the point and person of collection (who pays). The ordinary meaning of 'causes' was held to denote an active role involving control/dominance (not mere passive service provision), following established authority on 'cause' vs 'permit.' The petitioners, as cargo-handling service providers with no possessory, proprietary or import interest in the goods, do not 'bring or cause to be brought' the specified products and therefore do not fall within Rule 3(1)'s class of persons liable to pay the cess. Ratio vs. Obiter: Ratio - levy incidence requires both the taxed activity (per Section 4) and the statutory identification of the person liable (per Rule 3(1)); a service provider who does not bring/cause goods to be brought is outside Rule 3(1) and cannot be fastened with the cess. Observations on interpretation of 'cause' and single-point levy (avoidance of multiple levies) form part of the Court's reasoning supporting the ratio. Conclusions: The Court concluded that the impugned notices seeking to levy Green Cess on entities that merely operate berths/ provide handling services are arbitrary and untenable because such entities do not bring or cause the covered products/substances to be brought into the State within the meaning of Rule 3(1). Multiple levy at different points where the importer is already liable is impermissible. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of re-assessment notices - 'reasons to believe' and limitation Legal framework: Section 31 of the GVAT Act permits reassessment where the Commissioner has 'reason to believe' that turnover has escaped assessment; limitation for reassessment is governed by the GVAT Act (outer limits specified, including an eight-year outer limit for certain cases). Rule 3(7) of Green Cess Rules allows best-judgment assessment if no return is filed, and Rule 4(2) contemplates recourse to GVAT provisions where Green Cess Rules are silent. Precedent treatment: The Court applied settled precedents on the jurisprudence of 'reason(s) to believe' (which require tangible material / relevant grounds and not mere change of opinion) and on reopening assessments (including the need for live link between reasons and belief). Decisions emphasizing that reasons must appear on the face of notice or be available in material before authority were followed. Interpretation and reasoning: The Court held that 'reason to believe' is a jurisdictional pre-condition; it requires objective, tangible material forming a rational basis for the belief that turnover escaped assessment. Mere change of opinion after an assessment (including earlier orders recording NIL liability after verification of books) does not suffice. The impugned notices were examined and found to lack any articulated reasons or tangible new material indicating escapement; they merely relied on the fact that prior litigation had stayed coercive action. The reassessment notices therefore failed to disclose the requisite reasons. Additionally, the reassessment notices related to periods that, by the timelines in Section 31, were time-barred. Ratio vs. Obiter: Ratio - reassessment power under Section 31 cannot be exercised without objective 'reasons to believe' based on tangible material; reopening on mere change of opinion is impermissible. Ratio - reassessment must respect statutory limitation periods; notices outside limitation are invalid. Conclusions: The Court quashed the reassessment / show-cause notices for failure to satisfy the 'reasons to believe' requirement and for being time-barred under applicable limitation; the notices amounted to an abuse of power insofar as they attempted to reopen completed assessments without jurisdictional grounds. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Excessive delegation challenge to Section 4(2) and Rules Legal framework: Legislative non-delegation principles - essential legislative functions (including fixation of tax incidence and policy) cannot be left without standards; subordinate rule-making is permissible where the statute lays down guiding policy and standards. Section 4(1) fixes the taxable event and upper rate cap (not exceeding 2%); Section 4(2) permits manner of assessment/ collection to be prescribed by rules; Rules 2014 set out registration, returns, assessment modalities and fallback to GVAT provisions. Precedent treatment: The Court applied established tests for excessive delegation: whether essential legislative functions were delegated, and whether the parent Act enunciated guiding principles sufficient to confine subordinate legislation. Interpretation and reasoning: The Act specifies the taxable transactions, identifies taxable products/substances and prescribes a maximum rate. The subordinate Rules supply workable machinery: point of collection, registration, monthly returns, modes of assessment (self-assessment, scrutiny, best judgment), appeals (falling back on GVAT appeal provisions) and penalties. The Court found that the Act enunciated legislative policy (polluter-pays objective, taxable event and rate ceiling) and that the Rules reasonably and lawfully filled in procedural details for implementation without transgressing the parent Act. The Court noted precedent that mere potential for abuse does not alone render delegation invalid; the question is whether the parent statute gives sufficient principle and guidance. Ratio vs. Obiter: Ratio - Section 4(2) read with Rules 2014 does not suffer from excessive delegation; the Act provides necessary legislative policy and limitations (including maximum rate), and Rules implement procedural machinery consistent with the Act. Conclusions: The challenge to the Rules (including asserted excessiveness of Rule 3) was dismissed; Rule 3 and the delegation in Section 4(2) were held valid and intra vires the Act. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Application/import of GVAT procedural provisions to Green Cess assessments Legal framework: Rule 4(2) of Green Cess Rules provides that in absence of specific provision, provisions of the GVAT Act and Rules shall apply mutatis mutandis for assessment, levy and collection; Green Cess Rules also refer to appeals under GVAT. Precedent treatment: Court treated the recourse to GVAT provisions as a permissible legislative/designated fallback where the parent Rules expressly direct such applicability. Interpretation and reasoning: The Green Cess Act left procedural specifics to subordinate rules. The Rules expressly incorporated GVAT procedures by reference where Green Cess Rules were silent. The Court declined to enter into a semantic contest about headings or the precise ambit of Rule 4(2) because it was not necessary to decide the petitions on that ground. Nonetheless, the Court accepted the principle that GVAT machinery could be adopted insofar as the Rules so provide, but reiterated that any exercise of GVAT reassessment power must still comply with 'reasons to believe' and limitation constraints. Ratio vs. Obiter: Ratio - GVAT provisions may be applied by incorporation where the Green Cess Rules so provide, subject to the same jurisdictional safeguards (e.g., 'reasons to believe', limitation). Observations on inapplicability where not expressly adopted are complementary. Conclusions: Using GVAT procedures as fallback was acceptable in principle, but the particular reassessment actions challenged failed because they did not satisfy GVAT's jurisdictional prerequisites (reasons to believe) and fell outside limitation periods. OVERALL CONCLUSIONS 1. The notices attempting to levy Green Cess on entities that merely provide cargo-handling services (and do not bring or cause to be brought specified products/substances into the State) were quashed as arbitrary and beyond Rule 3(1)'s scope. 2. Re-assessment notices premised on Section 31 of the GVAT Act were invalidated for failure to disclose or rest on requisite objective 'reasons to believe' and, in respect of the years covered, as time-barred under applicable limitation; reopening based on mere change of opinion is impermissible. 3. The challenge that Rule 3 (and the delegated scheme under Section 4(2)) suffers from excessive delegation was rejected; the Act supplies legislative policy and an upper rate limit while the Rules furnish procedural machinery within permissible bounds. 4. Invocation of GVAT procedures as a fallback is permissible where the Green Cess Rules so provide, but such invocation remains subject to the jurisdictional safeguards inherent in the GVAT provisions (notably reasons to believe and limitation).