TaxTMI 
TaxTMI 
2016 (3) TMI 378
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.... this writ petition filed by Capri Bathaid Private Limited (CBPL), the facts are that a survey was undertaken in the premises of CBPL by the Department of Trade & Taxes ('DT&T') on 4th September 2014. According to the DT&T a shortage of stock of the value of Rs. 6,79,463 and excess of cash in the sum of Rs. 247 was detected. On 22nd July 2014 CBPL filed its return for the first quarter of 2014 declaring local sales turnover of Rs. 86,66,077. Against the gross output tax liability of Rs. 4,44,728, CBPL claimed input tax credit ('ITC') of Rs. 5,11,175. CBPL deposited a sum of Rs. 74,500. According to CBPL, the claim of ITC was found matching with the output tax liability declared by the selling dealers as per the verification report in Form 2A and 2B available on the website of the DT&T. On 27th September/1st October 2014 the Assistant Value Added Tax Officer, Enforcement-I (AVATO Enf-I) issued default notices of assessment of tax, interest and penalty under Sections 32 and 33 of the DVAT Act. This was printed in pre-printed format which stated that "the dealer has not furnished returns/furnished incomplete returns or incorrect returns/furnished a return that does not comply with the....
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.... on the website of the DT&T in the year 2013-14 and 2014-15 with regard to the purchases from M/s. Krishna International and M/s. S.K. Enterprises and that the selling dealers duly reflected the sales made in their respective returns. At the time the purchases were made from the selling dealers, they were shown as 'active' on the website of the DT&T. On 14th January 2015 the AVATO Enf-I issued default notices of assessment of tax, interest and penalty under Sections 32 and 33 of the DVAT Act. 6. The aforementioned order which is in pre-printed format passed by the AVATO Enf-I stated that the dealer had wrongly claimed ITC in respect of the purchases made from M/s. Krishna International and M/s. S.K. Enterprises during 2013-14 were from "non-functional dealers" and was reversed to the extent of Rs. 48,00,042 under Section 9 (2) (g) and other provisions of the DVAT Act. The turnover assessed was Rs. 23,60,480, the tax assessed was Rs. 48,000,42 and the interest was Rs. 17,754. By a separate order passed on 14th January 2015, the AVATO Enf-I levied a penalty of Rs. 48,00,042 under Section 86 (10) read with Section 33 of the DVAT Act. W.P. (C) No. 3069/2015 7. In this petition....
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....r and search the premises of SMC and seize documents etc. SMC, through its proprietor Mr. Jagdish Rai Gupta gave an undertaking on the same date that it would not claim ITC on the purchases made from the 'suspicious' dealers and that it would provide all the details of the 'suspicious' dealers pointed out by the DT&T within three days. SMC claimed in the said letter that all the purchases were genuine and there was no mismatch in the Forms 2A and 2/B as regards the purchases made from the dealers in question. 12. Nevertheless on 25th February 2015, the AVATO Enf -I passed two separate orders, the first being a notice of default assessment of tax and interest and the other for penalty. This was for the third quarter of 2013-14 and under Sections 32 and 33 of the DVAT Act in a pre-printed format. The order/notice of default assessment of tax and interest stated that SMC had made purchases and availed ITC from non-functioning/suspicious dealers for the period 2013-14 and 2014-15 and therefore, the ITC was reversed. The assessed turnover was Rs. 1,55,051 and the tax assessed was Rs. 12,88,828 together with interest of Rs. 22,246. By the second order dated 3rd March 2015 under Sectio....
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....tation of interest due or owed, the computation of the entitlement and the amount of any refund, the determination of specific questions under section 84, the making of general rulings under section 85, and the conduct of audit or investigations shall, for the purposes of this Act, be the administrative functions." 18. Under Section 66 (3), the Commissioner of Value Added Tax ('CVAT') and the VAT Authorities can exercise only such powers and perform such duties as may be required by or under the DVAT Act. Section 66 (4) clarifies that the powers exercised by the VAT Authorities for the making of assessments of tax, the computation and imposition of penalties, the computation of the entitlement and the amount of any refund, the determination of specific questions under Section 84, the making of general rulings under Section 85 and the conduct of audit or investigations shall be the 'administrative functions'. 19. Section 67 (1) of the DVAT Act states that the CVAT shall have jurisdiction over the whole of Delhi and shall have responsibility for the due and proper administration of the DVAT Act. Under Section 67 (2) the CVAT may, from time to time, issue such instructions, orde....
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.... (2) The grant of authority shall - (a) be limited to a period not exceeding three years; (b) be to a specific person; and (c) expire on the retirement, resignation or transfer of the person; Provided that an authority granted may be renewed. (3) Every officer or other person authorised by the Commissioner under sub-rule (1) shall - (a) carry the authorization in Form DVAT-50, with him when purporting to exercise any of the powers conferred under Chapter X of the Act; and (b) produce the authorization in Form DVAT-50, if requested by the owner or occupier of any premises where he proposes to exercise these powers." 23. There is another important aspect as regards search and seizure. Under Section 60 (6) of DVAT Act, every search or seizure made under this Section as far as possible are to be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 ('Cr PC') relating to searches or seizures made under the Cr PC. Under Section 165 (3) Cr PC, only the officer in charge of a police station or a police officer making an investigation may authorize a subordinate officer to carry out searc....
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.... NCT of Delhi, in exercise of the powers conferred by Section 68 of the Delhi Value Added Tax (DVAT) Act, 2004 (Delhi Act 3 of 2005) read with Rule 48 of the Delhi Value Added Tax Rules 2005 do hereby delegate my powers specified in Column Nos. 3 under Section mentioned in column No. 2 to the Officers shall exercise the powers and perform the duties concomitant with such powers, within their respective jurisdictions. The order shall come into force with immediate effect." 26. Below the above paragraph, a table is set out in which the first column indicates the S.No., the second column indicates the relevant provisions of the Act, the third column contains a description of the powers under the said provision and the fourth column states the designation of the officer to whom the power is delegated. Illustratively, reference can be made to Serial Nos. 8, 9, 18, 21, 22, 24, 30 and 31 of the above order which read as under: S. No. Section of the Act Description of powers Designation of the officer to whom power delegated 8. 32 All powers to assess or reassess to the best of his judgment the amount of net tax due for a tax period or more than one tax period by a ....
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.... or disposal of any goods, goods vehicle or any other property, as per the requirement of Rule 41 of the DVAT Rules, 2005 All Officers appointed under sub-section (2) of section 66 of the Delhi Value Added Tax Act, 2004 not below the rank of Additional/Joint Commissioner concerned. 31 64 All powers for detention and seize of goods where dealers fails to provide information, fails to permit the inspection, seizure of goods in respect of which default is committed. All Officers appointed under sub-section (2) of section 66 of the Delhi Value Added Tax Act, 2004 not below the rank of Assistant Value Added Tax Officer. 27. What is significant as far as the above delegation of powers by the CVAT is concerned is that, in the first place, the officers to whom powers have been delegated are to exercise the powers and perform the duties of such powers "within their respective jurisdictions". This is critical since it conveys the intention that the exercise of powers by an officer is to be restricted to a certain jurisdiction. For instance, in terms of the above order, the officer not below the rank of AVATO will not exercise the power vested under Sections 32 and 33 of the....
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.... contemplated under Section 2(34) of the Act is that of specific conferment of such functions. Moreover, if the Revenue's contention that once territorial jurisdiction is conferred, the Collector of Customs (Preventive) becomes a "proper officer" in terms of Section 28 of the Act is accepted, it would lead to a situation of utter chaos and confusion, in as much as all officers of customs, in a particular area be it under the Collectorate of Customs 1 (Imports) or the Preventive Collectorate, would be "proper officers". In our view therefore, it is only the officers of customs, who are assigned the functions of assessment, which of course, would include reassessment, working under the jurisdictional Collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Act." 31. Another feature of the above order issued by the CVAT under Section 68 (2) of the DVAT Act is that no officer below the rank of AVATO has been authorized to exercise any other function under the DVAT Act. This is significant since in the present petitions....
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....ion 34 of this Act." 35. The above provision has been highlighted to underscore the fact that there has to be a specific power to make an assessment delegated to a VAT Authority by the CVAT and in the absence of the delegation of such power, the said delegate cannot exercise the power of assessment. In the present cases, nothing has been shown to the Court regarding authorization of the AVATO Enf-I to make any assessment and pass orders under Sections 32 or 33 of the DVAT Act. As already noticed, the order issued by the CVAT under Section 68 (2) of the DVAT Act on 12th November 2013 delegates such power under Sections 32 and 33 to all officers not below the rank of AVATO. 36. The second aspect of the matter is that the authorization under the DVAT Act was issued by the Special Commissioner (HR) who in turn stated that he had been granted authority for issuing Form DVAT-50 by the CVAT by an order dated 25th September 2014. Although the said order dated 25th September 2014 purportedly issued by the CVAT under Section 68 (2) of DVAT Act read with Rule 65 (1) of DVAT Rules has not been produced before the Court, there is no means to doubt that there does exist such an order. 3....
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.... Consequently, the JC in turn could not have issued any form DVAT-50 authorizing the AC/AVATO/VATI to carry out search and seizure operations. In none of these cases has the DT&T been able to produce the proper order authorizing the AC/AVATO/ VATI to carry out survey, search and seizure operations. 41. Yet another aspect is that there is a basic misconception that the VAT Authorities are to mechanically exercise the power of survey under Section 59 of the Act followed immediately by a search and seizure operation under Section 68 of the DVAT Act. This has been adversely commented upon by the Court in two orders in the recent past. 42. In an order dated 27th January 2016 in W.P. (Civil) No. 714 of 2016 (Shree Ashtvinayak Gems & Stone Pvt. Ltd. v. Commissioner, Trade & Taxes, Delhi), the Court observed as under: "5. Section 60 of the Act sets out the jurisdictional requirement for invocation of the power under Section 60(2)(f). It mandates that the Commissioner must have reasonable grounds to believe that "any person or dealer is attempting to avoid or evade tax or is concealing his tax liability in any manner". This satisfaction of the Commissioner has to be based on ....
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.... of 2014-15. 45. The second difficulty is that none of the dealers were notified about the purchases made by them being characterized as purchases from non-existent/suspicious selling dealers. No opportunity was afforded to the Petitioners of any hearing and no materials gathered substantiating the case of the DT&T were furnished to them. The specific case of the dealer in each of the petitions is that the verification report matched the Forms 2A and 2B in relation to such purchases. Therefore, the orders of default notices of assessment of tax, interest and penalty are held to be bad in law on this ground as well. The penalty orders 46. Lastly, turning to the orders of assessment of penalty, these again appear to have been passed mechanically under Section 86 (10) of DVAT Act. Neither clause (a) or (b) of Section 86 has been mentioned in the default notices of penalty. While passing these penalty orders, the returns filed by the dealers have not been taken into account. Further, no notice was separately issued to the dealers prior to the passing of the penalty orders. In similar circumstances, this Court in Bansal Dyechem Pvt. Ltd. v. Commissioner of Income Tax (2016) 87 ....
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.... the VAT Authorities which in turn directly impacts the question of the legality and validity of the actions of the VAT Authorities, relegating the Petitioners to the statutory remedies would neither be expedient nor efficacious. In the considered view of the Court, as noticed hereinbefore, 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. Summary of conclusions 51. To sum up the conclusions of the Court: (i) 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. (ii) 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 p....