Recently, the Andhra Pradesh High Court, while allowing writ petitions filed against orders of assessment and penalty under the Andhra Pradesh VAT Act, 2005, held that assessments for periods beyond the statutory limitation could not be sustained and that failure to verify the taxpayer's opted composition scheme vitiated the proceedings.
Brief Facts:
The petitioner, Shirdi Saibaba Constructions, was a registered dealer under the Andhra Pradesh VAT Act, 2005, engaged exclusively in executing works contracts for government departments. The petitioner opted for payment of VAT under the composition scheme provided under Section 4(7) (b) & (d) by submitting Form VAT 250 online. The tax deducted at source (TDS) by the government departments at 5% was sufficient to meet the petitioner's liability, and accordingly, monthly returns were filed without further payment. The 1st respondent (Assistant Commissioner) issued a revised show cause notice citing discrepancies between the petitioner's VAT returns and Income Tax returns for the period 2014–15. Subsequently, an assessment order was passed imposing tax at 14.5% on the turnover, abandoning the benefit of the composition scheme. A penalty order was also passed imposing 100% penalty under Section 53(3). Aggrieved, the petitioner filed a write application against the assessment order and against the penalty order.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the petitioner contended that the assessment and penalty orders were passed without considering the valid composition forms submitted by the petitioner. It was argued that the extended period of six years under Section 21(5) of the VAT Act could be invoked only in cases of willful evasion of tax, which was not established in the present case. Further, it was contended that even if the extended limitation were available, the assessment covering April 2014 to February 2015 was barred by limitation.
Contentions of the Respondent:
The learned counsel Government Pleader for Commercial Taxes defended the assessment and penalty orders, contending that the discrepancies justified invocation of the extended limitation under Section 21(5). It was submitted that the petitioner failed to produce necessary records during assessment proceedings, warranting best judgment assessment under the normal rate of tax instead of the composition scheme.
Observations of the Court:
The Court, after considering the rival submissions and examining the statutory framework, held that the assessment order was partially barred by limitation. It was observed that the limitation of every month would have to be taken into account and the order of assessment, is beyond the period of limitation set out for the months of April to February of the financial year 2014-15. The Court elaborated that under the VAT Act and Rules, monthly returns were to be filed by the 20th of the succeeding month, and the six-year period for assessment would commence from that date. Hence, for returns filed for April 2014, limitation expired on 20.05.2020, and assessments made thereafter were beyond time.
The Court noted that while a partial assessment could have been upheld for the period within limitation, it was more appropriate to set aside the entire assessment order and remand the matter, to avoid piecemeal adjudication. It was further observed that apart from limitation, the petitioner has also raised a ground that the levy of tax at 14.5%, without giving the benefit of the composition scheme, is impermissible as the Assessing Authority had not verified the forms of composition given by the petitioner. Regarding the penalty order, the Court held that once the order of assessment itself has been set aside, the order of penalty would not survive.
The decision of the Court:
The writ petitions were allowed. The assessment order dated 31.03.2021 and the penalty order dated 21.05.2021 passed by the 1st respondent were set aside. The matter was remanded back to the Assessing Officer to pass a fresh assessment order for the period March 2015 to March 2016 after providing due opportunity of hearing to the petitioner.
Case Title: Shirdi Saibaba Constructions vs The Assistant Commissioner (Sales Tax) and Others
Coram: Hon’ble Mr. Justice R. Raghunandan Rao and Hon’ble Dr. Justice K. Manmadha Rao
Case No: W.P. Nos. 5303 & 5350 of 2022
Advocate for the Applicant: Mr. G. Narendra Chetty
Advocate for the Respondent: Government Pleader for Commercial Tax
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