L.G. Electronics vs Commissioner Of Trade & Taxes
2010 Latest Caselaw 500 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+     WP(C) 6533/2008

                                      Reserved on:    2nd December, 2009
%                                Date of Decision:     29th January, 2010

L.G. ELECTRONICS                                            ..... Petitioner

                           Through:   Mr. S.C. Ladi and Mr. Rajesh Jain,
                                      Advocates.

                  versus


COMMISSIONER OF TRADE & TAXES                             ..... Respondent

                           Through:   Ms. Avnish Ahlawat and
                                      Ms. Simran, Advocates.

CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

      1.     Whether reporters of local papers may be allowed to see
             the judgment?                                          Yes.
      2.     To be referred to the Reporter or not?                 Yes.
      3.     Whether the judgment should be reported in
             the Digest?                                            Yes.
                             JUDGMENT

SIDDHARTH MRIDUL, J.

1. The present writ petition assails the impugned order No.2039

dated 4th July, 2008 under Rule 29 of the Delhi Sales Tax Rules, 1975

whereby the Joint Commissioner (KCSU) has rejected the refund

arising out of the assessment orders passed for the years 1997-98,

1998-99 and 1999-2000 respectively.

2. At the outset, it must be pointed out that this is the third round

of litigation between the Petitioner and the Revenue arising out of the

same issue.

3. The facts as are relevant for adjudication of the present writ

petition are that:-

(a) The Petitioner is a limited company engaged in the

manufacture and sale-purchase of electronic items. It has

a chain of distributors and dealers through whom its

goods are sold to ultimate customers. According to the

Petitioner it has floated several schemes by virtue of

which it offers trade discounts against the catalogue price

and also cash discounts on immediate payments for the

benefit of the distributors and dealers. Contracts in that

behalf are entered to that effect at the time of

appointment of distributors/dealers itself and the

discounts are offered through credit notes issued to them.

According to the Petitioner the credit notes include the tax

amount.

(b) In respect of the assessment year 1997-98 the Assessing

Officer under the Delhi Sales Tax Act (in short „DST Act‟)

framed an assessment on 29th September, 2000, whereby

the claim of the Petitioner for trade discounts, said to have

been given to its distributors and dealers, was disallowed.

(c) Aggrieved by the assessment order dated 29th September,

2000, the Petitioner preferred an appeal before the

Deputy Commissioner who set aside the assessment order

and remanded the case back to the assessing authority for

de novo adjudication vide its order dated 16th April, 2001.

(d) On 7th April, 2003 the Assessing Officer reconsidered the

case of the Petitioner and for the assessment year 1997-98

he granted a refund of Rs.5,15,656/-. The Assessing

Officer noted that the assessee had filed a complete set of

credit notes showing credit of sales tax to the respective

parties. One of the issues canvassed by the learned

counsel appearing before the Assessing Officer was that

the sales tax had already been returned by issuing credit

notes and this was examined by the Deputy Commissioner

who accepted the contention of the Petitioner. The

Assessing Officer who examined the record and the facts

of the case as well as the submissions made by the

Petitioner allowed the claim made by the assessee. With

regard to the assessment year 1998-99, the assessment of

the Petitioner went through the same fate and on remand

by the Deputy Commissioner, the Assessing Officer passed

an order on 8th December, 2003 accepting the claim of the

Petitioner and granting a refund of Rs.3,68,601/-. In

respect of the assessment year 1999-2000, since the

earlier appellate order was already available, the

Assessing Officer considered the matter on merit and by

an order dated 28th December, 2001 granted a refund of

Rs.86,73,349/- to the Petitioner.

(e) In the result, therefore, with regard to all the three

assessment years, the claim of the Petitioner for allowing

trade discounts in respect of the sales made to its

distributors and dealers stood allowed by the Assessing

Officer. Thereafter, the Petitioner filed refund claims in

respect of the three assessment years with the Assessing

Officer under Section 30 of the DST Act.

(f) Instead of granting the refund claim to the Petitioner in

terms of the orders passed by the Assessing Officer, the

Petitioner was issued a show cause notice dated 14th June

2004 for reopening the assessment for all the three years.

The Petitioner contested the notice, but in respect of 1999-

2000, an order was passed on 16th July, 2004 denying to

the Petitioner the benefit of trade discount and thereby

denying the refund claim.

(g) The Petitioner feeling aggrieved filed two writ petitions in

this Court being Writ Petition (Civil) No. 15217/2004 and

Writ Petitioner (Civil) No. 15285/2004. In these writ

petitions the Petitioner challenged the reassessment order

dated 16th July, 2004 passed in respect of the assessment

year 1999-2000 and the show cause notices seeking to

reopen the completed assessments for the year 1997-98

and 1998-99. On 22nd September, 2006, the Department,

during the course of hearing of the writ petitions,

informed this Court that the Commissioner of Sales Tax

had taken a decision to withdraw the reassessment order

for the year 1999-2000 as well as the show cause notices

for the assessment years 1997-98 and 1998-99. Thus, an

order was made by this Court disposing of the petitions

accordingly. After the order dated 22nd September, 2006

passed by this Court the only thing that remained to be

decided was the entitlement of the Petitioner for the

refund. As the time of four weeks granted by this Court to

the Assistant Commissioner to pass a reasoned order on

the application for refund made by the Petitioner in

respect of all the three assessment years was to expire on

21st October, 2006, a notice was issued on 18th October,

2006 asking the Petitioner to show cause why refund

application be not rejected. On 20th October, 2006 i.e. two

days after the date of the notice issued on 18th October,

2006 the Joint Commissioner rejected the refund

applications filed by the Petitioner in respect of three

assessment years. On the very same day, the Joint

Commissioner issued fresh notices to the Petitioner to

show cause why the assessment orders passed in its

favour be not revised suo moto. Thereafter, pursuant to

the show cause notice dated 20th October, 2006 the Joint

Commissioner passed an order on 7th November, 2006 suo

moto revising the assessment orders passed in favour of

the Petitioner for the three assessment years that we are

concerned with and remanding the matter to the

Assessing Officer for a fresh assessment.

(h) Aggrieved by this, the Petitioner filed two writ petitions.

The Writ Petition(Civil) No. 17391/2006 was filed against

the order dated 20th October, 2006 vide which the claim of

refund was rejected by the Joint Commissioner. The

second writ petition being Writ Petition(Civil)

No. 17423/2006 was filed against the suo moto revision

order passed on 7th November, 2006. Vide order dated 23rd

May, 2008. Writ Petition(Civil) No. 17423/2006 came to be

disposed of by this Court quashing and setting aside the

suo moto revision order dated 7th November, 2006. As far

as the Writ Petition(Civil) No. 17391/2006 relating to the

refund for all the three years were concerned, the same

was allowed and the matter was remitted back to the Joint

Commissioner, limited only to the question whether the

Petitioner had passed on the tax burden to its dealers and

distributors or not. It was further held that if it was found

that the Petitioner had passed on the tax burden, then on

the principles of unjust enrichment the Petitioner will not

be entitled to a refund for that amount. But, on the

contrary, if the Petitioner had not passed on the tax

burden, then in that case the Petitioner would be entitled

to a refund. Quashing the order dated 20th October, 2006

this Court directed the Joint Commissioner to take a

decision within six weeks limited, as aforesaid, to the

question whether despite the trade discounts given by the

Petitioner, it had passed on the tax burden to its

distributors and dealers or not.

(i) Vide the impugned order dated 4th July, 2008 the Joint

Commissioner has rejected the refund claims of the

Petitioner.

4. On behalf of the Petitioner it was urged that the Joint

Commissioner erred in not relying on the confirmation received from

the dealers and distributors confirming that the latter were issued the

credit notes inclusive of tax. On the other hand on behalf of the

Respondent the impugned order was supported on the ground that

the books of accounts for the relevant years were not available with

the distributors and dealers who provided the confirmation.

5. In the present case, it is seen that the Petitioner had filed

various documents which were already on record in the earlier

proceedings including a Trial Balance for the year 1999-2000 along

with the auditor‟s report, statement of trade discounts, copies of trade

discounts circulars, sample of general vouchers and ledger accounts

along with copies of credit notes. In fact, in the order of this Court

dated 23rd May, 2008 it had been noticed by the Division Bench that

"the Assessing Officer noted that the assessee had filed a complete set

of credit notes showing credit of sales tax to the respective parties.

One of the issues canvassed by the learned counsel appearing before

the Assessing Officer was that the sales tax had already been returned

by issuing credit notes and this was examined by the Deputy

Commissioner/Appellate Authority who accepted the contention of the

Petitioner. Based on the facts of the case as well as the submissions

made by the Petitioner, the Assessing Officer examined the record

and allowed the claim made by the assessee". Thus, it had never been

the case of the Respondent that the Petitioner had not issued credit

notes. In fact, these credit notes were the very foundation for

accepting the discounts given to the distributors, as a result of which

the refund accrued to the Petitioner. Even otherwise, the mandate

given to the Joint Commissioner was limited to the extent of verifying

whether the Petitioner had passed on the sales tax burden to the

distributors. The Joint Commissioner misdirected himself by going

into the veracity of the credit notes and re-examining the discounts

scheme afresh, which action was wholly unwarranted.

6. It is also seen in the present case that the Petitioner has

annexed the credit notes and all the other relevant documents along

with the writ petition wherein it is clearly stated on behalf of the

distributors that "this credit note is inclusive of sales tax". As a matter

of fact, in the impugned order itself it has been noticed that the

Respondent had carried out a verification of the distributors in whose

favour the credit notes had been issued. Thus, the only ground for

disbelieving distributors in whose favour the credit notes have been

issued by the Petitioner was the fact that the said distributors could

not produce any documentary evidence at the time of the verification.

However, as aforesaid, the Petitioner itself had filed various

documents including the credit notes and ledger accounts to show

that the burden of the sales tax had not been passed on to the

distributors and that these ledger accounts, on their perusal, clearly

depict that the credit notes were issued to the distributors inclusive of

the sales tax. In the impugned order, rejecting the claim for refund,

the Joint Commissioner has been critical of the credit notes and the

manner in which they have been prepared and purely on this basis

has come to the conclusion that the burden of sales tax was passed on

by the Petitioner to its dealers and distributors. It is further noticed in

the impugned order that it has been repeatedly stated that on 27th

June, 2008 the Petitioner was directed that the copies of the credit

notes should be got verified by the stockists as a proof that the tax

burden had not been passed on to them. However, a reading of the

said order annexed at page 146 of the petition does not bear out the

assertion that such a direction was ever given to the Petitioner. All

that can be discerned from the said order is that the Joint

Commissioner recorded that the copies of the credit notes needed

verification. Even otherwise, the fact that the Joint Commissioner

himself got the verification done from some of the distributors, belies

the assertion in the impugned order that the Petitioner had been

directed to obtain confirmation and verification of the credit notes

from the distributors. In this behalf it is also observed that the Joint

Commissioner cryptically relied on the verification undertaken by the

Revenue, without confronting the Petitioner with the same and

without affording an opportunity to the Petitioner to contradict the

verification. The Revenue, has furthermore, neither produced nor

referred to the said verification before this Court leading to the

inference that the confirmations received from those distributors

establish that the tax burden had not been passed on by the Petitioner

to the distributors. Therefore, in our opinion when the authenticity of

the credit notes had been admitted by the Respondent all along and

the factum of those credit notes being inclusive of sales tax had been

confirmed by the distributors and supported by the documents

furnished before the Respondent by the Petitioner, the Joint

Commissioner totally misdirected himself in reviewing the entire case

including the authenticity of the credit notes and completely exceeded

the limited direction given to it by the order of this court dated 23rd

May, 2008.

7. Predicated on the documents filed before the Respondent and

annexed to this writ petition, we are satisfied that the Petitioner had

not passed on the burden of sales tax to the distributors and dealers

and is, as such, entitled to a refund of the same. In the result, the

impugned order dated 4th July 2008 is quashed, the writ petition is

allowed and the Respondent is directed to refund the amounts in

respect of the assessment years 1997-98, 1998-99 and 1999-2000

along with interest thereon in accordance with law to the Petitioner

within a period of four weeks from the date of this order.

SIDDHARTH MRIDUL, J.

A.K. SIKRI, J.

JANUARY 29, 2010 mk