M/S Oceanic Foods Ltd. vs State Of Gujarat
2021 Latest Caselaw 3813 Guj

        C/SCA/22472/2019                                       ORDER



            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

          R/SPECIAL CIVIL APPLICATION NO. 22472 of 2019
=========================================================
                     M/S OCEANIC FOODS LTD.
                              Versus
                        STATE OF GUJARAT
==========================================================
Appearance:
KUNTAL A PARIKH(7757) for the Petitioner(s) No. 1,2
MR UTKARSH SHARMA, AGP for the Respondent(s) No. 1
NOTICE SERVED BY DS(5) for the Respondent(s) No. 1,2
==========================================================
  CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA
         and
         HONOURABLE MR. JUSTICE ILESH J. VORA
                         Date : 05/03/2021
                          ORAL ORDER

(PER : HONOURABLE MR. JUSTICE ILESH J. VORA)

1. By filing this writ application under Article 226 of the Constitution

of India, the writ applicants seek to challenge the legality and validity of the impugned order dated 28.11.2019 passed under Section 34(8A) of the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as "the Act" for short) by the respondent No.2.

2. The brief facts can be summarized as under :

2.1 The writ applicant No.1 M/s. Oceanic Foods Ltd., is engaged in the business of manufacturing dehydrated vegetables and it was registered under the VAT Act.

2.2 During the period of 2011-12, the writ applicants had purchased the taxable goods on payment of tax and goods sold by it were taxable and qualified for exemption also and during the year, the writ applicants reduced input tax credit to the extent of

C/SCA/22472/2019 ORDER

Rs.28,01,137/- in accordance with the provisions of Section 11 of the VAT Act and the same was reflected in its self assessed annual return for A.Y. 2011-12. The respondent authorities had made the final assessment order dated 30.05.2015 for the year 2011-12 and had reduced credit upto Rs.26,39,914/- and made the refund to the tune of Rs.58,244/- after adjusting access input tax credit against the Central Tax Sales Dues assessed under the Central Sales Tax Act, 1956 and the assessment order dated 30.05.2015 was finalized without any scrutiny proceedings as provided under Section 35 (turnover escaping assessment) and Section 75 (revision of the Vat Act).

2.3 In the aforesaid background, it is the case of the writ applicants that, the final audit assessment order under Section 34 of the VAT Act was passed by the respondent authorities within the limitation period and accordingly, the refund was assessed after reducing input tax credit on account of use of taxable material and exempted goods for the inter-state sale of goods.

2.4 It is the case of the writ applicants that, after a period of more than seven years from the relevant assessment period A.Y. 2011-12, the respondent no.2 had issued a Notice dated 17.09.2019, whereby, the writ applicants were called for to submit all books of account for a period 2011-2012.

2.5 It is further the case of the writ applicants that, the respondent No.2 had issued show cause notice dated 11.10.2019 for the period from 2011-12 under sub-section 8A of Section 34 of the Vat Act stating inter alia that, the authority has reasons to believe that, the company has evaded or attempted to evade tax

C/SCA/22472/2019 ORDER

and failed to disclose tax liability and has claimed excess input tax credit for which the company is not entitled to avail the benefit. In pursuance of the show cause notice, the company through its tax consultant appeared before the authority and sought time to produce documents. However, the authority did not grant the adjournment, and accordingly, under Section 34(8A) of the Act, the respondent No.2 has passed the impugned order dated 28.11.2019 along with the demand notice of Rs.37,23,216/- and thereafter, reduced input tax credit and demanded total amount of Rs.32,23,216/- including interest and 150 % penalty of tax amount.

3. Being aggrieved and dissatisfied with the impugned order dated 28.11.2019 passed under Section 34 (8A) of the Act, the writ applicants have preferred present writ application invoking writ jurisdiction under Article 226 of the Constitution of India.

4. We have heard Mr. Kuntal A. Parikh, the learned counsel appearing for the writ applicants and Mr. Utkarsh Sharma, the learned AGP appearing for the respondents - State.

5. Mr. Kuntal Parikh, the learned counsel appearing for the writ applicants has vehemently submitted that, the impugned order is illegal, without jurisdiction, unreasonable and arbitrary which deserves to be quashed and set aside. In this regard, he submitted that, there was no basis for the respondent authority to invoke the provisions of Section 34(8A) of the Act as it can only be invoked when any proceedings with respect to the subject matter of the show-cause notice is pending. He further submitted that, in the present case, no such proceedings were pending at

C/SCA/22472/2019 ORDER

the time of issuance of show-cause notice. He pointed out that, the original assessment proceedings have attained finality without challenging the final assessment order and therefore, the respondent No.2 could not have reopened the assessment proceedings by virtue of invoking the provision of Section 34(8A) of the VAT Act. In view of the factual aspects of the case, he further submitted that, the present case does not fall under any eventualities prescribed under Section 34 (8A) of the Act and therefore, recalculation of the credit amount by invoking powers under Section 34 (8A) of the Act is without jurisdiction.

6. Mr. Kuntal Parikh relying on the decision of this Court in the case

of Dhanani Imp. Exp. Pvt. Ltd. Vs. State of Gujarat [SCA/9519 & 9520/2016, decided on 21.07.2016], contended that, the issue involved in the present application is squarely covered by the judgment of the Division Bench of this Court, wherein, it was held that, the pendency of proceedings would be sine qua non for exercise of power for invoking Section 34(8A) of the Act and accordingly, the impugned order passed by the authority having been quashed and set aside.

7. In view of the aforesaid submissions, Mr. Parikh, the learned

counsel appearing for the writ applicants submitted that, the action of the respondent is in excess of jurisdiction and contrary to the provisions of the VAT Act and therefore, the impugned order is required to be quashed and set aside.

8. Mr. Utkarsh Sharma, the learned AGP appearing for the State

respondents has opposed the present writ application and contended that, considering the facts and circumstances of the

C/SCA/22472/2019 ORDER

present case, the respondent No.2 has rightly invoked Section 34(8A) of the Act to levy the tax as on the issue of input tax credit, for the year A.Y.2011-12 the Accountant General had raised the objections and recommended for appropriate action and in pursuance of the intimation received from the AG's office, notice came to be issued to the writ applicants and initiated the proceedings in accordance with law.

9. Having heard the learned counsel appearing for the parties and having gone through the materials on record, it appears that, the issue involved in the present petition is squarely covered by the decision of this Court rendered in the case of Dhanani Imp. Exp. Pvt. Ltd. Vs. State of Gujarat [SCA/9519 & 9520/2016], wherein, the identical question of law similar to the facts of the present case was dealt with and finally the impugned order passed under Section 34 (8A) of the Act was quashed and set aside. The relevant observations made in the judgment, more particularly in para 7 to 13 reads thus:

7. Section 32 of the VAT Act pertains to return, scrutiny and provisional assessment. Subsection (1)of section 32 provides that returns or revised returns furnished by the dealers in accordance with section 39 shall be subject to scrutiny by the Commissioner.

8. The said section provides for the assessment of returns by the Commissioner. Section 33 pertains to self assessment. Section 34, on the other hand pertains to audit assessment. Subsection (1) of section 34 provides that subject to the provisions of subsection (2), the amount of tax due from a registered dealer shall be assessed in the manner provided hereafter separately for each year, during which he is liable to pay tax. Subsection (9) of section 34 provides that no assessment under subsections (2), (5), (6) or (7) shall be made after the expiry of four years from the end of year in respect of which the tax is assessable. Subsection (10) however lays down the time limit of eight ye ars for assessment under subsection (8), which pertains to cases where the Commissioner finds that a dealer who

C/SCA/22472/2019 ORDER

has been liable to pay tax has failed to get himself registered with the Commissioner. Sub section (8A) was introduced in section 34 with effect from 01.04.2013 and reads as under:

(8A) (a) During the course of any proceedings under this Act, if the prescribed authority is satisfied that the tax has been evaded or sought to be evaded or the tax liability has not been disclosed correctly or excess tax credit has been claimed by any dealer in respect of any period or periods by not recording or recording in an incorrect manner, any transaction of sale or purchase, or that any claim has been incorrectly made, then in such a case notwithstanding any notice for assessment has been issued under other provisions of this section or any other section of this Act. The prescribed authority may, after giving such dealer a reasonable opportunity of being heard, initiate assessment of the dealer in respect of such transaction or claim:

Provided that where such proceedings are under section 73 or section 75, the prescribed authority shall transfer the proceedings relating to such transaction or claim directing the concerned assessing authority to assess the dealer in respect of such transaction or claim:

Provided further that the prescribed authority shall, notwithstanding anything contained in section 17, be deemed to have the requisite jurisdiction and power to assess such dealer in respect of such transaction of sale or purchase or claim, covered by clause (a) and such assessment proceedings shall, for all purposes of this Act, be deemed to have been transferred to such authority. (b) The assessment proceedings under this subsection shall be without prejudice to the assessment proceedings in respect of the said period or periods under any other provisions of this Act by any authority who otherwise has the jurisdiction to assess such dealer in respect of other transaction of sale or purchase or any other claim. (c) The assessment under this subsection shall be made separately in respect of the transaction or claim relating to the said period or periods to the best of the judgment of the prescribed authority where necessary and irrespective of any assessment made under this subsection, the dealer may be assessed separately under the other provisions of this section in respect of the said period or periods:

Provided that, once the dealer is assessed under this subsection, no tax from such transaction or claim and penalty and interest, if any, shall be levied or demanded from such dealer, at the time of assessment to tax under the other provisions of this section in respect of the said period or periods relating to such transaction or claim.

C/SCA/22472/2019 ORDER

Explanation - For the purpose of this subsection, "prescribed authority", "the said authority", "such authority" and "any authority" shall mean, the Commissioner or, as the case may be, the authorities appointed under section 16 and other officers or persons to whom the Commissioner has delegated his power in this behalf."]

9. Section 35 pertains to turn over escaping assessment. Subsection (1) thereof provides that where after a dealer has been assessed under sections 32, 33, or 34 for any year or part thereof, the Commissioner has reason to believe that whole or any part of the taxable turnover in respect of any period has escaped assessment or has been under assessed or has been assessed at the lower rate or wrongly been allowed in deduction or wrongly allowed a credit, the Commissioner may serve a notice to the dealer and after giving opportunity to the dealer and making an inquiry, if found necessary, proceed to the best of his judgment the amount of tax due to the dealer in respect of such turnover. Subsection (2) of section 35 provides that no order under subsection (1) shall be made after the expiry of 5 years from the end of the year in which or part of which the tax is 10. It can thus, be seen that detailed provisions are be made in chapterV of the VAT Act for dealers to file returns and for the prescribed authorities to assess such returns and thereby compute the dealers' correct tax liability. The VAT Act also contains detailed provisions for appeal and revisions against such orders of assessment. Subsection (8A) of section 34 therefore needs to be seen in background of such statutory provisions, particularly, bearing in mind facts of the case.

11. Facts of the case are that by the time the respondents issued notice for revising the tax of the petitioner under subsection (8A) of section 34, the original assessment was already completed in February 2010. In any case, in terms of subsection (9) of section 34, such assessment became time barred by 31.03.2011. In terms of subsection (1) of section 35, the Commissioner, if was of the opinion that the dealer was assessed at a rate lower than the rate it was assessable, could have passed an order after giving an opportunity of being heard to the dealer However, even such order could be passed as provided under subsection (2) of section 35 only within five years from the end of the year in which such tax liability arose.

12. When the petitioner's assessment thus became final and by efflux of time, even exercise of powers by the Commissioner under section 35(1) became barred by limitation, subsection (8A) was not even yet introduced in the statute book. We have serious doubt whether this provision could be applied to the periods prior to the date when the provision was enacted. However, at any rate, to apply to such a

C/SCA/22472/2019 ORDER

situation where the original assessment and any scope by the Commissioner to revise the tax in terms of subsection (1) of section 35 has long pass, been barred by limitation, would expose the provision to vulnerability on the ground of virus.

13. There is yet another strong reason why we cannot upheld the action of the respondent authorities. Clause (a) of subsection (8A) which empowers the prescribed authority to collect tax when it is found that tax has been evaded or sought to be evaded or tax liability has not been disclosed correctly or excess tax has been claimed, the same can be done during the course of any proceedings if the prescribed authority is so satisfied. The pendency of proceedings therefore, would be sinequanon for exercise of such powers. Admitted facts are that no proceedings for assessment of the petitioner were pending on that day. The return filed by the petitioner for the relevant year was long past assessed and closed. We are not inclined to accept the contention of the counsel for the petitioner that the proceedings referred to in clause(a) of subsection (8A) must relate to the assessment of that period alone. Nevertheless, when the legislature has used the expression "during the course of any proceedings under this Act ..."

it must have reference to proceedings for assessment of liability of dealer for the tax at any stage that may be pending. Mere internal scrutiny or examination of file cannot be said to be pendency of proceedings envisaged in clause (a) of subsection (8A)."

10. We take the notice of the fact that, the assessment for the year

2011-12 became final by passing the order dated 30.03.2015 in Form 304 of the VAT Act. It is an undisputed fact that, no any proceedings either under Section 35 or Section 75 of the VAT Act were pending at the time of issuing the show-cause notice dated 11.10.2019. Thus, after more than 7 years, on the basis of objection of audit para, the authority concerned had initiated the proceedings of reassessment by invoking the provision of Section 34 (8A) of the VAT Act. The pre-condition for invoking the provision of Section 34 (8A) of the Act is that, there must be a pendency of proceedings under the Act, which does not fulfill in

C/SCA/22472/2019 ORDER

the present case. Therefore, considering the peculiar facts of the case as well as in light of the decision of this Court in the case of Dhanani Imp. Exp. Pvt. Ltd. (supra), we are of the view that, the case of the writ applicants does not fall under Section 34 (8A) of the Act and the action of the authority is in excess of jurisdiction, consequently, the impugned order dated 28.11.2019 passed by the respondent No.2 is hereby quashed and set aside.

11. In view of the foregoing reasons, present writ application succeeds and accordingly is allowed.

(J. B. PARDIWALA, J)

(ILESH J. VORA,J) SUCHIT