CIT vs. DELHI GYMKHANA CLUB LTD

These appeals by the Assessee under Section 81 of the Delhi Value Added Tax Act, 2004 read with Section 45 of the Delhi Sales Tax Act, 1975 („DSTA‟) are directed against the impugned common order dated 9th/13th July 2010 passed by the Appellate Tribunal Value Added Tax („AT‟) under Section 43 (6) of the DSTA read with Section 9 of the Central Sales Tax Act, 1956 („CSTA‟) for Assessment Years (AYs) 2000- 01, 2001-02 and 2002-03.

On 25th May 2007 a complaint was received against the Appellant Assessee that he had been filing sales tax returns by using false „C‟ forms and evading taxes. The said complaint was forwarded by the Commissioner, Value Added Tax to the Deputy Commissioner under cover of a letter dated 14th June 2007.

On 10th July 2007 a show cause notice was issued by the Value Added Tax Officer („VATO‟), Ward-90 to the Appellant-Assessee stating that a complaint had been received regarding gross irregularities committed by it in the AY 1999-00 pertaining to sales of zips and buttons. The allegations in respect of the misuse of „C‟ forms for the financial year 2002-03 were also

On 17th July 2007 the authorized representative of the Assessee wrote a letter to the VATO requesting for a copy of the complaint and sought an adjournment. Further time was sought on 28th August 2007. On 10th October 2007 the following order was passed by the VATO:

A similar order was passed in respect of AYs 2001-02, 2002-03. The further proceedings resulted in reassessment orders being passed on 10th October 2008 creating demands of Rs. 48,67,284, Rs, 71,62,323 and Rs.48,79,881 for the AYs 2000-01, 2001-02 and 2002-03 respectively.

By a common order dated 31st April 2009 the appeals filed by the Appellant were disposed of by the Appellate Authority with a direction to the Appellant to again appear before the VATO within 15 days along with the documents. The further challenge by the Appellant to the said order of the Appellate Authority was negatived by the AT on 13th July 2010. Aggrieved by the aforementioned order of the AT, the Assessee has filed the present three appeals.

Section 24 (1) DSTA states that where, after a dealer has been assessed under Section 23 of the DSTA, the Commissioner has „reasons to believe‟ that the whole or any part of the turnover of a dealer in respect of any period had escaped assessment to tax then the Commissioner may reopen the assessment by issuing a notice to the dealer and after giving the dealer an opportunity of being heard proceed to determine the tax payable to the best of his judgment. The power of the Commissioner under Section 24 (1) can in terms of Section 10 DSTA be delegated but not to a person lower in rank to an assessing officer.

While in the present case, there is no dispute that the VATO was authorised to reopen the assessment, it is plain that the jurisdictional requirement under Section 24 (1) of the DSTA that reasons must be recorded by the VATO himself, as the officer issuing the notice of reassessment on the ground that there were „reasons to believe‟ that the whole or any part of the turnover of a dealer in respect of any period had escaped assessment to tax, was not complied with. All that was said by the VATO was that he was issuing notices for reopening of the assessment under Section 24 (1) DSTA “as per direction of higher authorities.” This is not a mere procedural irregularity that can be condoned by remanding the matter to the VATO for a fresh reassessment proceeding. It goes to the very root of the matter since what is sought to be done under Section 24 of the Act is to re-open an assessment.

The above legal position has been explained in several decisions. In Samagya Consultants (P) Ltd. v. CST T 2001 (122) STC 512 (Del) this

In Samagya Consultants (P) Ltd. (supra), since the notice for reopening the assessment was issued without recording such reasons, it was held to be „indefensible‟. The matter travelled up to the Supreme Court and the Department‟s appeal was dismissed by an order dated 23rd April 2008, which read: “We agree with the view taken by the High Court that in the absence of any recorded satisfaction for re-opening the concluded assessment of the assessee for the year 1996-97 by the assessing authority, the assessment could not be re-opened.”

In Jagdish Cold Storage & Ice Factory v. The Commissioner of Sales Tax, Delhi 2007-08 (46) DSTC J-1 (Del) a similar issue was addressed to the Court. It is noticed that Circular No.7 of 2001-02 dated 3rd March 2001 has been issued by the Commissioner of Sales Tax after the judgment in Samagya Consultants (P) Ltd. v. CST (supra) to the following effect: “Therefore it is emphasised upon all the Assessing Authorities that the aforesaid observations of the Hon‟ble Delhi High Court be strictly adhered to and before issuing the notice in form ST-15 under the aforesaid provision of Section 24, the reasons therefore invariably recorded in the Order-Sheet. Non-compliance will be viewed seriously.”

The Court in Jagdish Cold Storage & Ice Factory (supra) noted that in that case there were no reasons recorded for re-opening the assessment. It

An Assessing Officer cannot view the reopening of a completed reassessment as a mechanical task because it can have serious consequences for the assessee and that is why it has been specifically mentioned in the Income Tax Act that there must be reasons to believe that a completed assessment must be reopened. This is also the interpretation given by this Court to Section 24 of the Delhi Sales Tax Act, 1975. The power to reopen an assessment is quite clearly not a plenary power, even though the power is wide. Therefore, it is mandatory upon the Assessing Officer to have some material on record and also to consider that material and thereafter record reasons why a completed assessment is sought to be reopened.”

The above legal position was reiterated in the decision dated 17th August 2007 in Writ Petition (Civil) No. 6545 of 2002 (Prashant Software Ltd. v. Commissioner of Sales Tax). It was again observed as under: “This is an extremely unfortunate situation where despite Circulars issued by the Commissioner of Sales Tax, the Respondent are bent on asserting that it is not at all necessary that reasons should be recorded before initiating steps to reopen a completed assessment. Apart from a violation of the law, it would be of no avail to an Assessee if it does not know what weighed in the mind of the assessing

In light of the legal position explained in the above decisions, the Court concludes that in the present case the jurisdictional requirement of the VATO having to record the „reasons to believe‟ preceding the issuance of the show cause notice to the Assessee under Section 24 (1) DSTA was not complied with. Consequently, the entire re-assessment proceedings are bad in law.

Question (i) is answered in the negative, i.e., in favour of the Assessee and against the Department. The orders passed by the VATO for reopening the assessments for AYs 2000-01, 2001-02 and 2002-03 are held to be unsustainable in law.

Since the appeals succeed on question (i), the Court does not consider it necessary to answer the other two questions framed for consideration. In any event, it may be noticed that as far as the issue of limitation is concerned, learned counsel for the Assessee stated that in view of the decision of this Court dated 2nd May 2014 in Review Petition No. 420/2012 in W.P. (C) No. 974/2010 (Kumagai Skanska HCC Itochu Group v. The Commissioner of Value Added Tax) he was not pressing the said issue at this stage.

Writ Petition (Civil) Nos. 812, 813 and 814/2013 have been filed challenging the order passed in the re-assessment proceedings pursuant to the reopening of the assessments for AYs 2000-01, 2001-02 and 2002-03. With the reopening of the above assessments having been held to be unsustainable in law, the orders passed consequent upon such reopening of the assessment are also required to be set aside. It is ordered accordingly.

The Writ Petition (Civil) Nos. 812/2013, 813/2013 and 814/2013 are accordingly allowed but in the circumstances with no order as to costs. CM Nos. 1550/2013 and 1552/2013 are disposed of.