Persys Punj Lloyd Joint Venture v. Commissioner of Vat

order Amount demanded

(1)

(2)

(3)

10311/09 2003-04 [13.01.2004 to

31.03.2004]

11.05.2009 Tax (` ) Interest (`) Penalty (`) 48,51,076 58,21,291 97,02,152 10312/09 2003-04 [22.10.2003 to

12.01.2004]

11.05.2009 Tax (` ) Interest (`) Penalty (`) 14,53,743 17,44,492 29,07,485 10287/09 2004-05 [13.01.2004 to

31.03.2004]

11.05.2009 Tax (` ) Interest (`) Penalty (`) 2,30,82,150 2,40,78,864 5,01,64,300

¶22The prayer in all the three writ petitions is for quashing the re-assessment notices dated 27th April, 2009 as well as the re-assessment orders passed on 11th May, 2009. The contention of the petitioner in these writ petitions is mainly that there was no turnover that escaped assessment, which alone can confer jurisdiction upon the assessing authority to re-open the assessment. It is submitted that it would be apparent from the reassessment orders that no turnover had escaped assessment and that the only purpose of the re-assessment proceedings was to impose a demand of tax allegedly deductible at source u/s. 7(3) of the WC Act in respect of the payments made by the petitioner to the member-companies, interest thereon and also penalty under Section 7(7) of the Act. It is further submitted that these demands have been

raised solely with the view to scuttling the claim of the petitioner to the refunds which is the subject matter of WP (C) No.8620/2009.

¶23On behalf of the respondents, a preliminary objection was taken to the effect that the orders of re-assessment which are challenged in WP(C) Nos. 10311/2009, 10312/2009 and 10287/2009 can be appealed against under the relevant provisions of DST Act read with Section 16 of the WC Act and since that alternative remedy was available to the petitioner, the writ petitions should be dismissed as not maintainable. So far as WP(C) No.8620/2009 is concerned, the contention of the respondents is that no refunds can be granted since there were huge demands raised against the petitioner under the re-assessment orders for the same period.

¶24The preliminary objection of the respondents that writ petitions against the re-assessment orders passed on 11th May, 2009 are not maintainable since those orders were appealable need not detain us since it is well settled that where the action of an executive authority acting without jurisdiction is likely to subject a person to dilatory proceedings and undue harassment, the High Courts will issue appropriate writs to prevent such consequences. The following observations of the Supreme Court in the case of Calcutta Discount Co. Ltd. vs. Income Tax Officer and Anr. reported in (1961) 41 ITR 191 are relevant: - "Mr. Sastri next pointed out that at the stage when the Income Tax Officer issued the notices he was not acting judicially or quasi-judicially and so a writ of certiorari or prohibition cannot issue. It is well settled howsoever that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting

without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences.

Mr. Sastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question, viz. whether the Income Tax Officer had reason to believe that under assessment had resulted from non-disclosure of material facts, before the Income Tax Officer himself in the assessment proceedings and, if unsuccessful there, before the Appellate Officer or the Appellate Tribunal or in the High Court under Section 66(2) of the Indian Income Tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action.

In the present case the company contends that the conditions precedent for the assumption of jurisdiction under section 34 were not satisfied and came to the court at the earliest opportunity. There is nothing in its conduct which would justify the refusal of proper relief under Article 226. When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons. In the present case we can find no reason for which relief should be refused."

¶25In State of Himachal Pradesh & Ors. v. Gujarat Ambuja Cement Ltd.,

(2005) 6 SCC 499, the following principles were recognised: -

(a) The issue of existence of alternative remedy is a rule of self-imposed limitation; it is essentially a rule of policy, convenience and discretion, but never a rule of law.

(b) The High Court should ensure that the petitioner has made out a strong case to invoke the extraordinary jurisdiction despite the existence of alternative remedies.

(c) Where there has been a serious breach of the principles of natural justice or procedure, where the order or the proceedings are wholly without jurisdiction, where the vires of a statute is challenged or where there has been an abuse of the process of law, the High Court may exercise its discretion to permit the petitioner to invoke article 226.

In Ram and Shyam Company v. State of Haryana, (1985) 3 SCC 267, it was opined that if the alternative remedy is an appeal from "Caesar to Caesar"s wife" the existence of such a remedy would be a mirage and an exercise in futility. In Godrej Sara Lee Limited vs. Asst.Commissioner and Anr. (2009) 14 SCC 338 the Supreme Court observed as under: - "……..the question as to whether the said Notification could have a retrospective effect or retro-active operation being a jurisdictional fact, should have been determined by the High Court in exercise of its writ jurisdiction under Article 226 of the Constitution of India as it is well known that when an order of a statutory authority is questioned on the ground that the same suffers from lack of jurisdiction, alternative remedy may not be a bar. (See: Whirlpool Corporation v. Registrar Trade Marks and Mumtaz Post Graduate Decgree College vs. Vice Chancellor)."

In the light of the above observations of the Supreme Court, we overrule the preliminary objection of the respondents. In the case on hand, apart from being appeals from "Caesar to Caesar", the petitioner would be likely to be asked to make pre-deposit of the disputed tax, interest and penalty u/s. 43(5) of the DST Act. This is likely to affect the finances of the petitioner prejudicially, particularly when the grievance is that the orders complained of lack

jurisdiction, ex-facie. In such a scenario, the appeal remedy cannot be said to be an efficacious one.

¶26The contentions of the petitioner in WP(C) No.8620/2009 on the one hand and the other three writ petitions on the other, necessarily telescope into each other because though refunds were determined by the respondents, they did not bother to get the response from the DMRC for the letter of verification sent by them and furthermore, proceeded to pass re-assessment orders raising huge demands against the petitioner which neutralised the refund claims. The validity of the action of the respondents both in not issuing the refund orders within a reasonable time after the passing of the orders determining the refund and in framing re-assessment orders to nullify the refund are to be viewed together and in an integrated manner. They cannot be divorced from each other. We would therefore prefer to first examine the validity of the re-assessment proceedings initiated under Section 24 of the DST Act.

¶27By virtue of Section 16 of the WC Act, several provisions of the DST Act are incorporated by reference into the WC Act. The provisions of the DST Act relating to the assessment, re-assessment, refund, and appeals are some of them. Re-assessment proceedings are dealt with under Section 24 of the DST Act which runs as under:- "24. Turnover escaping assessment – 1. Where after a dealer has been assessed under Section 23 for any year or part thereof, the Commissioner has reason to believe that the whole or any part of the turnover of a dealer in respect of any period has escaped assessment to tax or has been under-assessed or has been assessed at a rate lower than the rate at which it is assessable, or any deduction has been wrongly made therefrom, the Commissioner may –

(a) within six years from the date of final order of assessment, in a case where the dealer has concealed, omitted or failed to disclose fully the particulars of such turnover; and

(b) within four years from the date of final order of assessment, in any other case, serve a notice on the dealer and after giving the dealer an opportunity of being heard and making such inquiry as he considers necessary, proceed to determine to the best judgment, the amount of tax due from the dealer in respect of such turnover, and the provisions of this Act shall, so far as may be, apply accordingly."

¶28In order that proceedings can be taken under Section 24, the first condition is that the Commissioner should have reason to believe that the whole or any part of the turnover of the dealer has escaped assessment to tax or has been under-assessed or has been assessed at a rate lower than the appropriate rate or any deduction was wrongly made from the turnover.

¶29In the reason mentioned at the bottom of Form ST-15 which is the notice of re-assessment, what has been stated by the respondents is that the petitioner was required to deduct tax at the rate of 2% from the payments made to the sub-contractors, but failed to do so. The question is whether this can hold good as the reason to believe that taxable turnover had escaped assessment. It must be remembered that the petitioner does not effect any sales to its sub-contractors; all it does – and this fact has also been accepted by the respondents – is to pass on the monies received from DMRC to the sub-contractors, acting as a conduit. The question of turnover in the hands of petitioner would arise only if it indulges in sale of goods. The petitioner merely transfers the monies received from DMRC to the member-companies.

¶30Section 2(t) of the WC Act defines "turnover of sale" as meaning "the aggregate of the amount of sale price received or receivable by a dealer in respect of any transfer of property in goods involved in the execution of any works contract whether executed fully or partly during any period". Since the expression "turnover of sale" is defined in the WC Act, it is not permissible to look at the definition of "turnover" in Section 2(o) of the DST Act, because Section 16(1) of the WC Act does not incorporate the definition sections of the DST Act into the WC Act. It is not in dispute that the petitioner, who is a dealer registered under the WC Act has not received any amount of sale price from the sub-contractors in respect of any transfer of property in goods involved in the execution of any works contract, whether executed fully or partly during any period. On the contrary, the petitioner has transferred or paid monies to the sub-contractors. It did not deduct tax under Section 7(3) of the WC Act at the rate of 2% of the payment because the payment was not "for the transfer of property in goods (whether as goods or in some other form) involved in the execution, whether wholly or in part ……". The payment was merely by way of passing the monies received from DMRC to the sub-contractors. Moreover, the petitioner had obtained Form VI from the sub-contractors in terms of Rule 5(1)(b) of the Delhi Sales Tax on Works Contract Rules, 1999 and these forms were submitted to the respondents when the petitioner"s assessments were made. It was in these circumstances and by virtue of the relevant statutory provisions that the petitioner did not deduct tax.

¶31It is a highly debatable question whether the failure to deduct tax by the petitioner in accordance with Section 7(3) of the WC Act can amount to "turnover of sale" escaping assessment. Tax deducted at source is only a mode

of collecting the tax payable by the recipient of the money; the deductor of the tax acts as the agent of the Revenue. There is, therefore, no basis to reopen the assessment on the ground of the whole or part of the turnover having escaped assessment. The reason given for reopening the assessment does not establish any escapement of turnover. It only refers to the alleged failure on the part of the petitioner to deduct tax from the payments made to the sub-contractors. Even assuming for the sake of argument that there was such a failure, it does not amount to turnover escaping assessment in the petitioner"s hands. The reassessment notices appear to us to have been issued without any application of mind and without having regard to any of the statutory provisions. This becomes more pronounced if one looks at the cryptic manner in which the reassessment orders have been framed. Moreover, even the penalty which is to be imposed, if at all, is under Section 7(7) of the WC Act and that too after providing reasonable opportunity to the petitioner of being heard as envisaged under that section, but strangely it has been imposed in the reassessment orders. No reasonable opportunity was given to the petitioner of being heard nor was a separate order imposing the penalty passed. The petitioner filed the returns for the assessment years 2003-04 and 2004-05 and had also furnished Form-VI with all the relevant particulars showing the payment of tax by the sub-contractors. It seems to us that the respondent No.2 (VATO) chose to adopt a rather unusual procedure - to say the least-by imposing penalty in the reassessment order itself without bothering to go through the procedure envisaged by Section 7(7) of the Act, assuming that penalty proceedings could be lawfully initiated against the petitioner under that section.

¶32The reassessment orders passed on 11.5.2009 for both the assessment years are, therefore, without jurisdiction. The notices as well as the reassessment orders are accordingly quashed.

¶33The contention of the petitioner in WP(C) No.8620/2009 merits acceptance. Refunds were determined by orders passed by the respondents under Section 23(3) and/or Section 24 of the DST Act read with Section 16 of the WC Act for both the years. In these orders, the refunds due to the petitioner were determined and quantified. The petitioner had furnished the relevant forms which enable it to claim the refund of the tax deducted by DMRC. This is not controverted. It is also a matter of record that letters dated 31.3.2006 were sent by the respondents to DMRC for verification of the claim of the petitioner. It is not known whether there was any response from DMRC. It is, however, the case of the petitioner that no such verification was required at all since the Forms-IX were submitted to the respondents in the assessment proceedings. This is not denied by the respondents. There is nothing on record to show that DMRC denied having issued the Forms No.IX to the petitioner certifying to the deduction of tax at source. The respondents have not also found any irregularities or fault with the Forms No.VI filed by the petitioner, being declarations of the sub-contractors that they have paid the tax. The refund claims had also been made in the prescribed form by the petitioner on

13.1.2008. Despite all this and without finding any fault in the certificates or pointing out any lack of compliance on the part of the petitioner, the respondents have refused to grant the refund, for the only apparent reason that verification has to be done from DMRC. That verification has been pending since March, 2006 when letters were purportedly written by the respondents to

DMRC. Such circumstances, coupled with the fact that in May, 2009 steps were taken to reopen the assessments of the petitioner to raise demands of not only tax and interest but also of penalty, and that too without affording any hearing to the petitioner, make it clear that the conduct of the respondents in withholding the refund was unwarranted and contrary to law. A writ of mandamus is accordingly issued in terms of prayer (i). The refunds have been withheld for several years without any justification. The respondents are, therefore, directed to issue the refunds forthwith, and at any rate within four weeks from today with interest as applicable under the relevant provisions of the WC Act read with DST Act.

¶34In view of the foregoing discussion, all the writ petitions are allowed. The respondents to pay costs to the petitioner which we assess at `40,000/-

(R.V. EASWAR) JUDGE

(S. RAVINDRA BHAT) JUDGE

FEBRUARY 12, 2013 hs/shaloo/Bisht

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 13th December, 2012 % Date of Decision: 12th February, 2013 + W.P.(C) 8620/2009, C.M. APPL. 5744/2009 + W.P.(C) 10287/2009 + W.P.(C) 10311/2009 + W.P.(C) 10312/2009 M/S PERSYS PUNJ LLOYD JOINT VENTURE ..... Petitioner Through: Mr. Randhir Chawla and Ms. Renu Sahgal, Advocates. versus COMMISSIONER OF VAT & ORS. ..... Respondent Through: Mr. Vineet Bhatia, Advocate. CORAM: MR. JUSTICE S. RAVINDRA BHAT MR. JUSTICE R.V. EASWAR R.V. EASWAR, J.: 1. These are four writ petitions filed under article 226 of the Constitution of India by M/s. Persys Punj Lloyd Joint Venture of New Delhi, hereinafter referred to as "the petitioner". They arise from orders passed under the Delhi Sales Tax on Works Contracts Act, 1999 ("WC Act") read with Delhi Sales Act, 1975 ("DST Act"). Since all the petitions were heard together and three of them also involve common issues, they are disposed of by a single order for the sake of convenience. W.P. (C) No.8620/2009 2. This writ petition has been filed in the following circumstances. The petitioner is a joint venture consisting of two companies–Persys SDN BHD, a company incorporated in Malaysia and having a local project office in Delhi and Punj Lloyd Ltd., a company incorporated in India under the Companies Act, 1956. Both these companies are registered with the sales tax department of the Government of NCT of Delhi separately under the WC Act and the DST Act. The Malaysian company and the Indian company were separately awarded contracts by the Delhi Metro Rail Corporation (DMRC) for execution of certain works. The Malaysian company was awarded the contract for reinforced and pre-stressing steel, pre-cast concrete work for the superstructure and the Indian company was to execute the work in connection with the survey, temporary barricades, pile foundations, etc. Under a memorandum of understanding executed on 10.10.2003 these two companies came together as a joint venture. Under the MOU, each member of the joint venture had to raise its own independent bill for the work executed and the payment was to be received by the joint venture from DMRC to be distributed by the joint venture between its two members in terms of their separate bills. The petitioner, which is the joint venture, was also registered as a dealer under the WC Act w. e. f. 13.01.2013. 3. On 21.03.2005, an assessment was completed upon the petitioner under Section 16 of the WC Act read with Section 23(3) of the DST Act. The assessment order is brief and it would be better to reproduce the same: - "FORM OF ORDER OF ASSESSMENT UNDER SECTION 16 OF THE DELHI SALES TAX ON WORK CONTRACT, 1999 READ WITH 23(3) OF THE DELHI SALES TAX ACT, 1975 WARD-62 1. Name & Address of the dealer: M/s Persys Punj Lloyd Joint Venture 1/4 Sunder Vihar, New Delhi-87 2. Nature of business: Construction 3. Registration certificate No. WC/62/213000534/ 1003 4. Period of Assessment 2003-04 5. Section & Sub-section under which assessment made 16 r/w 23(3) ASSESSMENT ORDER The L&V has been fixed w.e.f. 22.10.73. The dealer deals in the above business. Returns have been filed in time except for 3rd and 4th qrs hence penalty of `1000/- is imposed. Sale figures differ and the same is allowed. In response to notice, Shri Rajneesh Goyal CA with POA appeared before me and filed trading account, sales summary, affidavit, audited balance sheet and details of payment. The dealer has filed 2 TDS certificate and the credit of the tax deposited is given after verification. Nothing adverse on record. The assessment is framed as under: GTO 293234912 Tax assd Labour & Service Tax/TDS paid 8697203 Sub-contract 293234912 Tax due 8507203 Taxable 4% Interest Taxable 8% Penalty 1000 Tax paid prucha Total 8506203 The dealer may apply for refund as per rules. Sd/- Senh Lata AA/W-62 Copy to dealer/ Audit AA/W-62 AA/W-62 6394 21.3.05" 4. Sections 5 and 7 of the WC Act are as follows: - "Section 5 - Levy of tax (1) Save as provided in sub-sect