Gujarat High Court
State Of Gujarat vs Welspun Gujarat Stahl Rohren ... on 4 April, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/560/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 560 of 2013
With
CIVIL APPLICATION NO. 14 of 2013
In
TAX APPEAL NO. 560 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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STATE OF GUJARAT....Appellant(s)
Versus
WELSPUN GUJARAT STAHL ROHREN LTD....Opponent(s)
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Appearance:
MR JAIMIN GANDHI, AGP for the Appellant(s) No. 1
MR B S SOPARKAR, ADVOCATE for the Opponent(s) No. 1
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O/TAXAP/560/2013 JUDGMENT
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 04/04/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Leave to amend.
2. The tax appeal is admitted for consideration of sole question proposed by the Government through the amendment which reads as under :
"Whether the tribunal has erred in facts and law in adjudicating the issue on merit despite the fact that the principal order under challenge was a notice under section 44 and not the assessment order?"
3. The appeal is taken for final hearing straightway at the request of learned counsel for the parties. The Government has challenged an order of the Value Added Tax Tribunal ("the Tribunal" for short) dated 30.4.2010.
4. Brief history is as follows :
4.1. The respondent company (hereinafter referred to as "the assessee") is engaged in the activities of manufacturing and exporting goods. For the said purpose, the respondent established two units which were covered by sales tax incentives declared by the Page 2 of 8 O/TAXAP/560/2013 JUDGMENT State Government. These units were for the purpose of manufacturing pipes and coating pipes respectively. The assessee was entitled to purchase goods from the registered dealer at a concessional rate of duty and on the sales made by the company, it could opt either for sales tax exemption or sales tax deferment incentives. 4.2. With respect to assessee's claim for refund of input tax credit related to exported goods, the department had a serious doubt. The authorities were of the opinion that the assessee had availed such benefits though not entitled to the tune of Rs.6,35,42,000/. Case of the assessee is that the assessee was exporting the goods manufactured. On the purchase of raw material used for manufacturing such export goods, the assessee could avail input tax credit. Relief of tax for export should not be adjusted towards value added tax incentive limit.
4.3. The Assistant Commissioner of Value Added Tax issued a notice under section 44 of the VAT Act on 25.5.2009 and called upon the petitioner to deposit with the Government a sum of Rs.6,35,42,000/ within three days.
4.4. The assessee challenged this order before the Commissioner. Before he could do so, under compulsion the amount had to be deposited with the Government.
On 13.11.2009, the Commissioner passed his order confirming the demand of tax. He upheld the stand of the department that export benefits had to be adjusted against the VAT exemption limit. Against such order of Deputy Commissioner, the assessee preferred Second Page 3 of 8 O/TAXAP/560/2013 JUDGMENT Appeal before the VAT tribunal. The tribunal passed the following order :
"1.Appeal is allowed. The order of both the lower authorities i.e. order dated 13.11.09 and also order of learned Assistant Commissioner dated 25.05.09 to curtail the incentive limit even by tax relating to purchases of goods used for the manufacture of goods exported outside the country and recovery of such amount in cash is bad and illegal and liable to be set aside.
2. In our view, it may be held that incentive limit cannot be curtailed by tax relating to purchase of goods used in the manufacture of goods exported outside the country. In view of the same the authority is directed to assess the case of the appellant accordingly."
4.5. While doing so, the tribunal examined various statutory provisions and the tax exemption scheme of the State Government and on merits came to the conclusion that the stand of the assessee was right and that remission incentive on the export of the goods could not be utilised for limiting the VAT incentive limit.
5. As noted, the Revenue has confined this appeal to the sole question of authority of the tribunal to examine such issue on merits when in effect what was under challenge before the tribunal was an order passed by the Assistant Commissioner under section 44 of the VAT Act. The State has described such order as notice under section 44.
6. It is undisputed position that before issuing recovery notice dated 25.5.2009 purportedly in exercise of powers under section 44 of the VAT Act, no assessment, adjudication or Page 4 of 8 O/TAXAP/560/2013 JUDGMENT final order quantifying the liability of the assessee was passed by the Assistant Commissioner. Thus notice for recovery dated 25.5.2009 was a unilateral exparte action on his part without any hearing or opportunity of hearing given to the assessee.
7. Section 45 of the VAT Act pertains to provisional attachment and authorises the Commissioner during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment, if he is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary to do so, attach provisionally any property belonging to the dealer in such a manner as may be prescribed.
Subsection(2) of section 45 provides that every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under subsection(1).
8. It can thus be seen that powers under section 45 are extraordinary measures to be taken for protecting the interest of the Government revenue when necessary requirements are satisfied. Even then the order that can be passed is one of provisional attachment and life of such attachment is limited to that provided in subsection(2).
9. On the other hand, section 44 of the VAT Act pertains to special mode of recovery. Subsection(1) there of reads as under :
Page 5 of 8O/TAXAP/560/2013 JUDGMENT "44. (1) Notwithstanding anything contained in any law or contract to the contrary, the Commissioner may, at any time or from time to time, by notice in writing, a copy of which shall be forwarded to the dealer at his last known address, require,
(a) any person from whom any amount of monies is due, or may become due, to a dealer on whom notice has been served under subsection (1),or
(b) any person who holds or may subsequently hold monies for or on account of such dealer, to pay to the Commissioner, either forthwith upon the monies becoming due or being held or within the time specified in the notice (but not before the monies becomes due or is held as aforesaid) so much of the monies as is sufficient to pay the amount due by the dealer in respect of the arrears of tax, penalty or interest under this Act, or the whole of the money when it is equal to or less than that amount.
Explanation. For the purposes of this subsection, the amount of monies due to a dealer from, or monies held for or on account of a dealer by any person, shall be calculated by the Commissioner after deducting therefrom such claims, if any, lawfully subsisting, as may have fallen due for payment by such dealer to such person."
10. Section 44 thus is only a mode of recovery and not the power of authority to pass any order deciding the liability of an assessee for payment of tax or any other monies due to the Government under the VAT Act. Such recovery therefore, necessarily shall have to be provided by such order as may be passed by the competent authority in terms of provisions of VAT Act. Only once the demand is quantified the question of recovering either through the special mode as provided in section 44 or through any Page 6 of 8 O/TAXAP/560/2013 JUDGMENT other mode under the Act would arise. In the present case, when admittedly no order of assessment or any other order of quantification of the assessee's liability was passed, straightway ordering recovery without any opportunity of hearing to the assessee was wholly not permissible.
11. In that view of the matter, tribunal's final conclusion that notice of recovery and the appellate order confirming such notice must be quashed, was perfectly in order.
12. We are however, in agreement with the suggestion of learned AGP that while doing so the tribunal could not have gone into the validity of merits and demerits of rival stands. Such a stage had not yet arisen. The tribunal therefore, committed an error in striking down the Government demand holding that the assessee was entitled to retain all export benefits without curtailment of VAT incentive limit. This is not to suggest that on merits we disagree with the view of the tribunal, This is only to suggest that the tribunal could have refrained from entering into such arena when the stage of doing so had not yet arrived.
13. To this limited extent, therefore, appeal of the Revenue would be allowed. The question is answered in favour of the appellant.
14. Resultantly, the appeal is disposed of with following directions :
1) With the final conclusion of VAT tribunal in the impugned judgement quashing the notice of recovery dated Page 7 of 8 O/TAXAP/560/2013 JUDGMENT 25.5.2009, there shall be not modification.
2) Resultantly, respondent assessee would be entitled to refund in accordance with law which was collected under coercion pending appeal.
3) The findings and observations of the tribunal on the stand of the assessee regarding retention of export benefits without curtailment of VAT incentive limit, would be nullified.
15. In view of order passed in Tax Appeal, civil application also stands disposed of.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 8 of 8