Bombay High Court
Industries Ltd vs The Joint Commissioner Of Sales Tax on 30 April, 2012
Author: D.Y.Chandrachud
Bench: D.Y. Chandrachud, R.D. Dhanuka
1
wp-347-2012
srk
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 347 OF 2012
M/s. Premium Paper and Board
Industries Ltd. ...Petitioner
Versus
The Joint Commissioner of Sales Tax,
Investigation-A & ors. ...Respondents
Mr.V. Sridharan, Senior Advocate with Mr.C.B.Thakar for petitioner.
Mr.Darius J. Khambatta, Advocate General with Mr.E.P. Bharucha,
Senior Advocate, Mr.D.A.Nalavade, Government Pleader, Mr.Vinay A.
Sonpal, A-Panel Counsel, Mr.B.B.Sharma, AGP, Ms.Naira Jejeebhoy and
Mr.S.E.Bharucha for respondents.
CORAM: DR.D.Y. CHANDRACHUD &
R.D.DHANUKA, JJ.
April 30, 2012.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD,J.)
1. In these proceedings under Article 226 of the Constitution, the petitioner has sought to question: (i) An order of provisional attachment dated 18 November 2011 in respect of certain bank accounts; (ii) In the ::: Downloaded on - 09/06/2013 18:29:12 ::: 2 wp-347-2012 alternative to restrict the attachment to the extent of Rs.1.81 Crores; (iii) An order striking down the provisions of Section 48(5) of the Maharashtra Value Added Tax Act, 2002 as unconstitutional; and (iv) A direction to the Commissioner of Sales Tax to hear an application filed by the petitioner against the order of provisional attachment.
2. The petitioner is a registered dealer under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and under the Central Sales Tax Act, 1956. It has been averred in the petition that the Assistant Commissioner of Sales Tax, Investigation-3 visited the place of business of the petitioner under Section 64 on 14 October 2011. According to the petitioner on the assumption that certain vendors of the petitioner viz. (i) Accurate Multi Media Pvt.Ltd.; (ii) Ashrita Trading Co.; and (iii) Yashita Trading Co.
have not filed returns or proper returns, the Sales Tax authorities considered that the petitioner has claimed wrong Input Tax Credit (Set off) under the MVAT Rules, 2005. On this basis, it is asserted that the First Respondent invoked the provisions of Section 35 and passed an order of provisional attachment on 18 November 2001 which came to be served on the bankers and debtors of the petitioner. The grievance is that the orders of provisional attachment were passed without furnishing an ::: Downloaded on - 09/06/2013 18:29:12 ::: 3 wp-347-2012 opportunity of a hearing. According to the petitioner since the amount in dispute is Rs.1.81 crores, the aggregate amount attached could not exceed that amount. The total receivable from the bankers and debtors of the petitioner was, however, claimed to be Rs.23.29 crores, and according to the petitioner the amount which has been attached is far in excess of the claim of the Sales Tax authorities.
3. Moreover, it has been submitted by the Petitioner that the basis of the liability is worked out on a proposed disallowance of set off in the amount of Rs.1.81 crores. The case of the petitioner is that under the MVAT Act and the Rules a purchasing dealer is entitled to a set off in respect of purchases effected from a registered dealer and supported by a tax invoice. The failure on part of the the vendor to file proper returns cannot, according to the petitioner, be a ground for effecting a disallowance of set off from the purchaser. If necessary, the Revenue authorities can it is urged, take necessary action to assess and recover dues from the concerned vendors. According to the petitioners, if the burden is cast upon a purchasing dealer for the failure by a vendor to file proper returns, the action would be unconstitutional. In this regard it is asserted that by enacting Section 48(5) the Legislature has placed the ::: Downloaded on - 09/06/2013 18:29:12 ::: 4 wp-347-2012 burden upon a purchasing dealer which is impossible of performance and is ultra vires. On this basis it has been asserted that the provisions of Section 48(5) are ultra vires Articles 14, 19(1)(g) and 300A of the Constitution.
4. An affidavit in reply has been filed in these proceedings by the Joint Commissioner of Sales Tax, Investigation-A. The reply notes that the petitioner who is a registered dealer filed its MVAT Returns for 2009-2010 and 2010-2011 and claimed Input Tax Credit / Set off on purchases claimed to have been effected from certain vendors against the tax liability on sales. An investigation was initiated at the behest of the Advisory Branch on an allegation that the transactions appeared to be with fictitious dealers. Records of certain vendors of the petitioner viz. (i) Accurate Multi Media Pvt.Ltd.; (ii) Ashrita Trading Co.; and (iii) Yashita Trading Co. were found to be fictitious and these vendors were found to be engaged in the activity of only issuing tax invoices without actual delivery of goods and passing on tax credit without paying it in the Government Treasury. The allegation is that Hawala transactions were thus carried out in order to defraud the Revenue. Based on investigation of the Hawala dealers by the Sales Tax Authorities, it was noticed that ::: Downloaded on - 09/06/2013 18:29:12 ::: 5 wp-347-2012 there was a mismatch in the Input Credit claimed by the petitioner and the tax deposited into the Government treasury by the bogus vendors in respect of the purchases claimed to have been made by the petitioner from them.
5. The affidavit in reply states that during the course of the visit Mitesh Gandhi, a Director of the petitioner gave a statement on 18 October 2011. The Director stated that he had placed oral orders against these purchases from his vendors. He was unable to state the names of the persons on whom the oral purchase orders were placed. By a further communication the petitioner's Director was given an opportunity to appear before the Investigation Officer and produce evidence including lorry receipts, transport receipts and other documents which may prove that he had actually received the goods which he claimed to have purchased from vendors. The Director however, neither attended the investigation process nor did he submit relevant evidence. The investigation also revealed that a person by the name Vishal Shah had induced the vendors to take registration under the Act. None of those persons were aware of the nature of the business or the quantum of the business. The affidavit in reply contains a detailed description of the ::: Downloaded on - 09/06/2013 18:29:12 ::: 6 wp-347-2012 vendors. Most of the vendors were found to be residing in hutments situated in slum areas. Several of them admitted in their statements that they had not carried on business relating to sales and purchases and that they had signed documents including invoices at the behest of Vishal Shah. The statement of Vishal Shah was also recorded during the course of investigation and he too stated that he did not possess any books of account of the alleged companies.
6. In these circumstances, it has been pointed out in the affidavit in reply that no one is claiming responsibility for the companies from whom the petitioner claims to have purchased the goods and claimed a set off.
The Directors of the vendors from whom the petitioner claimed to have purchased goods belong to the low income group. They are not aware of anything relating to the business of the companies. The affidavit sets out that the three vendors referred to earlier had taken registration in 2009-2010. In the very first year of the business the turn over of the three dealers was Rs.54.36 crores, Rs.27.41 crores and Rs.14.76 crores respectively. These facts have been relied upon to submit before the Court that the petitioner is alleged to have purchased goods and to have consequently claimed a set off though a genuine business of purchase and ::: Downloaded on - 09/06/2013 18:29:12 ::: 7 wp-347-2012 sales was not shown in any of the transactions. Based on the preliminary estimates during the course of investigation the liability of the petitioner together with interest has been estimated to be Rs.1.81 crores. A provisional attachment was levied under Section 35 which has since been restricted to an amount of Rs.1.81 crores. Following the initial order of provisional attachment, the petitioner moved an application before the Commissioner of Sales Tax. On that application an order has been passed on 12 April 2012 by which the attachment has been confirmed only to the extent of an amount of Rs.1.81 crores.
7. Section 48 of the MVAT Act, inter alia, deals with set off and refund. Section 48(5) stipulates as under:
"(5) For the removal of doubt it is hereby declared that, in no case the amount of set-off or refund on any purchase of goods shall exceed the amount of tax in respect of the same goods, actually paid, if any, under this Act or any earlier law, into the Government treasury except to the extent where purchase tax is payable by the claimant dealer on the purchase of the said goods effected by him:
Provided that, where tax levied or leviable under this Act or ::: Downloaded on - 09/06/2013 18:29:12 ::: 8 wp-347-2012 any earlier law is deferred or is deferrable under any Package Scheme of Incentives implemented by the State Government, then the tax shall be deemed to have been received in the Government Treasury for the purposes of this sub-section."
8. On behalf of the State Government it has been submitted in the affidavit in reply that the mere issuance of invoices or filing of returns does not constitute sales. For effecting actual sales, goods must move from the seller to the hands of the buyer. Tax has to be levied and collected by the selling dealer who should deposit this tax in the Government treasury. In other words, without a delivery of goods merely issuance of invoices and filing of returns and passing on credit of tax cannot result in the grant of a set off.
9. With the advent of the MVAT Act with effect from 1 April 2005 a single point levy of tax under the Bombay Sales Tax Act, 1959 was replaced by a multi point levy of tax under the MVAT Act, 2002. Under the MVAT Act tax is levied at every stage and a set off of taxes paid on purchases is granted. Under the VAT regime, selection of a case for audit is stated to be an exception and based on risk analysis and random ::: Downloaded on - 09/06/2013 18:29:12 ::: 9 wp-347-2012 sampling. For each dealer, the State Sales Tax authorities have introduced mandatory e-services such as e-returns, e-payment, e-
declaration and e-registration. At the end of every year dealers with a turn over of more than Rs.60 lakhs are required to get their accounts audited by a Chartered Accountant and to electronically upload an Audit Report in Form 704 along with sales and purchase details. From 2008-2009 onwards a cross verification of Input Tax Credit is done electronically by matching sales / purchase details of the dealers through the uploaded form 704 audit reports. In the event of an ITC mismatch report, an enquiry is initiated in which the dealer is given an opportunity to substantiate his ITC claim by producing documentary evidence. If it is found that the dealers or transactions were Hawala or non genuine, the Department initiates actions against dealers, beneficiaries and other parties involved in the illegal transactions. Where, however, the transactions and dealers are found to be genuine but a mismatch is due to cases of non filing or short filing of returns, the department initiates processes to recover taxes from the defaulting dealers / vendors. When such tax is recovered, the ITC claim of the dealer will be allowed to the extent of recovery. However, in no event is a set off or refund allowed in excess of the amount of tax actually paid to or received by the ::: Downloaded on - 09/06/2013 18:29:12 ::: 10 wp-347-2012 Government treasury as provided in Section 48(5).
10. Finally it has been pointed out in the affidavit in reply that after e-
filing was introduced from 2008-09, investigations have been carried out in a large number of cases and major Hawala operations consisting of 1009 Hawala operators and 35,000 beneficiary dealers have been unraveled by the Sales Tax Department.
11. We are not inclined to exercise our writ jurisdiction in the facts of the present case for more than one reason. Sub-section (1) of Section 35 provides that if during the course of inquiry in any proceedings including proceedings related to recovery of any amount due, in respect of any person or dealer or during any inspection or search in relation to the business of any person or dealer, the Commissioner is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, then he may attach provisionally by an order in writing any money due or which may become due to such person or dealer from any other person or any money which any other person holds or may subsequently hold for or on account of such person or dealer. The second proviso to sub-section (1) empowers the Commissioner to revoke such order, if the ::: Downloaded on - 09/06/2013 18:29:12 ::: 11 wp-347-2012 dealer furnishes a bank guarantee, in such time and for such period, as may be specified. Sub-section (2) provides that an order of provisional attachment would cease to have effect after the expiry of a period of one year from the date of service of the order under sub-section (1). The Commissioner is, however, empowered, for reasons to be recorded in writing, to extend the aforesaid period subject to an over all ceiling that the total period of extension shall not in any case exceed two years.
Section 35 contains an in-built provision of a remedy to the person against whom an order of provisional attachment is passed. By its very nature an order of provisional attachment cannot be passed after furnishing an opportunity of being heard. There may be an apprehension that if a hearing was to be afforded before ordering provisional attachment, the monies which are sought to be attached may be spirited away. The statute does not contemplate a hearing at that stage, for rational considerations. Sub-section (5) of Section 35 however, empowers the person or dealer to make an application to the Commissioner within fifteen days of the service of the order under sub-section (1). Upon such application being made, the Commissioner is required to afford a reasonable opportunity of being heard and thereafter to proceed to confirm, modify or cancel the order. Under sub-section (6) a substantive ::: Downloaded on - 09/06/2013 18:29:12 ::: 12 wp-347-2012 appeal is provided to the Tribunal against an order passed under sub-
section (5). Sufficient safeguards are provided.
12. In the present case the petitioner moved the Commissioner in an application under sub-section (5) of Section 35 which has resulted in an order dated 12 April 2012 restricting the attachment to an amount of Rs.
1.81 crores. As a matter of fact, that is exactly one of the reliefs which the petitioner had sought in these proceedings. The Court is informed that the petitioner is in the process of espousing the remedy of an appeal to the Tribunal under sub-section (6) of Section 35.
13. The material which has been placed on record in the affidavit in reply is prima facie sufficient to provide ample foundation for the action which has been adopted by the State Sales Tax authorities. At least, prima facie, it is evident from the affidavit in reply as well as the underlying materials which are annexed thereto, including statements which have been recorded during the course of investigation, that the selling vendors do not appear to be genuine parties. Almost immediately after registration, the alleged vendors have transacted business in large sums of Rs.54.36 crores, Rs.27.41 crores and Rs.14.76 crores. The material ::: Downloaded on - 09/06/2013 18:29:12 ::: 13 wp-347-2012 which has been revealed during the course of investigation suggests that the selling vendors are parties without any legitimate business or assets and have been set up only with a view to devise a scheme to defraud the Revenue. We clarify that we make these observations only prima facie, since the entire matter is still to be investigated following which a regular assessment would be framed. Nothing contained in this order would be regarded as the expression of a final or conclusive opinion by the Court on the issues which would arise during the course of assessment.
14. The challenge to the constitutional validity of any provisions of law cannot be entertained in a vacuum. If the entire basis of the claim of set off is found upon assessment to be bogus or fraudulent, the challenge to Section 48(5) cannot be entertained at the behest of the Petitioner, in that event. Therefore, before the issue of constitutional validity is considered, the basic facts would need to be established in the course of assessment proceedings. Learned Senior Counsel for the Petitioner has also not submitted that the assessee / dealer would be be entitled to a set off even if the underlying transaction of sale is bogus, fraudulent or sham. The issue as to whether the petitioner is disabled from a claim of set off under Section 48(5) is a matter which would be determined during the course of ::: Downloaded on - 09/06/2013 18:29:12 ::: 14 wp-347-2012 assessment proceedings and in appeal. To entertain a challenge at the present stage would, besides being premature, be wholly inappropriate, particularly having regard to the material which has been revealed thus far during the course of investigation. For these reasons we do not consider it appropriate or proper to exercise the extraordinary writ jurisdiction of this Court under Article 226 of the Constitution. The issue as to the validity of Section 48(5) is hence not adjudicated upon at this stage in the present case. The Petition shall accordingly stand dismissed.
There shall be no order as to costs.
(DR.D.Y. CHANDRACHUD,J.) (R.D.DHANUKA, J.) ::: Downloaded on - 09/06/2013 18:29:12 :::