*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 7th December, 2012
+ W.P.(C) No.4236/2012
SALES TAX BAR ASSOCIATION (REGD.) ..... Petitioner
Through: Mrs. P.L. Bansal, Sr. Adv. with Mr.
Avadh Kaushik & Mr. Ruchir Bhatia,
Advs.
Versus
GOVT. OF NCT OF DELHI & ORS ..... Respondents
Through: Mr. Parag P. Tripathi, Sr. Adv. with
Ms. Avnish Ahlawat, Mr. Nitesh
Kumar Singh, Adv.
AND
+ W.P.(C) No.5711/2012
M/S LEGRAND INDIA PVT. LTD. & ORS. ..... Petitioners
Through: Mr. Bhagwati Prasad, Adv.
Versus
COMMISSIONER TRADE & TAXES & ANR. ..... Respondents
Through: Mr. Vineet Bhatia, Adv. for R-1.
AND
+ W.P.(C) No.10932/2009
S.D. ENTERPRISES ..... Petitioner
Through: Mr. Avadh Bihari Kaushik, Adv.
Versus
GOVT. OF NCT OF DELHI & ANR ..... Respondents
Through: Mr. Parag P. Tripathi, Sr. Adv. with
Ms. Avnish Ahlawat, Mr. Nitesh
Kumar Singh, Adv.
AND
+ W.P.(C) No.7030/2010
SUNRISE SPORTS (INDIA) PVT. LTD. ..... Petitioner
Through: Mr. Avadh Bihari Kaushik, Adv.
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 1 of 29
Versus
GOVT. OF NCT OF DELHI & ANR ..... Respondents
Through: Mr. Parag P. Tripathi, Sr. Adv. with
Ms. A vnish Ahlawat, Mr. Nitesh
Kumar Singh, Adv.
CORAM :-
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J
1. W.P.(C) No.10932/2009 and W.P.(C) No.7030/2010 were filed
impugning, (i) Sections 32 & 33 of Delhi Value Added Tax Act, 2004
(DVAT Act), in so far as enabling imposition of tax, interest or penalty
without adequate opportunity to the dealer / assessee, as ultra vires the basic
structure of the Constitution of India, and (ii) the demands of `63,803/- and
`2,49,58,334/- against the respective petitioners. Notices of the petitions
were issued. Though the petitions were also accompanied with applications
for interim relief but on the statement of the counsel for the respondent that
the petitioners could file objections under Section 74 of the Act before the
Objection Hearing Authority and that till the said objections are decided
there would be no recovery, the said applications were disposed of giving
liberty to the petitioners to avail the remedy of preferring objections.
Counter affidavit was filed in W.P.(C) No.10932/2009 to which rejoinder
was filed by the petitioner and Rule issued on 21st May, 2010. W.P.(C)
No.7030/2010 was also similarly admitted for hearing and listed along with
the earlier writ petition.
2. W.P.(C) No.4236/2012 was filed as a Public Interest Litigation
averring that thousands of registered dealers had in June, 2012 been served
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 2 of 29
with notices under Section 32 of default assessment of tax and interest and
of assessment of penalty under Section 33 on account of non-reconciliation
of details of purchase/sales furnished by them; that more than five thousand
notices/orders creating demand in crores of rupees had been issued under the
name of a single Value Added Tax Officer (VATO) on a single date
directing the dealers to pay huge amounts on account of tax, interest and
penalties and though the petitioner as well as Tax Payers Association had
made representation in this regard but without any avail. Relief, of quashing
of all such orders dated 21 st June, 2012 for the tax period April, 2012, is
claimed in the petition. The said petition came up first before the Court on
18th July, 2012 when on the statement of the counsel for the respondents that
the respondents had developed a software which facilitates carrying out
assessment at large scale, the matter was adjourned to enable a
demonstration to be given to the representatives of the petitioner
Association; a statement was also given by the counsel for the respondents
that no coercive steps shall be taken for recovery of the amount till the next
date of hearing. However the representatives of the petitioner were not
satisfied with the demonstration given to them and rather sought amendment
of the writ petition to take certain legal pleas and which was allowed. The
counsel for the respondents similarly stated that the option of availing of
objections under Section 74 was available to the noticees.
3. W.P.(C) No.5711/2012 has been filed by a dealer impugning the
amendment carried out in Section 74 of the Act vide Notification dated 28 th
September, 2011, introducing a provision for pre-deposit for the purpose of
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 3 of 29
entertainment of objections against the default assessment. Rule in the said
petition was also issued.
4. When W.P.(C) No.4236/2012 and W.P.(C) No.5711/2012 were listed
on 3rd October, 2012, it was informed that W.P.(C) No.10932/2009 and
W.P.(C) No.7030/2010 also entail similar issue and they were also
accordingly directed to be listed on 4th October, 2012 when the counsels
were heard.
5. It is apposite to set-out the provisions concerned, Sections 30 to 35
under Chapter VI titled "Assessment and Payment of Tax, Interest and
Penalties in Making Refunds" of the Act are as under:-
"30 Assessment of tax, interest or penalty
No claim may be made by the Commissioner for the payment by a
person of an amount of tax, interest or penalty or other amount in
the nature of tax, interest or penalty due under this Act except by
the making of an assessment for the amount.
31 Self assessment
(1) Where a return is furnished by a person as required under
section 26 or section 27 of this Act which contains the prescribed
information and complies with the requirements of this Act and the
rules
(a) the Commissioner is taken to have made, on the day
on which the return is furnished, an assessment of the tax payable
of the amount specified in the return;
(b) the return is deemed to be a notice of the assessment
and to be under the hand of the Commissioner; and
(c) the notice referred to in clause (b) is deemed to have
been served on the person on the day on which the Commissioner
is deemed to have made the assessment.
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 4 of 29
(2) No assessment shall arise under sub-section (1) of this
section, if the Commissioner has already made an assessment of
tax in respect of the same tax period under another section of this
Act.
32 Default assessment of tax payable
(1) If any person
(a) has not furnished returns required under this Act by the
prescribed date; or
(b) has furnished incomplete or incorrect returns; or
(c) has furnished a return which does not comply with the
requirements of this Act; or
(d) for any other reason the Commissioner is not satisfied with
the return furnished by a person;
the Commissioner may for reasons to be recorded in writing
assess or re-assess to the best of his judgment the amount of net
tax due for a tax period or more than one tax period by a single
order so long as all such tax periods are comprised in one year.
(1A) If, upon the information which has come into his
possession, the Commissioner is satisfied that any person who has
been liable to pay tax under this Act in respect of any period or
periods, has failed to get himself registered, the Commissioner
may for reasons to be recorded in writing, assess to the best of his
judgment the amount of net tax due for such tax period or tax
periods and all subsequent tax periods.
(2) Where the Commissioner has made an assessment
under this section, the Commissioner shall forthwith serve on that
person a notice of assessment of the amount of any additional tax
due for that tax period.
(3) Where the Commissioner has made an assessment
under this section and further tax is assessed as owed, the amount
of further tax assessed is due and payable on the same date as the
date on which the net tax for the tax period was due.
Explanation- A person may, if he disagrees with the notice
of assessment, file an objection under section 74 of this Act.
33 Assessment of penalty
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 5 of 29
(1) Where the Commissioner has reason to believe that a
liability to pay a penalty under this Act has arisen, the
Commissioner, after recording the reason in writing, shall make
and serve on the person a notice of assessment of the penalty that
is due under this Act.
(2) The amount of any penalty assessed under this section is due
and payable on the date on which the notice of assessment is
served by the Commissioner.
(3) Any assessment made under this section shall be without
prejudice to prosecution for any offence under this Act.
Explanation.- A person may, if he disagrees with the notice
of assessment, file an objection under section 74 of this Act.
34 Limitation on assessment and re-assessment
(1) No assessment or re-assessment under section 32 of this Act
shall be made by the Commissioner after the expiry of four years
from
(a) the date on which the person furnished a return under
section 26 or sub-section (1) of section 28 of this Act; or
(b) the date on which the Commissioner made an assessment of
tax for the tax period,
whichever is the earlier:
PROVIDED that where the Commissioner has reason to
believe that tax was not paid by reason of concealment, omission
or failure to disclose fully material particulars on the part of the
person, the said period shall stand extended to six years.
(2) Notwithstanding sub-section (1) of this section, the
Commissioner may make an assessment of tax within one year
after the date of any decision of the Appellate Tribunal or court
where the assessment is required to be made in consequence of, or
to give effect to, the decision of the Appellate Tribunal or court
which requires the re-assessment of the person.
35 Collection of assessed tax and penalties
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 6 of 29
(1) Subject to sub-sections (2) and (4) of this section, where an
amount of tax or penalty has been assessed under sections 32 or 33
of this Act, the Commissioner may not proceed to enforce payment
of the amount assessed until two months after the date of service of
the notice of assessment.
(2) Where a person has made an objection to an assessment or
part of an assessment in the manner provided in section 74 of this
Act, the Commissioner may not enforce the payment of any amount
in dispute under that assessment until the objection is resolved by
the Commissioner.
(3) Nothing in this section shall stay any proceedings by the
Commissioner or before a court for the recovery of
(a) any amounts due under this Act that are not the subject of a
dispute before the Commissioner; or
(b) any amounts due under this Act where the person has made
an appeal to the Appellate Tribunal.
(4) Notwithstanding sub-section (1) of this section, where an
amount of tax or penalty has been assessed by the Commissioner
and he is satisfied that there is a likelihood that it may not be
possible to recover the amount assessed if collection is delayed,
the Commissioner may specify a date in the notice of assessment as
the date on which collection of the amounts due and payable may
commence which is earlier than two months after the date of
service of the notice of assessment. "
Section 74, to the extent relevant, as it now stands under Chapter XII
of the Act titled "Objections, Appeals, Disputes and Questions", is as
under:-
"74 Objections
(1) Any person who is dis-satisfied with
(a) an assessment made under this Act (including an
assessment under section 33 of this Act); or
(b) any other order or decision made under this Act;
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 7 of 29
may make an objection against such assessment, or order or
decision, as the case may be, to the Commissioner;
PROVIDED that no objection may be made against a non-
appealable order as defined in section 79 of this Act:
PROVIDED FURTHER that no objection against an
assessment shall be entertained unless the amount of tax, interest
or penalty assessed that is not in dispute has been paid failing
which the objection shall be deemed to have not been filed:
PROVIDED ALSO that the Commissioner may, after giving
to the dealer an opportunity of being heard, may direct the dealer
to deposit an amount deemed reasonable, out of the amount under
dispute, before such objection is entertained.
PROVIDED ALSO that only one objection may be made by
the person against any assessment, decision or order.
PROVIDED ALSO that in the case of an objection to an
amended assessment, order, or decision, an objection may be made
only to the portion amended.
PROVIDED ALSO that no objection shall be made to the
Commissioner against an order made under section 84 or section
85 of this Act if the Commissioner has not delegated his power
under the said sections to other Value Added Tax authorities.
(2) A person who is aggrieved by the failure of the
Commissioner to reach a decision or issue any assessment or
order, or undertake any other procedure under this Act, within six
months after a request in writing was served by the person, may
make an objection against such failure.
(3) An objection shall be in writing in the prescribed form and
shall state fully and in detail the grounds upon which the objection
is made.
(4) The objection shall be made
(a) in the case of an objection made under sub-section (1) of
this section, within two months of the date of service of the
assessment, or order or decision, as the case may be,; or
(b) in the case of an objection made under sub-section (2) of
this section, no sooner than six months and no later than eight
months after the written request was served by the person:
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 8 of 29
PROVIDED that where the Commissioner is satisfied that
the person was prevented for sufficient cause from lodging the
objection within the time specified, he may accept an objection
within a further period of two months.
(5) The Commissioner shall conduct its proceedings by an
examination of the assessment, or order or decision, as the case
may be, the objection and any other document or information as
may be relevant:
PROVIDED that where the person aggrieved, requests a
hearing in person, the person shall be afforded an opportunity to
be heard in person.
(6) Where a person has requested a hearing under sub-section
(5) of this section and the person fails to attend the hearing at the
time and place stipulated, the Commissioner shall proceed and
determine the objection in the absence of the person.
(7) Within three months after the receipt of the objection, the
Commissioner shall either
(a) accept the objection in whole or in part and take
appropriate action to give effect to the acceptance (including the
remission of any penalty assessed either in whole or in part); or
(b) refuse the objection or the remainder of the objection, as the
case may be; and in either case, serve on the person objecting, a
notice in writing of the decision and the reasons for it, including a
statement of the evidence on which it is based:
PROVIDED that where the Commissioner within three
months of the making of the objection notifies the person in
writing, he may continue to consider the objection for a further
period of two months:
PROVIDED FURTHER that the person may, in writing,
request the Commissioner to delay considering the objection for a
period of up to three months for the proper preparation of its
position, in which case the period of the adjournment shall not be
counted towards the period by which the Commissioner shall
reach his decision."
6. Though the petitioners have in the petitions challenged the vires of
Sections 32 & 33 but during the course of hearing Ms. Prem Lata Bansal, Sr.
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 9 of 29
Advocate appearing for the Sales Tax Bar Association gave up the challenge
to the vires of the said provisions and confined the relief in these petitions to
a reading of Sections 32&33 in a manner so as to provide opportunity of
hearing to the assessee prior to pronouncement of the orders thereunder. The
counsels for the petitioners contend:-
a. that Sections 32&33 if literally read enable the assessment, not
only where the assessee is in default of filing the return but also
when the return though filed is incomplete or incorrect or does
not comply with any other requirements or if the VATO is not
satisfied therewith , without granting any opportunity of hearing
to the assessee and not only of tax but also penalties, to the best
of his judgment and to demand the same the procedure
prescribed therein is contrary to the principles of natural justice
and cannot be upheld/sustained. It is argued that five thousand
odd demands were raised merely because of non-reconciliation
of the accounts of the selling and the purchasing dealers even
though none of the assessees were in default and which
reconciliation had been effected on the assessees preferring
objections under Section 74 and pointing out the defects in
reconciliation reducing the demand raised from `265 crores to
`6.5 crores. It is argued that had the VATO, prior to the default
assessment and penalty assessment under Sections 32 & 33,
given opportunity of hearing/explanation to the assessees, the
explanation which was furnished during objections under
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 10 of 29
Section 74 would have been furnished and the huge demands
and penalties would not have been raised;
b. that the remedy of preferring objections against a demand under
Sections 32 and 33 is not available owing to the first proviso to
Section 74 (1) i.e. the same being not available against non-
appealable orders as defined in Section 79. It is contended that a
decision, making an assessment of tax or penalty, is not
appealable under Section 79(1)(a) of the Act;
c. that under Section 32 (1)(d), the VATO can exercise powers of
assessment and consequently under Section 33 the powers of
imposing penalties, even on the basis of any information in his
possession and without confronting the assessee therewith and
which is not permissible in law;
d. that under Section 32(3) and under Section 33(2), the tax and
penalty becomes due on the date of assessment without hearing
and subsequent opportunity of preferring objections, does not
cure the malady of assessment of tax and penalty being done
without opportunity of hearing;
e. that under the pari materia Section 147 of the Income Tax Act,
the material in possession of the Assessing Officer is required
to be confronted to the assessee;
f. that the aforesaid provisions providing for assessment of tax
and penalty without giving even an opportunity of hearing are
draconian in nature;
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 11 of 29
g. that opportunity though given of preferring objections is not
ipso facto but has to be asked for and thus not sufficient
substitute for an inherent right of hearing before any adverse
order;
h. it is contended that even the Department till now has been
understanding and interpreting Sections 32 and 33 as containing
an inbuilt right of opportunity of hearing to be given;
i. attention in this regard is invited to the Circular dated 30 th
April, 2007 of the Commissioner, VAT and it is contended that
such circulars are binding;
j. that VATO has in notices issued under Sections 32 and 33
demanded the tax and penalty so assessed within 15 days i.e.
much prior to the period of 2 months provided under Section
74(4)(a) for preferring objections, thereby taking away even the
right of the assessees to prefer objections;
k. that the assessment is being done every month when it is
permissible to assess for a full year also;
l. a post decisional hearing is generally with a closed mind;
m. that if the assessments under Sections 32 and 33 are done after
giving opportunity of hearing, the same will save litigation in
the form of objections;
n. that the large number of best judgment assessment orders,
which resulted in the filing of the petition, were owing to a
mismatch in dates of entry into the computer system of the
transactions by the seller and the buyer and which resulted in
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 12 of 29
the VATO assuming the claims of the assessees to be
unsubstantiated and which demands disappeared upon the
assessees satisfying the VATO of the reductions claimed being
properly matched and the mismatch in dates being responsible,
for the VATO forming an opinion of the returns filed by the
assessees being inaccurate. Attention is invited to the Circular
No.1 of 2007/2008 dated 14th May, 2007 enumerating the
Guidelines for framing and issuance of statutory orders/notices
under the Act and on the basis whereof it is contended that the
Department itself has experienced difficulties on account of
non-speaking orders passed by VATOs;
o. from the Order No.F.2(7)/DVAT/LSC/DOT & T/2006-
07/1658-1666 dated 22nd December, 2006 it is shown that there
is a difference between the Assessing Authority under Sections
32 and 33 and the Objection Hearing Authority under Section
74;
p. that under the erstwhile Delhi Sales Tax Act, 1975 two appeals
were provided i.e. the first one to the Prescribed Authority and
the second to the Tribunal; now the first appeal has been
substituted by objections aforesaid;
q. that the petitioners are not seeking to challenge the provisions
of the Act or the Rules but are seeking to ,,beautify them. With
reference to Section 36A (6) and (7) and Rule 59 it is contended
that the assessee is required to preserve the TDS Certificate for
seven years and thus cannot submit the same with the return; it
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 13 of 29
is shown that the assessee gets only one copy of the TDS
Certificate and thus cannot both, retain the certificate as well as
submit it along with return; it is shown that VATOs in some
cases have made the assessment only for the reason of the
original TDS certificate having not been submitted and
accordingly raised demand; had opportunity of hearing been
given, the assessee would have explained the position and a
wrong best judgment assessment would not have been made;
r. that while it is much easier for an assessee to represent against
the assessment, objections required to be filed are to be detailed
and to be filed in triplicate, increasing the paper work;
s. that Section 74 of the Act though gives nomenclature of
objections but the same is really an appeal and thus cannot be a
substitute for not giving hearing at the original level;
t. to buttress the contention that the proceedings under Section 74
are not an objection but an appeal, attention is invited to Rules
to urge that the evidence taken therein is called additional
evidence;
u. attention is invited to Section 59 empowering the VATO to call
for any information and it is contended that the same, in the
absence of any specific provision in Sections 32 and 33, can be
read therein as requiring a VATO to, before passing an order of
assessment or imposition of penalty, call for the information
from the assessee and it is contended that if the said procedure
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 14 of 29
were to be followed there would be no scope for any mistakes
in the orders under Sections 32 and 33;
v. under the other Statutes also opportunity of hearing is given;
w. that consequence of even a bad order under Sections 32 and 33,
is to put an assessee in the list of defaulters and defaulters are
unable to stand as surety under the Act;
x. that the Department, in 100% of the cases is invoking the third
proviso to Section 74(1) and requiring the objector to deposit
amounts which are not due, as a pre-condition for entertaining
the objections.
7. Reference is made to the VAT Acts of other States which are all
stated to be providing an opportunity of hearing before assessment.
Reference is also made to 7 th Edition of Blackss Law Dictionary defining
,,opportunity to be heard as a chance to appear in a Court or other Tribunal
and present evidence and argument before being deprived of a right by
Governmental Authority.
8. Reliance in this regard is placed on:-
(i). Commissioner of Income-Tax Vs. Kelvinator of India Ltd.
(2002) 256 ITR 1 (Delhi);
(ii). The Board of High School and Intermediate Education, U.P.
Vs. Kumari Chittra Srivastava AIR 1970 SC 1039;
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 15 of 29
(iii). H.L. Trehan Vs. Union of India AIR 1989 SC 568;
(iv). J.T. (India) Exports Vs. Union of India 94 (2001) DLT 301;
(v). C.B. Gautam Vs. Union of India (1993) 199 ITR 530 (SC);
(vi). Sahara India (Firm) Vs. Commissioner of Income Tax ,
Central-I (2008) 300 ITR 403 (SC);
(vii). Salem Steel Industries Vs. Union of India 2002 (141) ELT 12
(Mad.);
(viii). W.P.(C) No.2659/2012 titled Court on its own Motion Vs.
Commissioner of Income Tax decided on 31st August, 2012 of
this Court;
(ix). K.I. Shephard V. Union of India (1987) 4 SCC 431;
(x). Kesar Enterprises Ltd. Vs. State of Uttar Pradesh (2011) 13
SCC 733;
(xi). Assistant Commissioner, Commercial Tax Department, Works
Contract & Leasing, Kota Vs. M/s Shukla & Brothers (2010)
4 SCC 785;
(xii). A.K. Kraipak Vs. Union of India (1969) 2 SCC 262;
(xiii). Institute of Chartered Accountants of India Vs. L.K. Ratna
(1986) 4 SCC 537; and
(xiv). Raghunath Thakur Vs. State of Bihar (1989) 1 SCC 229.
9. Per contra, the senior counsel for the respondents has contended:
A. that the legislative scheme of assessment under the Act is of a
first stage comprising of self-assessment; a second stage, if the
Commissioner or his delegatee is satisfied with self-assessment,
of completion of assessment; the third stage of, if the
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 16 of 29
Commissioner or his delegatee is not satisfied with self
assessment, of passing of best judgment assessment and order
of penalty under Sections 32 and 33 and with which, if the
assessee agrees, again the assessment proceedings would stand
concluded; and, the fourth stage of, if the assessee disagrees
with the best judgment assessment, preferring objections.
B. that the proceedings under Section 74 are not equivalent to an
appeal.
C. attention is invited to Section 79 which uses the expression
appeal as well as objection which is contended to be indicative
of the two being different.
D. that the hearing under Section 74 is not a post decisional
hearing but a hearing in completion of the assessment.
E. that the third proviso to Section 74(1) was added to the Act as a
deterrent to preferring frivolous objections, merely to gain time.
It is controverted that the third proviso of Section 74 (1) is
being invoked in 100% of the cases.
F. that the assessment under Section 32 is in the nature of
provisional assessment.
G. that with computerized returns the tallying takes place minute
to minute, with the data being fed in regularly and the mistakes,
even if any, are corrected from time to time.
H. that the circulars aforesaid are not statutory, not issued by the
Authority empowered to issue the circulars and these are not
binding and are internal documents of the Department.
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 17 of 29
I. that the large number of orders which led to the filing of the
petition are only an instance of teething problems being faced at
the initial stages of implementation; that no steps for recovery
in pursuance thereto were taken and as the initial difficulties are
being solved, within a period of 15 days, the demand
thereunder of `265 crores stands reduced to `6.5 crores.
J. that the Department is open to changing the language of the
notices under Sections 32 and 33.
K. that it is only an order on the objections under Section 74 which
results in a final order.
L. that if hearing were to be given at the stage of Sections 32 and
33, the same would make the objections under Section 74
otiose; that legislature having chosen the model as enshrined in
the Act and when the same is not causing any prejudice to the
assessee, there is no reason to tinker therewith.
M. that the concept of ,,best judgment is necessarily of judgment
without hearing and the nomenclature of ,,best judgment itself
rules out any hearing.
N. alternatively, the reasons which Sections 32 and 33 required to
be given in support of the orders thereunder are a substitute for
hearing. Reliance in this regard is placed on paras 10 and 11 of
Haryana Warehousing Corporation Vs. Ram Avtar (1996) 2
SCC 98.
10. The counsels for the petitioners in rejoinder have contended that the
objections are not heard by the VATO but by a senior officer; that the
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 18 of 29
reasons cannot be a substitute for hearing. Reliance in this regard is placed
on C.B. Gautam case and on M/s Shukla & Brothers supra. They reiterate
that default assessments/penalty orders are issued in a mechanical way and
claim to have been issued with the prior approval of the Commissioner.
11. We have bestowed our consideration to the matter. Though lengthy
arguments have been heard but the gist of the issue is the need if any, to read
Sections 32 and 33 of the Act as requiring a hearing to be given prior to
assessment and imposition of penalty thereunder and raising of demand
thereof.
12. Though the argument of the counsels for the petitioners, of the
assessment and imposition of penalty under Sections 32 and 33 without
giving an opportunity of hearing to the assessee being contrary to the
principles of natural justice, appears attractive at the outset but when the
scheme of the legislation is studied, it is in fact not found so. The Act has
introduced a regime of self-assessment. All the ingredients of assessment are
available to the assessee himself and the return filed by the assessee on the
basis thereof, is, under Section 31 given the status of an assessment. The Act
thus deems an assessment at the hands of the assessee, even before the
Commissioner or his delegatee conferred with the powers of assessment,
have had an occasion to lay sight thereon.
13. Having provided so, Section 32 gives a similar opportunity to the
Assessing Officer. Just like the assessee, under Section 31 has been given a
unilateral power of assessment, the Assessing Officer also, under Section 32,
if dissatisfied therewith has been conferred the power of changing the said
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 19 of 29
assessment as per his best judgment. Undoubtedly no opportunity of hearing
is provided to be given to the assessee at this stage. However what we have
to remember at this stage is the words of Justice Krishna Iyer in Nawabkhan
Abbaskhan Vs. The State of Gujarat (1974)2SCC121, that not all violations
of natural justice knock down the order with nullity and that in Indian
Constitutional law, natural justice does not exist as an absolute jural value
but is humanistically read by courts into those great rights enshrined in Part
III as the quintessence of reasonableness.
14. The Constitution Bench of the Supreme Court, in Maneka Gandhi Vs.
Union of India (1978) 1 SCC 248 which is considered as the Bible on the
principles of natural justice, has held that what opportunity may be regarded
as reasonable would necessarily depend on the practical necessities of the
situation; it may be a sophisticated full-fledged hearing or it may be a
hearing which is very brief and minimal; it may be a hearing prior to the
decision or it may even be a post-decisional remedial hearing; the audi
alteram partem rule is sufficiently flexible to permit modifications and
variations to suit the exigencies of myriad kinds of situations which may
arise.
15. The juristic policy enacted with clarity in the DVAT Act is of
unilateral assessment first at the hands of the assessee and if the Assessing
Officer is not satisfied therewith, then at the hands of the Assessing Officer.
The Assessing Officer, of course while doing his unilateral assessment has
the benefit of the assessment done by the assessee as well as any other
material which may be available, and has to make the assessment to the best
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 20 of 29
of his judgment. Only if the assessee remains dissatisfied with such
unilateral assessment done by the Assessing Officer does the stage of
,,bilateral assessment in the form of objections under Section 74 comes into
play and which undoubtedly provides for an opportunity of hearing as is
being demanded by the petitioners.
16. The expression "to the best of his judgment" was in State of Kerala
Vs. C. Velukutty (1966) 60 ITR 239(SC) held as requiring the assessing
authority to not act dishonestly or vindictively or capriciously, because he
must exercise judgment in the matter. It is thus not as if VATO, while
exercising powers under Sections 32 or 33 is rudderless. He is required to
exercise judgment in the matter and assess what he honestly believes to be a
fair estimate of the proper figure of assessment, taking into consideration
local knowledge and repute and his own knowledge of previous returns and
assessments and all other matters which he thinks will assist him in arriving
at a fair and proper estimate. Guess work though held implicit in best
judgment, is required to be honest guess work. The limits of the power are
implicit in the expression "best of his judgment". It was held that a judgment
is a faculty to decide matters with wisdom truly and legally on settled and
invariable principles of justice. The same principles were reiterated in State
of Kerala Vs. K.T. Shaduli Yusuff (1977) 2 SCC 777.
17. What falls for consideration is, whether inspite of Section 74
providing for such an opportunity of hearing, can any fault be found with
Sections 32 and 33 in not providing such an opportunity.
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 21 of 29
18. Though the counsels for the petitioners have argued that the remedy
of objections is not available owing to Section 79 of the Act but in the face
of the express provision in the explanations to Sections 32 and 33 that a
person disagreeing with the notices of assessment thereunder may file an
objection under Section 74 of the Act, the said contention is clearly
erroneous and is not accepted.
19. The Supreme Court in Liberty Oil Mills Vs. Union of India (1984) 3
SCC 465 gave illustrations of situations where post-decisional hearing
subserves principles of natural justice. It was held that the rule of audi
alteram partem only requires that a man shall not be subject to final
judgment or to punishment without an opportunity of being heard. With
reference to orders of suspension without hearing, it was observed that
though it may involve hardship but hearing post-suspension suffices. Even
in Ajit Kumar Nag Vs. General Manager (PJ), Indian Oil Corporation
Ltd., Haldia (2005) 7 SCC 764 it was held that the principles of natural
justice are not rigid or immutable and hence they cannot be imprisoned in a
straitjacket - they must yield to and change with exigencies of situations -
they must be confined within their limits and cannot be allowed to run wild -
while interpreting legal provisions, a court of law cannot be unmindful of the
hard realities of life; the approach of the Court in dealing with such cases
should be pragmatic rather than pedantic, realistic rather than doctrinaire,
functional rather than formal and practical rather than precedential.
20. Prof. de Smith, the renowned author of "Judicial Review" (3rd
Edition), was in Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 22 of 29
quoted (with approval) as opining that statutory provision for an
administrative appeal or even full judicial review on merits are sufficient to
negative the existence of any implied duty to hear before the original
decision is made; that the said approach is acceptable where the original
decision does not cause serious detriment to the person affected. In the same
judgment, it was enunciated that where a statute does not, in terms, exclude
the rule of prior hearing but contemplates a post-decisional hearing
amounting to a full review of the original order on merits, then such a statute
would be construed as excluding the audi alteram partem rule at the pre-
decisional stage.
21. Though Sections 32(3) and 33(2) make the additional tax if any due
and penalty assessed thereunder payable immediately on such unilateral
assessment but Section 35(1) though uses the words "may not proceed to
enforce payment of the amount assessed" , clearly provides that the
recoveries of the said amounts are not to be made until two months after the
date of service of the notice of assessment. The second proviso to Section
74(1) requires an assessee preferring the objections to only pay the admitted
amount of tax and liability to be paid and not the tax and/or penalty qua
which objections have been preferred. Further, as aforesaid a time of two
months has been given for preferring the objections. Section 35(2) again
provides that where objections have been preferred, the demand under
Sections 32 and 33 may not be enforced until the objection is resolved. A
conjoint reading of the said provisions clearly shows that enforcement of the
demand under Sections 32 and 33 if made the subject matter of objection, is
dependent upon the outcome of the objections and till the objections are
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 23 of 29
decided, the disputed demand under Sections 32 and 33 is not to be
enforced. Though undoubtedly the third proviso to Section 74(1) has now
given a power to the Objection Hearing Authority to direct the disputed tax
or penalty or any part thereof also to be deposited but the very fact that the
second proviso as well as Section 35(2) have also been retained along
therewith on the statute book is indicative of the invocation of the third
proviso being only if the circumstances so demand and not in the usual
course. Moreover the order if any under the third proviso to Section 74 (1) is
to be after giving an opportunity of hearing to the dealer. The contention of
the petitioners that the third proviso to Section 74(1) is being invoked as a
matter of routine is not only without any specific pleading and particulars
but even otherwise does not constitute a ground for us to interfere with the
scheme once the legislative policy is plain and clear. Moreover a law has to
be adjudged for its constitutionality by the generality of cases it covers, not
by the freaks and exceptions it martyrs (Krishna Iyer,J in R.S. Joshi, Sales
Tax Officer, Gujarat Vs. Ajit Mills Ltd. (1977) 4 SCC 98).
22. In Haryana Financial Corporation Vs. Kailash Chandra Ahuja
(2008) 9 SCC 31, the test of prejudice was applied and it was held that if
there is no prejudice, an action cannot be set aside merely on the ground that
no hearing was afforded before taking a decision by the authority.
23. To our mind the scheme aforesaid of the Act does not cause any
prejudice whatsoever to the assessee. Inspite of our repeated calling, the
counsels for the petitioners failed to substantiate the prejudice if any which
the assessees suffer in having the opportunity if any required of hearing, at
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 24 of 29
the stage of objections and not at the stage of assessment under Sections 32
& 33. Though the argument, of the assessee if not complies with demands
under Sections 32 and 33 acquiring the status of a defaulter was raised in
response thereto, but the counsels were unable to support it with any
provision of law. On the contrary a reading of Section 74(1) and Section 35
clearly shows that the liability for payment of the disputed demand under a
best judgment assessment under Sections 32 & 33 arises only on the
conclusion of objections and which as aforesaid is after the decision on
objections and not prior thereto. That being the position, the question of the
assessee, during the pendency of objections having the status of a defaulter
and thereby suffering any disability does not arise.
24. Even if the hearing, at the stage of objections, is to be treated as a post
decisional hearing, we fail to see any effect on the efficacy thereof. Though
post decisional hearing was, as aforesaid, held to be not sufficient or
effective, being held with a closed mind, after a decision has already been
taken but those observations came to be made in the context of a post
decisional hearing in the exercise of administrative powers. Here, the
scheme of the statute itself is first allowing a unilateral assessment by the
assessee, thereafter a unilateral assessment by the Assessing Officer and
thereafter providing for a bilateral assessment after opportunity of hearing.
With such a statutory scheme, it cannot be said that the post decisional
hearing will be farcical or a sham. Moreover such hearing is in exercise of
quasi judicial power and is subject to an appeal to the Tribunal. Further, it is
the contention of the counsels for the petitioners themselves, that the
Assessing Authority and the Objection Hearing Authority are different. It
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 25 of 29
thus cannot be said that the same officer would shy away from admitting
mistakes and thereby reducing the hearing to a farce.
25. In Union of India Vs. Col. J.N. Sinha (1970) 2 SCC 458, the
Supreme Court held that if a statutory provision either specifically or by
necessary implication excludes the application of any or all the principles of
natural justice, then the Court cannot ignore the mandate of the legislature or
the statutory authority and read into the concerned provision the principles
of natural justice and that rules of natural justice can operate only in areas
not covered by any law validly made and they do not supplant the law but
supplement it. To the same effect is Madan Lal Agarwala Vs. The State of
West Bengal (1975) 3 SCC 198.
26. The House of Lords also in Pearlberg Vs. Varty (Inspector of Taxes)
[1972] 1 W.L.R. 534 held that before the Courts exercise unusual power of
supplementing the procedure laid down in legislation, it must be clear that
the statutory procedure is insufficient to achieve justice and that to require
additional steps would not frustrate the apparent purpose of the legislation.
It was further held that one should not start by assuming that what
Parliament has done in the lengthy process of legislation is unfair and that
one should rather assume that what has been done is fair, until the contrary is
shown. It was yet further held that where the person affected can be heard at
a later stage and can then put forward all the objections he could have
preferred if he had been heard on the making of the assessment, it by no
means follows that he suffers an injustice in not being heard on the making
of the order. Fairness was held to be not requiring plurality of hearings and it
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 26 of 29
was observed that if there were too much elaboration of procedural
safeguards, nothing would be done simply, quickly and cheaply.
27. Recently in Smt. Rasila S. Mehta Vs. Custodian, Nariman Bhavan,
Mumbai (2011) 6 SCC 220 also the Supreme Court held that the fact that a
statute does not provide for a pre-decisional hearing is not contrary to the
rules of natural justice because the decision does not ipso facto takes away
any right and the post-decisional hearing satisfies the principles of natural
justice.
28. We are however unable to concur with the contention of the senior
counsel for the respondents that the assessment at the stage of Sections 32
and 33 is provisional or an inchoate and/or an incomplete assessment subject
to completion at the stage of Section 74. We had during the hearing enquired
from the senior counsel for the respondents that how can the tax be said to
be due or recoverable if the assessment under Sections 32 and 33 was
incomplete or provisional. It was enquired whether a demand could be raised
without the assessment being complete. No satisfactory reply was possible;
on the contrary we find that Section 30 prohibits any claim for payment by a
person of any amount of tax, interest or penalty except by making an
assessment for the amount. If the argument of the respondents of the
assessment under Sections 32 and 33 being provisional or incomplete were
to be accepted, then the demand of the assessment and penalty thereunder
would be in contravention of Section 30. We therefore do not accept the said
contention and hold the assessment of tax and penalty under Sections 32 and
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 27 of 29
33 to be complete. Merely because an assessment is subject to objections or
appeal does not make it any less complete.
29. We are of the opinion that the legislature has, by the scheme aforesaid
merely fixed the date on which the tax falls due. If the assessment of the tax
were to await hearings, the date of assessment and hence the date on which
the tax can be said to fall due may be unduly deferred. The purpose of
introducing the regime of self-assessment appears to be to fix the
responsibility of assessing the tax on the assessee and even if in subsequent
hearings the self-assessment by the assessee turns out to be wrong and
erroneous leading to further tax being found due from the assessee, the same
would relate back to the date on which the assess ought to have done the
self-assessment and paid tax correctly.
30. As far as the argument regarding circulars is concerned, we find that
the circular pertains to the Objection Hearing Authority. Though the Circular
dated 30th April, 2007 indeed pertains to VATO but we agree with the
contention of the senior counsel for the respondents that the same is not
statutory and cannot change the statute, to incorporate in Sections 32 and 33,
a provision for hearing which is excluded therefrom. Executive instructions
cannot run contrary to statutory provisions or whittle down their effect (State
of Madhya Pradesh Vs. G.S Dall & Flour Mills 1992 Supp. (1) SCC 150).
Such instructions which have no statutory force, do not give rise to any legal
right in favour of the aggrieved party and cannot be enforced in a Court of
law against the administration (The Chief Commercial Manager, South
Central Railway Vs. G. Ratnam (2007) 8 SCC 212). This was recently
W.P.(C) No.4236/2012, 5711/2012, 10932/2009 &.7030/2010 Page 28 of 29
reiterated in The Joint Action Committee of Airlines Pilots Associations of
India Vs. The Director General of Civil Aviation (2011) 5 SCC 435.
31. The fact that the post decisional hearing in the present case is not with
a closed mind is apparent from the contention of the petitioners themselves
that the demand of `265 crores already stands reduced to `6.5 crores and
may be still further reduced on completion of objections hearing.
32. Once the legislative scheme is not found to be in contravention of the
Constitution of India or as causing any prejudice to the assessees, this Court
will not interfere therewith merely because the practioners in the field of
VAT find themselves reluctant to change to the new law or because it
introduces a new scheme. We therefore do not find any merit in these
petitions and dismiss the same.
No costs.
RAJIV SAHAI ENDLAW, J
CHIEF JUSTICE
DECEMBER 7, 2012
pp/gsr
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