H.G. International v. The Commissioner of Trade and Taxes, Delhi

2. This is a batch of VAT appeals which have been filed by the Appellants challenging the various assessment orders which have been upheld at different stages.

3. The facts giving rise to the appeals are that, default assessment orders were issued to the Appellants by the concerned assessing authority for their respective periods of assessment. The said assessment orders determined the tax and interest under Section 32 of the Delhi Value Added Tax Act, 2004 (hereinafter, ‘DVAT Act’) as under:

Period of assessment Date of Order Demand Raised (Tax + Interest + Penalty) Ward No. of territorial jurisdiction Assessment framed by

1. ST.APPL 63/2014 H.G. Internatio nal 2nd, 3rd and 4th Quarter of 2008 15.03.2010 15.03.2010 30.03.2010 Rs. 20,29,877/- Rs. 22,01,632/- Rs. 50,39,960/- Ward-17 The Assessing Officer at the time of March-2010: Mr. Sham Chand, VATO (Ward 17) AVATO (Audit) Mr. Subhash Chander

2. VAT APPL. 30/2022 M/s Cardio Fitness India Pvt. Ltd. F.Y. 2008-09 Nov., 2008 Dec., 2008 Jan., 2009 March, 2009 October, 2009 September, 2009 April, 2010 13/21.12.2010 Rs. 8,87,198/- Rs. 4,11,888/- Rs. 3,13,436/- Rs. 7,28,355/- Rs. 1,15.663/- Rs. 4,38,708/- Rs. 3,15,159/- Ward-95 Shri D.S. Verma, VATO (Audit, VAT)

3. VAT APPL. 36/2022 M/s Super stationers 4th quarter of 2012-13 05.07.2013 Rs. 11,53,211/- Ward-64 AVATO, Enforcement Branch 1

4. VAT Ward-63 VATO, APPL. 39/2022 Meghaaar -ika Internatio nal Pvt Ltd November 2011-12 27.04.2012 Rs. 7,80,409/- Ward-207 Special Cell

5. VAT APPL. 06/2022 R.K. Overseas 2nd quarter 2009-10, October, 2009 November, 2009 December, 2009 January, 2010 February, 2010 March 2010 19.05.2011 (07 Orders) Rs. 98,56,094/- Rs. 32,99,407/- Rs. 32,99,407/- Rs. 36,19,083/- Rs. 98,607/- Rs. 20,13,271/- Rs. 27,82,692/- Ward-41 The Assessing Officer at the time of March 2010: Mr. Naresh Pal, VATO (WARD 41) AVATO (Audit) Mr. Subhash Chander

6. VAT APPL. 13/2023 Unique Collection India Pvt Ltd 2010-11(Feb); 2010-11(March) 2011-12(April); 2011-2012(May) 2011-12(Jun); 2011-2012(July) 28.12.2011 Rs. 51,647/- Rs. 80,792/- Rs. 3,61,704/- Rs. 2,79,422/- Rs.37,50,254/- Rs.11,92,550/- Ward-90 VATO,

7. VAT APPL. 44/2023 Gem Sanitary Appliances Pvt Ltd. AY 2008-09 First Quarter Second Quarter Third Quarter March 2009 Fourth Quarter AY 2008-09 First Quarter Second Quarter Third Quarter Fourth Quarter 13/20.9.2011 Demands under DVAT Act- Rs. 1,78,847/- Rs. 63,454/- Rs. 62,555/- Rs. 34,656/- Rs. 31,674/- Demands under Central Sales Act- Rs. 15,74,922/- Rs. 95,550/- Rs. 5,43,661/- Rs. 6,43,084/- Ward-66 Sh. Manoj Kr. Sharma VATO (AUDIT) Sh. Ram Avtar Meena

8. VAT APPL. 9/2023 Indus Valley Trading(P) Ltd. November 2011 20.03.2012 Rs. 11,80,806/- Ward-45 VATO, Ward-207

4. The said assessment orders were issued by VATO (Audit). The Appellants/assessees were registered dealers of different wards. In addition to the demands raised, the claims of ITC were also disallowed in the assessment orders. The demands in each of these appeals is as under:

5. Pursuant to such orders, objections were filed by the Appellants/assessees. The said objections were rejected by the Objection Hearing Authority (hereinafter, ‘OHA’) vide the respective orders wherein the OHA upheld the demand of tax and interest raised upon the Appellants by the assessing authorities.

6. Thereafter, the orders passed by the OHA were challenged by the Appellants before the Appellate Tribunal, Value Added Tax, New Delhi and the Appellate Tribunal upheld the assessment orders issued by the assessing authorities, thus rejecting the appeals filed by the Appellants.

7. The said orders passed by the Appellate Tribunal, Value Added Tax, New Delhi stand impugned in the present batch of appeals filed under Section 81 of the DVAT Act.

8. Vide Order dated 4th August, 2016 the Court had framed the following question of law in ST.APPL. 63/2014[1] for its consideration: “Whether the VATO(Audit) can pass an assessment Order in terms of the Delhi Value Added Tax Act, 2004?”

9. This question of law was decided by the Court on 16th August, 2017, wherein the Court analysed the scheme of the DVAT Act and observed that the VATO(Audit) could, in fact, pass assessment orders. The Court was thus of the view that the order of default assessment of tax, interest and H.G. International v. The Commissioner of Trade & Taxes, Delhi penalty issued by the VATO (Audit) were validly issued and were within his powers and jurisdiction in terms of Section 58 (1) read with Section 58 (4), and Section 66 read with Section 68 of the DVAT Act. Accordingly, the Court observed as under:

10. Thereafter, a review application was filed by the Appellants, challenging the said order dated 16th August, 2017. The said application was dismissed on 11th October, 2017.

11. Further to the dismissal of the review application, the orders dated 16th August, 2017 and 11th October, 2017 were challenged before the Supreme Court in SLP (C) Nos. 34094-34095/2017 wherein vide Order dated 27th September, 2019, the Supreme Court had observed as under: “Learned senior counsel for the appellant has drawn our attention to the orders passed on 18th February, 2016 and 4th August, 2016 in ST Appeal No. 63/2014 to contend that apart from the question of law which has been decided by the impugned order, the other questions of law which the appellant sought to raise in the appeal have not been framed as question of law and consequently not answered. The submission is that the order would show that the question of law answered was only an additional question of law. In fact he seeks remit to the High Court to take a view whether the other questions of law raised are required to be framed or not and if so, frame those questions of Law. On hearing learned counsel for the parties the aforesaid contention of the learned counsel for the petitioner has merit and thus we remit the matter back to the High Court for consideration as to whether the question of law originally pleaded in ST Appeal 63/2014 actually arises for consideration or not and if the High Court considers it appropriate to frame so, to take a view on the same. Insofar as the question of law in the present case is concerned, as to whether that Audit Officer can also pass an assessment order or not, we consider it appropriate to list for hearing. List for the aforesaid purpose on 21st January, 2020 on top of the Board.”

12. Thereafter on 28th January, 2020, the Supreme Court finally remitted the entire matter for consideration of this Court in the following terms: “The matter was listed as item No.1 but passed over as non-appeared for respondent-Department. The position was not different on the second call when the matter was called out at 12.45P.M. We thus proceeded to hear learned Senior Counsel for the appellant. Learned counsel for the appellant seeks to contend that the Officer who carries out an audit should not be the officer who passes an assessment order and in that respect a number of judgments have been delivered by the Division Bench of the Delhi High Court which unfortunately were not brought to the notice of the Bench while passing the impugned order. He also refers to the Circular dated 11.04.2016 issued by the respondent-Department which reads as under: "DEPARTMENT OF TRADE AND TAXES GOVT.

OF NCT OF DELHI, LAW & JUSTICE BRANCH VYAPAR BHAWAN, IP ESTATE, NEW DELHI F.No. 7(6)/L&J/Circular/2016/373 11.04.2016 CIRCULAR Sub- Guidelines for VAT Authorities of Department of Trade Taxes in terms of jurisdiction and duties assigned exercise of powers under Chapter X of the DVAT Act, 2004. In compliance of judgment in the matter of M/s Capri BathaidPvt. Ltd. & Others, in WPC No.8913/2014, all officers appointed. as VAT Authorities in the Department of Trade & Taxes and exercising powers under Chapter X of DVAT Act, 2004 are once again directed to follow the following instructions in letter and spirit. All officers while exercising any of the powers under Chapter X of the Act viz., Audit, Survey/Inspection or Stopping & Detention of Goods Vehicles shall prepare reports based on the information & records in their possession and duly examined by them. Whereafter the reports along with the information & records shall be mandatorily forwarded, to the concerned Ward/Branch officer having jurisdiction over the dealer for assessment of tax and penalty, in accordance with the laid down procedure. Non-compliance of the above instructions shall be viewed seriously and shall attract disciplinary action. (S.S. Yadav) Commissioner (VAT)" Thus his submission is that the Circular itself settles the Issue. In the absence of assistance from the respondentdepartment and taking into account the aforesaid pleas, as also the fact that in terms of the order dated 27.09.2019, we had remitted the matter back, to the High Court except on the question whether the Audit Officer can also pass an assessment order or not, we deem it appropriate to remit this issue also to the High Court. It is stated that the matter is to be listed on 21.5.2020 in the High Court. The appeals are accordingly disposed of.”

13. After the above two orders dated 27th September, 2019 and 28th January, 2020 were passed by the Supreme Court and the matter was remitted to this Court, the questions of law were again framed in these appeals[2] vide order dated 19th July, 2023 in the following terms:

14. In VAT APPL. 6/2022[3], the following further question of law has also been framed vide order dated 20th July, 2023: “(a) Whether the Value Added Tax Officer[VATO](Audit) while conducting an assessment under the DVAT could have questioned or re-opened the assessment with respect to central sales? (b) Whether the VATO (Audit) Officer could be recognised to have the jurisdiction to undertake an assessment under Sections 32 and 33 of the Delhi Value Added Tax Act, 2004[DVAT]? S.T. APPL. 63/2014, VAT APPL. 30.2022, VAT APPL. 36/2022, VAT APPL. 39/2022 & VAT APPL. 9/2023 RK OVERSEAS V. COMMISSIONER OF TRADE & TAXES & ORS.

(c) Whether the VATO(Audit) Officer stood denuded of the authority to undertake an assessment in the absence of due authorization as contemplated in terms of Form DVAT-50?

(d) Whether Input Tax Credit [ITC] as claimed by the appellant could have been denied solely on the grounds as noticed in Section 9(2)(g) of the DVAT bearing in mind the judgement of the Court in Quest Merchandising India Pvt. Ltd. vs. Government of NCT of Delhi & Ors. [2017:DHC:6328-DB]? (e) Whether the impugned order as well as the assessment is liable to be set aside even otherwise in light of the provisions contained in Section 74(9)of the DVAT?”

15. In VAT APPL. 13/2023[4], the following further questions of law have also been framed vide order dated 28th July, 2023:

UNIQUE COLLECTION INDIA PVT. LTD.

V. COMMISSIONER OF TRADE & TAXES, DELHI

16. In VAT APPL. 44/2023[5], the following further questions of law have also been framed vide order dated 21st January, 2024: “a)Whether the VATO (Audit)/VATO empowered under the DVAT Act to pass an assessment order? b) Whether the absence of authority being conferred on the VATO (Audit)/VATO (Enforcement)/VATO (Special Cell) officer in terms of Form DVAT-50 would render that authority bereft of the power to assess/audit?”

17. Questions B and C in paragraph 13 are common in all appeals. On the said two questions of law, the court has heard the ld. Counsels for the parties.

18. Mr. Varun Nischal, ld. counsel for the Appellants has firstly submitted that some facts are not in dispute i.e. that the jurisdictional VATO in ST.APPL. 63/2014 was VATO Ward 176. However, the assessment was made by VATO (Audit)7.The dates of the assessment are 15th March, 2010 and 30th March, 2010 for the fourth quarter in the said appeal. Similarly the jurisdictional VATO in each of the cases is not in dispute. It is also not disputed that the VATO (Audit) had drawn the assessments in all these cases. The said VATO (Audit) was not the jurisdictional VATO.

19. The first submission on behalf of the Appellants is that the question of law which arises for consideration now stands conclusively decided in view of the decision in Capri Bathaid Pvt. Ltd. and Ors. v Commissioner of Trade and Taxes 2016:DHC:1789-DB. In the said case, vide judgement dated 2nd March, 2016, the Coordinate Bench of this Court had analysed the GEM SANITARY APPLIANCES PVT. LTD.

V. THE COMMISSIONER, VAT Mr. Shyam Chand Mr. Subhash Chander scheme of the DVAT Act i.e. Section 60, 66 and 68 and Rule 65 of the DVAT Rules and had come to the following conclusions:

(3) (b) of the DVAT Rules to produce the authorisation in Form DVAT -50, if requested by the owner or occupier of any premises where he proposes to exercise these powers.”

34. It requires to be noticed that Section 68 (2) of DVAT Act talks of delegation of the CVAT's powers under Chapter X. Section 68 (3) talks of the powers to supervise, review and rectify any decision made or taken by the VAT Authority to whom such powers have been delegated. The explanation to Section 68 (3) makes it clear that the exercise of such power of “supervision, review or rectification will not lead to the issue of an assessment or reassessment after the expiry of the time referred to in Section 34 of this Act.”

20. Thereafter, in the said case, the Court had also observed that the delegation order dated 12th November, 2013 which is relevant to the facts in the said case, clearly stipulated that “the officers would exercise powers and perform duties within their respective jurisdiction”. Relevant portion of the said judgement are set out below:

of dealers not within their jurisdiction. That apart, there can be an overlapping of the exercise of jurisdiction by different officers that can result in undue harassment of the dealer and administrative chaos.

28. In this light, in Commissioner of Sales Tax, UP v. Sarju Prasad Ram Kumar 1976 (37) STC 533 (SC), an order of assessment passed by the Assistant Sales Tax Officer (ASTO), Sector II, Lucknow was challenged as being without jurisdiction on the ground that only the ASTO, Sector III could exercise jurisdiction over the Assessee’s circle. The Supreme Court held that since it was not shown that the ASTO, Sector II, had also been conferred with jurisdiction to assess the dealers in Sector III by the Commissioner, the only possible conclusion was that the ASTO, Sector II, had no jurisdiction to assess the dealers in Sector III.”

21. Thus, after analysing the said delegation order dated 12th November, 2013, the Coordinate Bench concluded as under:

22. In addition, in so far as the power of conduct of audit is concerned, reliance is placed by the Appellants on the fact that a Form DVAT-50 has to be issued by the commissioner authorizing the concerned officer under Chapter X of the DVAT Act, failing which even the audit as also the other powers under Chapter X cannot be exercised or carried out.

23. It is further submitted that the said DVAT-50 was not issued for a very long time as is admitted by the Commissioner, VAT in the decision in Larsen & Toubro Ltd. &Anr. v. Govt. of NCT of Delhi& Ors. (W.P.(C) 1820-1822/2013). In the said case, on the basis of Capri Bathaid Pvt. Ltd. (supra), the Court took on record the affidavit of the Commissioner (VAT) where he had categorically deposed that the authorization under Form DVAT-50 was issued only vide order dated 15th October, 2014 and not before.

24. Thus, as per the Appellants a combined reading of Capri Bathaid Pvt. Ltd. (supra)and Larsen & Toubro Ltd. (supra) leaves no doubt that on both grounds i.e. the lack of delegation and the non-issuance of Form DVAT-50, the initial audit as also the assessment were untenable.

25. Mr. Gopalkrishnan, ld. Counsel, on the other hand has made his submission to the effect that the jurisdictional objection ought to have been raised by the Appellant at the first stage itself, i.e. when the objections to the assessment order were raised. In fact, it is his submission that the same has not been raised at all, either before the assessing officer or before the appellate tribunal. Thus, such an objection cannot be permitted to be raised at the stage of second appeal.

26. He further submits that the transfer and posting orders of various VATOs and AVATOs would show that they were exercising powers interchangeably and there was no specific delineation of powers which the VAT office was following at that time. In addition, it is submitted that the VATO(Audit) or the VATO, who was doing the assessment is not a quorum non judice.

27. Mr. Gopalkrishnan, ld. Counsel further emphasises that there is a distinction between erroneous assumption of power and complete lack of jurisdiction. In these cases, at best it could be an erroneous assumption, or an irregularity, and the same does not constitute a lack of jurisdiction.

28. Reliance is also placed upon Section 80 of the DVAT Act to argue that even if there has been some irregularity in assessment proceedings, the same are protected under the said provision. Section 80 of the DVAT Act reads as under:

merely on the ground that the action could also have been taken by any other authority under any other provisions of this Act.”

29. Mr. Gopalakrishnan, ld counsel for the Respondent also submits that in so far as Form DVAT-50 is concerned, the delegation of power exists under Section 68(2) of the DVAT Act, read with Section 65 of the DVAT Rules. Once the said power to delegate exists with the commissioner, any officer whom the Commissioner may authorize would be entitled to exercise jurisdiction under Chapter X of the DVAT Act. To such effect, Form DVAT-50 is merely to be produced at the time of audit investigation and enforcement and not for carrying out the assessment.

30. The court has heard the ld. counsels for the parties and has considered the submissions made, along with the judgments relied upon.

31. The decision in Capri Bathaid Pvt. Ltd. (supra) was, unfortunately, not brought to the notice of the Court when the order dated 16th August, 2017 was passed in this matter, though, there is a commonality of one of the members in the Bench.

32. The judgment in Capri Bathaid Pvt. Ltd. (supra) has, in fact, resulted in the issuance of circular dated 11th April, 2016 by the VAT Department, which has been captured in the order of the Supreme Court dated 28th January, 2020, as extracted above.

33. Thus, in so far as the rationale in Capri Bathaid Pvt. Ltd. (supra) is concerned, the decision has been accepted by the VAT Department and the necessary Circular has been issued by the concerned commissioner.

34. With respect to the decision in Larsen & Toubro Ltd. (supra), an affidavit on behalf of Mr. S.S. Yadav, Commissioner, Value Added Tax (CVAT)was also filed, which has been recorded in order dated 15th March, 2016, wherein the Commissioner has admitted to the position that Form DVAT-50 was not issued prior to 15th October, 2014. The relevant part of the judgment is set out below:

created.

(iv) Although the powers under Section 60 stood delegated to various VAT officers, the deployment order were issued as there were multiple officers in these teams. The stated objective of issuing the order was better coordination, supervision and monitoring of entire operation.

(v) The approval of the Commissioner VAT was not obtained in any file before the survey of M/s L&T Limited as the powers of the Commissioner under Section 60 stood delegated to the officers upto the level of Value Added Tax officers of the department vide order dated 31.10.2005.

(vi) The authority to exercise powers under chapter X of DVAT Act, 2004 in the prescribed form i.e. Form DVAT 50 was not issued. In fact such authorization were not being issued in any case. The matter was discussed in a meeting chaired by the Commissioner on 23.9.2014 and the authorization was issued subsequently vide order dated 15.10.2014."

(vi) The authority to exercise powers under chapter X of DVAT Act, 2004 in the prescribed form i.e. Form DVAT 50 was not issued. In fact such authorization were not being issued in any case. The matter was discussed in a meeting chaired by the Commissioner on 23.9.2014 and the authorization was issued subsequently vide order dated 15.10.2014.”

35. A conjoint reading of Capri Bathaid Pvt. Ltd. (supra) and Larsen & Toubro Ltd. (supra), as also the circular dated 11th April, 2016 and the report dated 10th March, 2016 leads to the following conclusions:

(i) That prior to 11th

April, 2016, no specific authorizations were given to VATO officers, who were conducting Audit, Survey & Inspection etc. for also closing assessments of other Jurisdictional officers.

(ii) In addition, no Form DVAT – 50 authorization was given prior to 15th

36. The assessment orders in these appeals, however, are prior to these two dates i.e. 11th April, 2016 and 15th October, 2014. In fact, on the basis of the decisions in Capri Bathaid Pvt. Ltd. (supra) and Larsen & Toubro Ltd. (supra), the Coordinate Bench of this Court has quashed the assessments by VATO (Audit), for lack of jurisdiction. The said decisions are extracted below:

“I. ITD-ITD CEM JV v. COMMISSIONER OF TRADE & TAXES (W.P. (C) 6335/ 2014) “In this writ petition, the petitioner challenges the impugned Audit Report and default notices of assessment of tax, interest and penalty issued under Sections 58, 32 and 33 of the Delhi Value Added Tax Act, 2004 (in short 'the Act'), respectively, by the VATO on 16.7.2014 for the year 2010- 11. The grounds of challenge are that the Audit Officer lacks power to complete the assessment proceedings. A direction to quash them is sought. Essentially, the writ petitioner/assessee contends that there was no authorisation on behalf of the respondent State, permitting the VATO for conducting the audit under Section 58 of the Act. It is also contended that the Audit Officer was not competent to complete the assessment. We find that this issue is squarely covered by a decision of this Court in Capri BathaidPvt. Ltd. and Ors. v. Commissioner of Trade and Taxes 2016 (155) DRJ 526 (DB). In the circumstances, this position has not been fairly disputed on behalf of the respondent/department. The writ petition deserves to be allowed; the impugned order dated 16.07.2014 as well as the order of the VATO demanding VAT, interest and penalty are hereby quashed. The writ petition is allowed in the above terms.”

JMD DIGITAL ART XCHANGE PVT. LTD.

V.

COMMISSIONER OF TRADE & TAXES (W.P.(C) 9408/2014) “In this writ petition, the order of 09.12.2014 made by the Special Commissioner as well as the default notices of assessment of VAT, interest and penalty, issued on 21.05.2014 are being questioned. A direction to quash them is sought. Essentially, the writ petitioner/assessee contends that there was no authorisation on behalf of the respondent State, permitting the VATO for conduct of audit under Section 58 of the DVAT Act, 2004. It is also contended that the auditing officer was not competent to complete the assessment. We find that this issue is squarely covered by a decision of this Court in Capri Bathaid Pvt. Ltd. and Ors. v. Commissioner of Trade and Taxes 2016 (155) DRJ 526 (DB). In the circumstances, this position has not been fairly disputed on behalf of the respondent/department. In the circumstances, the writ petition is allowed; the impugned order dated 09.12.2014 as well as the order of the VATO dated 21.05.2014 for VAT, interest and penalty are hereby quashed. The writ petition is allowed to the above limited extent.”

37. Thus, in the overall facts and circumstances of these cases, when the VAT (Audit) officer, not being the jurisdictional officer concerned and also not having the necessary delegation to carry out assessments, the assessments orders in this batch of appeals would not be valid.

38. Secondly, Form DVAT-50 was not issued prior to 15th October, 2014 and therefore, the audit itself, wherever carried out, would also be without jurisdiction.

39. This Court is also bound by the various decisions of the Coordinate Benches of this Court, which are referred to above. In addition, ld. counsel for the Appellant has categorically submitted that Capri Bathaid Pvt. Ltd. (supra) and Larsen & Toubro Ltd. (supra), as also ITD-ITD CEM JV (supra) and JMD Digital Art Xchange Pvt. Ltd.(supra), have all been accepted by the VAT Department and there has been no challenge to the said decisions.

40. As noted above, the Supreme Court has remitted the matter back for reconsideration of the entire issue vide order dated 28th January, 2020. Under these circumstances, after having heard the counsels for the parties and having perused all the judgments, the assessment orders in this batch of appeals deserve to be quashed. Ordered accordingly.

41. In view of the fact that the assessment orders are quashed on the basis of two questions of law framed vide order dated 19th July, 2023 extracted above i.e. Question (B) and (C), the other questions of law i.e. Question (A) and (D) need not be gone into, as the assessments themselves are being quashed.

42. The present appeals stand disposed of in said terms. Pending applications, if any, are also disposed of.

PRATHIBA M. SINGH JUDGE SHAIL JAIN JUDGE NOVEMBER 12, 2025/pt/ss