2. Classification of turnover — S. 28 :
This Section operates very harshly and practically the
benefit of litigating the matter for long gets vanished. In other words, the
Section seems to give premium on the inefficiency of the officers.
The working of this Section can be seen with an example. Suppose a dealer is assessed under the VATAct for certain turnover. The dealer litigates the matter and claims that the said turnover cannot be liable to tax under VAT.The Appellate authority including the High Court and the Supreme Court may accept the contention and may hold that the turnover is not liable under the VAT Act. Now at this juncture the Department can assess such turnover under any other relevant Act. For example, if turnover is to be assessed under the CST Act the Department can assess the dealer under the CST Act within 5 years from date of such appeal order. The above assessment will be without restriction of limitation provisions. For example, even after 30 years, the order under other Act can be passed, irrespective of the fact that the limitation to pass or modify the order under such other Act is already over.
The Section is to operate when the Appellate authority decides that the turnover should have been taxed under other Act, than the one under which it has been actually assessed. If appeal is under VAT Act it is difficult to anticipate how any Appellate authority will be able to make order relating to other Act. The Appellate authority may be able to say that the turnover is wrongly held liable under the VAT Act. However, if it directs to assess the turnover under some other Act like the CST Act, it will perhaps be without jurisdiction. Also if corresponding provisions under other Act are not in confirmity with the provisions of above S. 28, then the limitation as per such other Act should remain applicable. Though the intention of the Section is to cover the turnover under some other relevant Act, because of above requirement of order from the Appellate authority, etc., in our opinion, practically the section will have limited application.
3. Adjustment of payment:
One more silent penal provision is about adjustment of payment. Under the erstwhile BST Act the law was that any payment made towards dues as per any order was first to be adjusted against tax dues and balance towards interest, penalties, etc. Now the law is changed and a provision similar to ‘pathani vyaj’ is created. S. 40 reads as under:
“40. Adjustment of any payment :- Any payment made by a dealer or person in respect of any period towards any amount due as per any order passed under the Act shall first be adjusted, ex-cept insofar as the recovery of the said amount or part thereof is stayed U Iss.(6) of S. 26, against the interest payable by him on the date of payment in respect of the said period and thereafter towards the amounts due as a penalty, sum for-feited and fine. Any amount remaining unadjusted shall then be adjusted towards the tax payable in respect of that period.”
As per this Section any payment against dues created by any order, will first be adjusted towards interest, then penalties and the balance, if any, towards tax. Thus the person will run the post-order interest till he pays out entire amount of the order. It seems the Government’s thinking is now more on the commercial basis rather than a fiscal statute to collect tax. Such treatment deserves strong objection. It is necessary that the law is amended at the earliest to save dealers from such humiliating provisions.
4. Set-off – S. 48(5) :
This Section relates to set-off. The Section reads as under:
“48. Set-off, refund, etc. :
(1)–
(2)–
(3)–
(4)–
(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 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. “
Though the intention of this Section is to protect the revenue loss, the same will hit innocent purchasing dealers very gravely. Though the purchasing dealer might have paid tax to his vendor, the failure of the vendor to discharge his liability to Government will disentitle the purchasing dealer from claiming set-off. This will happen without any defence or protection to the purchasing dealer.
In normal course, the purchasing dealer will claim set-off in the period in which he has affected the purchases. But the set-off so claimed will get disallowed if the Sales Tax Department proves that the vendor has not paid the tax on his sale of goods. What we fail to appreciate is that the Government has all the machinery to collect the money from defaulter. The Government can utilise its powers, including prosecution, etc. to recover the tax from that defaulting dealer who has sold the goods, issued tax invoice, collected tax, but has not depos-ited the same into the Government Treasury. However without performing its duty, just on very prima facie case of non-payment of tax by the vendor, if set-off is disallowed to purchasing dealer, then it will cause great injustice to the purchasing dealer. For inefficiency of the Department the purchasingdealer will have to suffer. It may be noted here that there is no machinery available to the purchasing dealer to check whether the vendor has made payment of his taxes or not. Thus the Section operates without any defence in the hands of the purchasing dealer. Under VAT,every dealer will be claiming set-off of taxes paid on his purchases and even one single weak link in the chain may disentitle set-off to every succeeding purchasing dealer.
5. Agreements to be void – S. 57:
This is one more mischievous Section under the VAT Act. The Section reads as under:
“57. Agreement to defeat the intention and application of the Act to be void: (1) If the Commissioner is satisfied that an arrangement has been entered into between two or more persons or dealers to defeat the application or purposes of this Act or any provision of this Act, then the Commissioner may by order declare the arrangement to be null and void as regards the application and purposes of this Act. He may, by the said order, provide for increase or decrease in the amount of tax payable by any person or dealer who is affected by the arrangement whether or not such dealer or person is a party to the arrangement, in such manner as the Commissioner considers appropriate so as to counteract any tax advantage obtained by that dealer from or under the arrangement.
(2) For the purposes of this Section,
(i) ‘arrangement’ includes any contract, agreement, plan or understanding, whether enforceable in law or not, and all steps and transactions by which the arrangement is sought to be carried into effect;
(i) ‘tax advantage’ includes,-
(a) any reduction in the liability of any dealer to pay tax,
(b) any increase in the entitlement of any dealer to claim set-off or refund,
(c) any reduction in the sale price or purchase price receivable or payable by any dealer.
(3) Before passing any order under this Section, the Commissioner shall afford a reasonable opportunity of being heard to any such person or dealer whose tax advantage is sought to be counteracted.”
It means now the Department has unrestricted powers to go beyond the agreements and to declare them void.
Although, the practical implications of this Section are yet to be seen, however, there are fears that Departmental officers may interfere in the normal sale/purchase transactions and in spite of the fact that the dealer has charged correct price as per his policy, the officer may take action to enhance the same by substituting the said price, using above powers. The Section does not speak of any proof before initiating action under this Section. It only speaks of reasonable opportunity of hearing. So even on mere suspicion an officer may give hearing and after such empty formality, pass an order enhancing the tax liability. The Section should have been with burden of providing contrary proof by the Department before initiating the provisions of this Section.
6. Assessment proceedings, etc. not to be invalid on certain grounds – S. 62 :
This is one more Section safeguarding the inefficiency of Department. The Section reads as under:
“62. Assessment proceedings, etc., not to be invalid on certain grounds:
(1) No assessment (including review, appeal, rectification, penalty and forfeiture, notice, summons or other proceedings furnished, made or issued or taken or purported to have been furnished, made or issued or taken in pursu-ance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such assessment, notice, sum-mons or other proceedings, if such assess-ment, notice, summons or other proceedings are, in substance and effect in conformity with or according to the intent, purposes and re-quirements of this Act.
(2) The service of any notice, order or communication shall not be called in question, if the said notice, order or communication, as the case may be, has already been acted upon by the dealer or person to whom it is issued or which service has not been called in question at or in the earlier proceedings commenced, continued or finalised pursuant to such notice, order or communication.
(3) No order, including an order of assessment, review, appeal or rectification, penalty or for-feiture passed under the provisions of this Act shall be invalid merely on the ground that the action could also have been taken by any other authority under any other provisions of this Act.”
The text of the Section is sufficient to draw a conclusion that no responsibility is kept on the officer. He may take action in any way or serve notice the way he likes, no invalidity in order will take place. Up till today, any such deficiency is considered as nullifying the resultant order and there are number of judgments on this count. A reference can be made to judgment in the cases of CIT v. Bhushan Mallick, (55 CTR 73) (Cal.) and Kiran Oil Mills (S.A. 508 of 95 & 537 of 97 dated 31-5-2003), wherein defect in notice is considered as sufficient to declare the or-der as invalid. Similar is the position in respect of service of notice, especially when it is the case of revision, reassessment, etc. Reference can be made to the judgments in case of Prakash Electronics (S.A. 642 & 643 of 1995, dated 12-6-1998) and Zakaria Karim & Brothers (S.A. 68 of 1997, dated 9-10-1998).
However all this has been set at naught. This Section may be misused and in case of genuine injustice also, the dealer will not be able to come out of the clutches of this Section.
Above few provisions are illustrative of how penal provisions have been silently enacted without mentioning them as penal provisions.
