By TIOL News Service

AHEMDABAD, MAY 10, 2018: THE issue at hand before the bench was whether where the assessee's declarations seeking benefit under a tax amnesty scheme are rejected, can such rejection be automatically followed by raising of duty demand against the applicant. NO is the answer.

Facts of the case

The assessee, a partnership firm in dealing in textile & other goods, also exported the same. On such exports, the assessee received benefits under the DEPB scheme. Since the accruued DEPB was freely transferable, the assessee would often sell such DEPB to importers of various goods. The assessee filed returns for the relevant AY. Before assessment was completed, the State Legislature inserted Section 41AA into the Act. Under the new provision, if an assessee paid additional tax & fulfiled other requirements, the tax declarations filed by such assessee would be accepted without scrutiny.

While assessments for the five relevant AYs were pending, the assessee claimed benefit u/s 41AA for them, and also submitted evidence of payment of additional tax. However, the AO did not pass a formal order either accepting or rejecting the declarations. The AO did not also proceed with the assessments for the five AYs. After about two years, the assessee was served an SCN raising duty demand with interest & imposition of penalty for the DEPB sales made during each of the five AYs. Later, the revisional authority noted that the despite the assessee's DEPB sales were under the Department's scanner, the assessee had yet made declaration u/s 41AA & obtained an order by misguiding the Department. It was also observed that pursuant to search of the assessee's premises, it was revealed that apart from selling clothes, the assessee also sold DEPB license on which no sales tax was paid. On this account, duty demand was raised with interest & imposition of penalty for each of the five AYs. The assessee's revision petitions against such orders were subsequently dismissed by the Tribunal. Hence the present appeal.

On hearing the writ, the High Court held that,

++ an analysis of section 41AA would show that the provision was in the nature of a general amnesty. The State Legislature having noted that despite efforts made for simplification of assessments there are large number of pending disputes which had clogged the system, introduced a one-time amnesty scheme. The scheme was peculiar on two counts viz., unlike the settlement schemes under the Income-tax Act, 1961 or the Customs or Central Excise Act, it is not an ongoing scheme and covered only the assessments which were pending and which related to AY 1999-2000 and earlier years. Thus, this was a one-time scheme. Secondly, unlike in case of other settlement proceedings in the above referred Acts, there was little element of examination of the declaration made by an assessee desirous of availing benefit of the scheme. Once the assessee applying for such a scheme fulfilled the eligibility conditions and paid the additional taxes, his assessment would be deemed to have been completed. The competent authority thereafter had no jurisdiction to question the declaration made by the assessee which would be in the realm of scrutiny assessment envisaged under subsection [3] of Section 41 of the Act. Quite apart from the plain language used in Section 41AA, for more emphasis, sub-section [1] of Section 41 was made notwithstanding anything contained in sub-sections [2] and [3] of Section 41AA. Further, even in the proviso granting benefit to one who availed the scheme, the Legislature has consciously provided that the same would be available irrespective of the fact whether notice under sub-section [3] of section 41 was issued or not. In other words, even if the scrutiny assessment under sub-section [3] of Section 41 had commenced, the dealer could make a declaration under Section 41AA and if fulfilled other conditions, the benefit flowing from such scheme would flow;

++ to be able to get the benefit of the said provision, a dealer had to satisfy two sets of conditions viz., [i] which is inbuilt in subsection (1) of Section 41AA which requires that the dealer had paid taxes due on the basis of declaration made in the return before the specified date; that such tax did not exceed Rs. 25,000/= and lastly that he paid additional amount of Rs. 1,000/=; if the tax paid was less than Rs. 15,000/= or paid Rs. 2,000/=, if such tax was in the range of Rs. 15,000/= to 25,000/=. The second set of conditions flows from sub-section [3] of Section 41AA and these are in the nature of disqualifications. These disqualifications are : [a] dealers whose books of account, registers, documents have been impounded or seized under section 59 of the Act, or [b] dealers who had availed tax exemption or tax deferment under any of the incentive schemes of the Government of Gujarat. As soon as these conditions – positive as well as negative are fulfilled – a dealer would be entitled to the benefits flowing from the said section. In fact, the section does not envisage any formal acceptance of a declaration by the competent authority. The deeming fiction would automatically and immediately kick in. This is not to suggest that even if a declaration itself is found to be wrong, erroneous or as per the declaration, a dealer is found wanting in any of the conditions, he can still claim benefit of the scheme merely because he had made a declaration. To this extent, the role of the authority certainly is envisaged, but not beyond. To suggest that even when a dealer makes declaration; even if such a dealer is otherwise eligible fulfilling all conditions of Section 41AA of the Act, such a declaration could be rejected, would be wholly incorrect;

++ the revisional authority has committed a serious error in exercising revisional powers. This court also agrees with the counsel for the assessee that even if the assessee's declarations under Section 41AA of the Act were to be rejected in exercise of such revisional powers, the revisional authority could not have assessed the assessee's tax liability. Either at the hands of the original authority or the revisional authority, if any such declaration is treated as invalid or in any other manner rejected, the natural consequence would be that the assessee's pending assessment would be completed in terms of Section 41 of the Act. Mere rejection of the declaration under Section 41AA of the Act would not result into automatic tax liability being confirmed against the assessee. In fact, the revisional authority proceeded in a summary manner and completed assessment at its own level by allowing a brief time and intervention to the assessee. The Tribunal proceeded on erroneous facts, and therefore, committed a legal error. Considering the Tribunal's factual conclusions which suggests that the Tribunal was under impression that the assessee's documents and books of account were seized prior to making declaration u/s 41AA of the Act – something even the Department had not contended. Had the Tribunal been correct in such factual conclusion, the legal conclusion of the Tribunal would be unexceptionable. The Tribunal in another case [ M/s. Devkrupa Industries v. State of Gujarat : Decided on 30th July 2008 ] where it is found that the disqualifications flowing from of Section 41AA [3] did not arise, held that the Department could not reject a dealer's declaration. Since the revisional authoritie and the Tribunal exceeded their jurisdiction, the Tribunal's orders are set aside.

(See 2018-TIOL-872-HC-AHM-VAT)