“Assessment Beyond Limitation Cannot Stand”: Andhra Pradesh High Court Quashes VAT Demand and Penalty, Directs Fresh Assessment Within Permissible Period
Sanchayita Lahkar
The High Court of Andhra Pradesh Division Bench of Justice R. Raghunandan Rao and Justice Dr. K. Manmadha Rao set aside a tax assessment and penalty order issued under the A.P. VAT Act, 2005. The court held that the assessment was made beyond the statutory limitation period and without proper verification of the petitioner’s eligibility under the composition scheme. It directed the Assessing Officer to undertake a fresh assessment restricted to the permissible tax period and only after considering all valid composition forms and affording the petitioner an opportunity to be heard.
The petitioner, a registered dealer under the Andhra Pradesh Value Added Tax Act, 2005, was engaged in the execution of works contracts exclusively for government departments. The petitioner had opted for tax payment under the composition scheme in accordance with Section 4(7)(b) and (d) of the A.P. VAT Act, by filing Form VAT 250 with the office of the Assistant Commissioner (Sales Tax), Anantapuramu Circle-I. The said option was endorsed by the first respondent.
The government departments, in their dealings with the petitioner, deducted tax at source (TDS) at a rate of 5% from the petitioner’s bills and remitted the same to the Commercial Tax Department. The petitioner submitted monthly VAT returns based on this deduction and did not make additional tax payments, asserting that the TDS sufficed to meet its liability.
Subsequently, on October 23, 2020, the first respondent issued a revised show-cause notice, pointing to discrepancies between the petitioner’s income tax returns for the financial year 2014–15 and the VAT returns filed for the same period. The notice proposed to treat the variance in turnover as suppressed turnover and sought to assess tax under Section 4(7)(b) and (d) of the Act, instead of under the composition scheme, citing the petitioner’s alleged failure to produce books of accounts and VAT records.
On March 31, 2021, the first respondent passed an assessment order for the years 2014–15 and 2015–16. The order levied tax at the standard rate of 14.5% on a turnover of ₹4,82,88,208, applying a standard deduction of 30% and directed the petitioner to pay ₹50,14,541 after adjusting the TDS amount already remitted.
Aggrieved by this assessment, the petitioner filed W.P.No.5303 of 2022. Subsequently, the first respondent issued an ex parte penalty order dated May 21, 2021, imposing a penalty equal to 100% of the tax assessed under Section 53(3) of the Act. This order was challenged through W.P.No.5350 of 2022.
The petitioner contended that the assessment and penalty orders were passed without consideration of the endorsed composition forms and were barred by limitation. It was further argued that the extended six-year limitation under Section 21(5) could only be invoked upon proof of willful evasion, which was absent in the present case.
Referring to Section 20(1) and 21(4) of the A.P. VAT Act, the petitioner submitted that VAT returns are required to be filed monthly, within 20 days of the succeeding month. Thus, for April 2014, the return would be due by May 20, 2014, making the final date for initiating an assessment under the extended six-year period May 20, 2020. Since the impugned assessment order was issued on March 31, 2021, the petitioner contended that it was beyond the permissible limitation period for the majority of the financial year 2014–15.
In addition, it was asserted that since a portion of the assessed period was barred by limitation, the entire order required to be set aside, and the matter remanded for a fresh assessment confined to the permissible period.
The petitioner also disputed the rejection of its composition scheme claims, stating that the Assessing Officer had failed to verify the relevant Form VAT 250 submissions that had already been endorsed by the respondent authority.
The court observed that “under Section 21(5) of the A.P VAT Act, 2005, the period of six years would be available from the date of filing of the returns”. It recorded that “returns for the month of April, 2014 would have to be filed by 20th May, 2014”, thereby fixing the final date for assessment of that return as “20.05.2020”. The court noted that “the assessment was carried out on 31.03.2021” and therefore held that “the assessment of tax up to February, 2015 is barred by limitation.”
The Bench further stated: “A conjoint reading of all the aforesaid provisions would mean that a best judgment order, of assessment, in the case of willful evasion of tax, by the dealer, would mean that the period of assessment, of six years, for every month would commence from the 20th day of the succeeding month, where returns have been filed in time.”
Referring to the statutory scheme, the court recorded: “As there is no dispute that the returns have been filed, by the petitioner, within the prescribed time, the limitation of every month would have to be taken into account.” It continued: “In such circumstances, the order of assessment, dated 31.03.2021, is beyond the period of limitation set out for the months of April to February of the financial year 2014-15.”
On the issue of whether the entire assessment order must be set aside, the court stated: “The fact remains that the period beyond limitation would have to be excluded and a fresh computation of the tax that would have paid would have to be undertaken.” The court noted that “it would be more appropriate that the entire order is set aside and the matter is remanded for a fresh assessment, by the Assessing Officer, for the period which is within limitation.”
The court also considered the issue regarding the application of the composition scheme and recorded: “the levy of tax @ 14.5%, without giving the benefit of the composition scheme, is impermissible as the Assessing Authority had not verified the forms of composition given by the petitioner and endorsed by the 1st respondent.”
Regarding the penalty order dated May 21, 2021, the court concluded: “The order of Penalty, dated 21.05.2021, is based upon the order, dated 31.03.2021. Once the order of assessment itself has been set side, the order of penalty would not survive.”
The High Court directed: “For all the aforesaid reasons, both the Writ Petitions are allowed set-aside the order of assessment, passed by the 1st respondent on 31.03.2021 as well as the order of penalty, passed by the 1st respondent on 21.05.2021.”
The Bench further stated: “However, it would be open to the 1st respondent to pass a fresh order of assessment against the petitioner, for the tax period March, 2015 to March, 2016, after giving due opportunity of hearing to the petitioner and after considering all the objections being raised by the petitioner.”
Additionally, the court clarified: “It would also be open to the 1st respondent-Assessing Officer to take up penalty proceedings, if the same is warranted, after an order of assessment had been passed.”
The Bench concluded: “There shall be no order as to costs. As a sequel, miscellaneous petitions, pending if any, shall stand closed.”
Advocates Representing the Parties
For the Petitioners: G. Narendra Chetty, Advocate
For the Respondents: Government Pleader for Commercial Tax
Case Title: M/s. Shirdi Saibaba Constructions v. The Assistant Commissioner (St) and Others
Neutral Citation: APHC010084912022
Case Number: W.P.Nos.5303 & 5350 of 2022
Bench: Justice R. Raghunandan Rao, Justice Dr. K. Manmadha Rao
[Read/Download order]
