The Delhi High Court on 7th April, quashed the impugned notices against the petitioner Samsung India Electronics Pvt Ltd, in which the monitors sold by the Company was charged 12.5% of tax by the Department under the DVAT Act. The Petitioner is engaged in the sale of electronic goods, home appliances, consumer durables and information technology products etc. It is a registered dealer under the DVAT Act and has been paying value added tax as well as filing return on monthly basis under the DVAT Act and corresponding Delhi Value Added Tax Rules, 2005 (‘DVAT Rules’). The Petitioner sells TFT/LCD/LED monitors also. Under Section 4(1)(b) of the DVAT Act in respect of the goods specified in the III Schedule, 5% tax is leviable on the taxable turnover of a dealer. Entry 41 of the Third Schedule covers IT products including computers, telephones and parts thereof, cellular phones and accessories, etc. Entry 41A deals with the IT products and covers IT products as described in column 2 as covered under the headings or sub-headings mentioned in column 3 of the Central Excise Tariff Act, 1985.
On the basis of the said determination under Section 84 of the DVAT Act, the Petitioner was subjected to audit proceedings for the period 1st April 2009 to 31st March 2011. In terms of the VAT Audit Team report dated 12th July 2008 for the period of the audit, the Petitioner was engaged in export, import, trading and stock transfer of various electronic goods, refrigerating goods, mobile phones and accessories. The audit report also did not find any discrepancy in the Petitioner’s business as well as its books of accounts.
On May 2014, the petitioner received a letter seeking certain documents/information. Reference was made to an earlier letter dated 11th February 2014 which according to the Petitioner it did not receive. That letter sought additional information from the Petitioner under Section 59 ofthe DVAT Act in respect of sales of LCD/LED/TFT monitors made during the financial year (‘FY’) 2009-10 and 2010-11. The letter sought information regarding sales made in respect of multipurpose/functional printers during 2009-10 and 2010-11. The letter, however, stated that in the event of non-compliance with the said directions, the sales of LCD/LED/TFT Monitors would be charged tax at the rate of 12.5%. Along with its reply dated 28th March 2014, the Petitioner enclosed details of its sales turnover of Monitors for 2009-10 and 2010-11.
In the impugned notice it was stated that the Petitioner had sold IT-related TFT/LCD/LED Monitors by charging VAT at 4% or 5% although the said item is not covered under the Third Schedule to the DVAT Act. Asserting that it has to be classified only under the residuary entry, the demand notice also made a reference to the determination order passed at the instance of NEC. The Petitioner was asked to make payment of the tax and arrears before 30th April 2014. On the same day, the VATO also issued the impugned penalty notices under Section 33 of the DVAT Act for the period April 2009 to March 2010. Pursuant to the receipt of the impugned notices, the Petitioner sent a letter dated 24th April 2014 to the VATO stating, inter alia, that no show cause notice was issued to them asking whyD/LED/TFT Monitors should not be treated as unclassified and charged VAT at 12.5%, that they were not confronted with the determination dated 8th July 2008 in the case of M/s. NEC India Pvt. Ltd. and therefore, the notice of default assessment and demand of tax, interest and penalty were in violation of the principles of natural justice. When no response was forthcoming, the Petitioner filed the present writ petition seeking the reliefs before the High Court of Delhi.
While considering the petition the Court quashed the impugned notices including the notices of default assessment of penalty for the following reasons. Firstly, the DT&T has not been able to persuade the Court that LCD/LED/TFT monitors sold by the Petitioner falls under the residuary clause. Secondly, the Department did not follow the requirements of section 32(1) of the DVAT Act before imposing penalty on the petitioners. And lastly, there were huge violation of natural justice principles.
Read the full text of the judgment here.
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