IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH VATAP No.78 of 2008 Date of Decision: July 21, 2009 Bharat Petroleum Corporation Ltd., Patiala .... Appellant Versus State of Punjab & another .... Respondents CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE JASWANT SINGH Present: Mr. K.L. Goyal, Senior Advocate, with Mr. Sandeep Goyal, Advocate, for the appellant. Ms. Sudeepti Sharma, DAG Punjab, for the respondents. 1. To be referred to the Reporter or not? Yes 2. Whether the judgment should be reported in the Digest? M.M. KUMAR, J. The Bharat Petroleum Corporation Ltd., has filed instant two appeals (VATAP Nos. 78 & 79 of 2008) in respect of assessment years 2001-02 and 2000-01 under Section 68(2) of the Punjab Value Added Tax Act, 2005 (for brevity, 'VAT Act'). In VATAP No.78 of 2008 both the appeals, challenge is to the common order dated 14.3.2008 (Annexure A-4) passed by the learned VAT Tribunal (for brevity 'the Tribunal'). Therefore, the appeals are being disposed of by this common judgment. 2. Brief facts of the case are that the appellant- Corporation is engaged in the business of petroleum products throughout the country. In the State of Punjab, its principal place of business is Patiala. It is registered with the Assessing Authority under the Punjab General Sales Tax Act, 1948 (for brevity, ‘PGST Act’) and also under the VAT Act, which has been enforced with effect from 1.4.2005. FACTS RE: VATAP No. 78 OF 2008: 3. For the year 2001-02, the Corporation filed its return with the Assessing Authority and deposited the tax due. The return could have been filed on or before 30.4.2002. The Assessing Authority, however, found some discrepancies made by the Corporation on the sale of MTO @ 8%, whereas it was required to be 22% (including surcharge). The revenue found that it has resulted in short payment of tax. Accordingly, an additional demand of Rs.26,70,751/- was raised on 10.7.2006 (A-I) which included penalty of Rs.1,30,000/- under Section 10(6) of the Act and another penalty of Rs. 2000/- under Section 23 of the Act alongwith interest of Rs. 13,24,772/- under Section 11-D of the PGST Act. The Corporation preferred an appeal before the Deputy Excise and Taxation Commissioner (Appeals), Patiala Division, 2 VATAP No.78 of 2008 Patiala, raising the plea of limitation alleging that in respect of assessment year 2001-02, the assessment proceedings could have been finalized within three years of the last date of filing of the return, which was 30.4.2002 and the period of three years came to an end on 30.4.2005. The assessment having been framed on 10.7.2006 (A-1) was time barred. The Corporation also contended that levy of penalty is illegal under Section 10 (6). It also urged interest imposed under Section 11-D, was in contravention of law laid down by the Hon'ble Supreme Court in the case of J.K. Synthetics v. C.T.O., (1994) 94 STC 422. The Appellate Authority dismissed the appeal by stating that under Section 11-CC of the VAT Act, the assessment could have been completed within 5 years and not in 3 years. The penalty, however, imposed under Section 10 (6) of the VAT Act was set aside. The Additional tax and penalty under Section 23 and interest under Section 11-D was upheld by order dated 21.11.2006 (A-2). 4. The Corporation filed an appeal before the Tribunal challenging the order of the Appellate Authority reiterating the same plea, which were urged before the Appellate Authority. The Tribunal upheld the order of the Appellate Authority but deleted the interest imposed under Section 11-D (2) of the PGST Act. FACTS RE: VATAP No. 79 OF 2008: 5. The facts in the instant appeal are also similar, but the assessment year is 2000-01. The Corporation had filed its return with the assessing authority but the demand for additional tax was 3 VATAP No.78 of 2008 raised vide order dated 27.2.2006. Eventually, common order has been passed by the Tribunal, which is subject matter of challenge in both the appeals. The operative part of the order passed by the Tribunal reads thus:- “ Section 11-CC-1 of Punjab Act No.10 of 205, which was in continuation of the ordinance already issued on 3.3.2005 does not state anywhere that it was in respect of owners of the Milk Plants. This was in fact for all the dealers and period for assessments for the financial year 2000-01, 2001-02 in respect of all the dealers had been extended to five years from the last prescribed for furnishing the last return, in respect of these years. When ordinance had been issued on 3.3.2005 and that had admittedly the force of the Act, then even if PGST Act had been repealed on 1.4.2005, the legislature could legislate and pass an Act in continuation and to give effect to the provisions of the ordinance and would have legal effect having come out into force before repeal of PGST Act. State counsel in this respect had relied on the judgments reported in Emkey Industries v. State of Punjab (P&H) 139 STC 57 and Combind Industries Ltd. v. State of Karnataka (1999) STC 0225 and Mansa Cooperative Spinning Mills, v. State of Punjab (2006) 148 STC 443. 4 VATAP No.78 of 2008 Under these circumstances, the contention of the counsel for the appellant that the assessment made was not within limitation and was liable to be set aside, cannot be accepted. The penalty levied under Section 10(6) by the assessing authority had already been set aside by the First Appellate Authority and that portion of the order was not challenged by the State. So far as interest is concerned, the appellate authority had directed that interest is compensatory for delayed payment and is chargeable in view of decision of the Punjab & Haryana High Court reported in 1992 STC 104 and that of Apex court reported in 106 STC 433. Counsel of the appellant has stated that appellant shall have no objection to pay interest as per section 11-D (2).” 6. At this stage it may be pertinent to notice that the State of Punjab wanted to introduce value added tax regime. To start with Ordinance No. 4 of 2005 was promulgated on 3.3.2005 (A-5) and PGST Act was sought to be repealed. The Ordinance was then replaced by VAT Act. Accordingly, PGST Act was repealed with effect from 1.4.2005 by inserting Section 92(1) in the VAT Act. With the object of providing longer period of limitation for finalisation of assessment under PGST Act, Section 11CC was inserted by enacting Punjab Act No. 10 of 2005, which has been enforced with effect from 12.5.2005. The object of insertion of the 5 VATAP No.78 of 2008 provision is evident from its reasons and objects, namely, to overcome a judgment of the Supreme Court rendered in the case of Punjab Dairy Development Board v. Cepham Milk Specialities Limited, (2004) 8 SCC 621. 7. Mr. K.L. Goyal, learned counsel for the petitioner has vehemently argued that no assessment could have been framed by raising any additional demand of tax, a penalty or interest after 30.4.2004 in respect of assessment year 2000-01 and after 30.4.2005 in respect of assessment year 2001-02. According to the counsel in respect of both the assessment years additional demand has been raised on 27.2.2006 (2000-01) and 10.7.2006 (2001-02). Learned counsel has submitted that it is well settled that the period of limitation could not be extended by any stretch of imagination after it has expired. He has contended that the period of three years had expired on 30-4-2004 and 30.4.2005 in respect of assessment years 2000-01 and 2001-02 and, therefore, by promulgation of VAT Act on 6.5.2005, a period of limitation of five years could not be added and extended to the case of the petitioner as the period of three years had already expired. He has submitted that no additional demand on the aforesaid basis could have been raised. In support of his contention learned counsel has placed reliance on judgment of the Hon'ble Supreme Court rendered in the case of S.S. Gadgil v. Ms. Lal Chand and Company, AIR 1965 SC 171 and a Division Bench judgment of this Court rendered in the case of Shreyans Industries Ltd. v. State of Punjab, (2008) 18 VAT 6 VATAP No.78 of 2008 and Service Tax Cases 493 (Punjab & Haryana) and argued that power to extend the period of limitation for completing of assessment has to be exercised before the assessment becomes time barred and not after the period of limitation has expired. For the same principle, reliance has been placed on another Division Bench of Karnataka High Court rendered in the case of Combined Industries Ltd. v. State of Karnataka, (1999) 112 STC 225. 8. Mr. Goyal has further argued that no amendment in the PGST Act could have been made on 12.5.2005 after the PGST Act, 1948 was repealed w.e.f. 1.4.2005 by inserting Section 11-CC. He has argued that in any case Section 11-CC is not retrospective in its operation. Another submission made by learned counsel is that if Section 11-CC as inserted on 12.5.2005 is made applicable then it cannot govern only the period between 19.7.2000 to 11.9.2002 and not before or after that period, which is wholly absurd. 9. Another submission of learned counsel for the petitioner is that the basic object of incorporating Section 11-CC in the PGST Act was made clear when the Bill was introduced in the Punjab Legislative Assembly on 7.4.2005. He has drawn our attention to the Statement of Objects and Reasons, which suggests that the Bill was introduced to overcome a situation that has developed on account of judgment delivered by the Hon'ble Supreme Court in the case of Cepham Milk Specialties Ltd. (supra). The aforesaid object of the amendment and validation bill has no relation whatsoever with the petitioner because they deal in 7 VATAP No.78 of 2008 business of petroleum products and liquified gas. He has also pointed out that the period of 19.7.2000 and 11.9.2002 involved in the matter before the Hon'ble Supreme Court could be relevant only to that case and it has got nothing to do with the period of Sales tax in respect of the petroleum products or liquified gas. Therefore, emphasis has been laid by drawing our attention to Section 4-A, which has been added by the 2005 amendment made effective from 12.5.2005. Mr. Goyal has also drawn our attention to similar provision, which was made in the ordinance issued on 2.3.2005 and therefore, the submission made is that the period of limitation of five years sought to be extended to the Milk Plants etc. and it could not be applied to the case of the petitioner who are dealing with petroleum/petroleum products and liquified gas. Therefore, it is wholly beyond the scope of ordinance, which was eventually adopted as Act. 10. The last submission made by learned counsel is that if extension of time for assessment is to be granted then an appropriate order has to be passed before the expiry of the period of assessment. He has maintained that period of three years in respect of assessment year 2000-01 expired on 30.4.2004 and in respect of 2001-02 came to an end on 30.4.2005 and therefore, even an amendment has been made after the aforesaid period the same would not have the effect of extending the period of limitation automatically. 11. Ms. Sudeepti Sharma, Deputy Advocate General, for 8 VATAP No.78 of 2008 the Revenue, however, has submitted that amendment cannot be considered invalid merely on the ground that it sought to amend provision, which was not in existence. In that regard, she has placed reliance on the judgment of the Hon'ble Supreme court rendered in the case of State of Rajasthan v. Mangilal Pindwal, AIR 1996 SC 2181. 12. After examination of pleadings of the parties, statutory provisions and the rival contentions of their counsel, we are of the view that the following questions of law would arise for determination of this Court:- (A) Whether after repeal of PGST Act, 1948 w.e.f. 1.4.2005 by the repealing Section 92(1) of the Punjab VAT Act, any amendment was valid for extending the period of limitation from three years to five years by promulgation of Section 11CC by Punjab Act 10 of 2005 which came into force w.e.f. 12.5.2005. (B) Whether the rights vested in the assessee acquired on 30.4.2005 would extinguish by an amendment made by Act No. 10 of 2005 w.e.f. 12.5.2005 although the amendment has not been given retrospective effect or could the time barred assessment be re-opened on the basis of statutory extension of time. Re: Questions A & B 9 VATAP No.78 of 2008 13. Both the questions are interlinked and can suitably be answered by first examining the relevant statutory provisions. Under Section 11(1)(2) and (3) of the PGST Act the maximum period for framing assessment is three years from the last date prescribed for filing of return and the same reads thus: “11. Assessment of Tax. (1) If the Assessing Authority is satisfied without requiring the presence of dealer or the production by him of any evidence that the returns furnished in re- spect of any period are correct and complete, he shall pass an order of assessment on the basis of such re- turns within a period of three years from the last date prescribed for furnishing the last return in respect of such period. (2) If the Assessing Authority is not satisfied with- out requiring the presence of dealer who furnished the returns or production of evidence that the returns fur- nished in respect of any period are correct and com- plete, he shall serve on such dealer a notice in the pre- scribed manner requiring him, on a date and place specified therein, either to attend in person or to pro- duce or to cause to be produced any evidence on which such dealer may rely in support of such returns. (3) On the day specified in the notice or as soon af- terwards as may be, the Assessing Authority shall, af- 10 VATAP No.78 of 2008 ter hearing such evidence as the dealer may produce, and such other evidence as the Assessing Authority may require on specified points, pass an order of as- sessment within a period of three years from the last date prescribed for furnishing the last return in respect of any period. (4) to (12) xxx xxx xxx” 14. It has come on record that last date prescribed by Rule 20 of the Rules for filing of return is thirty days of the expiry of each ‘year’ which according to Section 2(j) of the Act is defined as financial year, namely, April 1st to 31st March. Accordingly for the Financial Year 2000-01 return was required to be filed on or before 30.04.2001 and for the Financial Year 2001-02 the return was re- quired to be filed on or before 30.04.2002. It then follows that the assessment as per provisions of Section 11(1), (2) and (3) of the Act is required to be finalised within three years. Thus, in respect of Assessment Year 2000-01 it could have been finalised on or be- fore 30.4.2004 and in respect of 2001-02 it could have been done on or before 30.4.2005. The assessment order in respect of 2000- 2001 has been finalised on 27.2.2006 and in respect of the year 2001-02 it was finalised on 10.7.2006, which are obviously time barred. The revenue has, however, placed heavy reliance on Sec- tion 11-CC added by the Punjab Act 10 of 2005, which has ex- tended the period of limitation to five years. Section 11CC as added reads thus:- 11 VATAP No.78 of 2008 Section 11-CC added by the Punjab Act 10 of 2005 “11-CC. (1) Notwithstanding anything con- tained in this Act, the assessing authority, shall pass an order of assessment in respect of the dealers for the fi- nancial years 2000-2001 and 2001-2002 within a pe- riod of five years from the last date, prescribed for fur- nishing the last return in respect of these years: Provided that no order shall be made under this section against any dealer without giving him an op- portunity of being heard. (2) Notwithstanding anything contained in any judgement, decree or order of any court or other authority to the contrary, any assessment, reassess- ment, levy or collection of any tax in respect of the dealers, made or purported to have been made under the provisions of this Act for the period commencing from the 19th day of July, 2000 and ending on the 11th day of September, 2002, shall be as valid and effective as if such assessment, reassessment, levy or collection had been made, under this Act as amended by the Pun- jab General Sales Tax (Amendment and Validation) Act, 2005. (3) For the removal of doubts, it is hereby de- clared that nothing in sub-section (2) shall be con- strued as preventing any person, - 12 VATAP No.78 of 2008 (a) from questioning in accordance with the provisions of this Act as amended by the Punjab General Sales Tax (Amendment and Validation) Act, 2005 and the rules made thereunder, the assessment, reas- sessment, levy or collection of tax on the dealers in respect of the period commenc- ing from the 19th day of July, 2000 and ending on the 11th day of September, 2002; and (b) from claiming refund of any tax paid by him in excess of the amount, due from him under this Act as amended by the Punjab General Sales Tax (Amendment and Validation) Act, 2005.” 15. It is pertinent to notice that Punjab General Sales Tax (Amendment and Validation) Act, 2005 being Punjab Act No. 10 of 2005 has been enforced with effect from 19.07.2000 till 11.09.2002. Another provision Section 4-BB has also been added in respect of PGST Act, which reads thus: “4-BB. Notwithstanding anything contained in this Act, for the period commencing with effect from the 19th day of July, 2000 and ending on the 11th day of September, 2002, every dealer, shall be liable and shall be deemed to have always been liable to pay purchase 13 VATAP No.78 of 2008 tax at the rate of two per cent on milk, when purchased for use in the manufacture of any goods other than tax free goods for sale.” (emphasis added) 16. A perusal of Section 4-BB of the PGST Act shows that every dealer of milk has been held liable to pay purchase tax in re- spect of the period commencing from 19.7.2000 to 11.9.2002 at the rate of two per cent on milk when purchased for use in the manu- facture of any goods other than tax free goods for sale. The rea- sons for amendments and addition of these provisions like Section 11-CC and Section 4-BB are not far to seek. On 19.7.2000, the State of Punjab had promulgated an ordinance known as ‘Punjab Dairy Development Board Ordinance, 2000 (for brevity, ‘2000 Or- dinance’). Under the 2000 Ordinance, cess was levied on milk plants by abolishing purchase tax leviable under Section 4-B of then in force PGST Act. The 2000 Ordinance was replaced by the Punjab Dairy Development Board Act, 2000 (for brevity, ‘Act of 2000’). Accordingly, milk cess was levied at the rate of ten paise per litre on the registered milk plant owners as per their licensed capacity. The aforesaid Act of 2000 was declared to be discrimina- tory and arbitrary by a Division Bench of this court in the case of Cepham Milk Specialities Ltd. v. State of Punjab, (2002) 127 STC 116. The aforesaid view was also upheld by Hon’ble the Su- preme Court when the appeal of the State was dismissed (supra). 17. In order to retain the purchase tax, Section 4-BB was added in the PGST Act and the period of assessment was extended 14 VATAP No.78 of 2008 by two years by addition Section 11-CC as already noticed. The statement of objects and reasons, which is appended to the Act, dated 7.4.2005, substantiate the aforesaid thesis, which reads thus: “ As the cess levied under the Punjab Dairy De- velopment Board Act has been struck down by the Hon’ble Supreme Court of India. Dairy Development Department has collected the Milk Cess amounting to Rs. 15.92 crore (plus interest) during July, 2000 to September, 2002. The Hon’ble Supreme Court of India in its interim orders of dated July, 2003 had instructed that in case, the appellants (State Government and PDDB) lose the case, then they would have to refund the amount of cess collected to respective parties with rate of interest to be decided by the court in the final judgement. Although there was no mention of refund or of any rate of interest in the final judgement deliv- ered by Supreme Court of India on 20th August, 2004, but since the cess has been declared to be invalid, therefore in natural course, the department would have to refund it, if suitable remedial steps are not taken im- mediately. To avoid the refund of this Cess Mr. Ve- nugopal has suggested issuing a validating Ordinance/Act imposing purchase tax retrospectively for the period from July, 2000 to September, 2002 be- cause prior to levy of cess in 2000 and after the with- 15 VATAP No.78 of 2008 drawal of cess in 2002, the impose of purchase tax has been in vogue. It would be valid and legal also to levy purchase tax for the period during which the cess was levied and the money collected as cess under the Pun- jab Dairy Development Board Act be treated as col- lected as purchase tax under the Punjab General Sales Tax Act, 1948. Hence, this Bill.” 18. Before enacting the Act of 2000 the State of Punjab first promulgated an ordinance known as Punjab General Sales Tax (Amendment and Validation) Ordinance, 2005 (Punjab Ordinance 4 of 2005) [for brevity, ‘2005 Ordinance’], which validated the cess collected from the owners of milk plants by treating the same as purchase tax. In that Section 4-E was added. The ordinance also added Section 11-CC, which stipulated its application only to the milk plant owners. The provision reads thus: Section 11-CC of 2005 Ordinance “11-CC. (1) Notwithstanding anything con- tained in this Act, the assessing authority, shall pass an order of assessment in respect of the owners of milk plants for the financial years 2000-2001 and 2001- 2002 within a period of five years from the last date, prescribed for furnishing the last return in respect of these years: 16 VATAP No.78 of 2008 Provided that no order shall be made under this section against any dealer without giving him an op- portunity of being heard. (2) Notwithstanding anything contained in any judgement, decree or order of any court or other authority to the contrary, but subject to the provisions of sub-section (1), any assessment, reassessment, levy or collection of any tax in respect of the owners of milk plants, made or purported to have been made in relation of such assessment, reassessment, levy or col- lection under the provisions of this Act for the period commencing from the 19 day of July, 2000 and ending on the 11th day of September, 2002, shall be as valid and effective as if such assessment, reassessment, levy or collection had been made, under this Act as amended by the Punjab General Sales Tax (Amend- ment and Validation) Act, 2005. (3) For the removal of doubts, it is hereby de- clared that nothing in sub-section (2) shall be con- strued as preventing any person, - (a) from questioning in accordance with the provisions of this Act as amended by the Punjab General Sales Tax (Amendment and Validation) Ordinance, 2005 and the rules made thereunder, the assessment, re- 17 VATAP No.78 of 2008 assessment, levy or collection of tax on the owners of the milk plants for the pe- riod commencing from the 19th day of July, 2000 and ending on the 11th