The publication by the State on the web-site in the case of the Petitioner is to the effect that the Petitioner has been the beneficiary of a hawala transaction. During the course of the hearing of these proceedings, it is not in dispute that at least seven of the 34 vendors whose invoices were relied upon by the Petitioner to claim input tax credit are bogus entities. As a matter of fact, there were no deliveries of goods or actual sales and bogus invoices were raised to get input tax credit. The publication by the State on the web-site falls within the enabling provisions of Section 73(1).
The publication on the web-site is a cautionary exercise. It does not cast a
stigma. The caution puts dealers on a guard, including in particular those genuine dealers also who should safeguard their position. In the present case,
the State in its additional affidavit has explained that the investigating authorities had already been moved, on the basis of the material with the Department before the publication on the web-site was uploaded. The action of the State
does not suffer from any illegality or arbitrariness and is within the purview of the
enabling provisions of Section 73.
Bombay High Court
Ou vs C on 25 March, 2013
Bench: Dr. D.Y. Chandrachud
M/s.Timex Art Décor Pvt. Limited V/s.
The State of Maharashtra & Ors. :
CORAM : DR.D.Y.CHANDRACHUD &
A.A. SAYED, JJ.
The Petitioner is a registered dealer and carries on business in plywood ba
and decorative laminates. The Petitioner filed Modvat returns for 2008-09 and 2009-10 and claimed input tax credit/set-off on the purchases claimed to have om
been effected from certain vendors against its tax liability of sales. Intelligence information was received by the Department from the Economic Intelligence Unit to the effect that certain vendors/suppliers of the Petitioner were fictitious and B
bogus tax invoices had been issued to the Petitioner without the actual delivery of goods and for passing off tax credit without payment or deposit in the treasury. The Assistant Commissioner of Sales Tax, Investigation Branch `A', Mumbai, conducted a search under section 64 on the premises of the Petitioner on 4 & 5 August 2011. During the course of the search, the statement of a Director of the Petitioner was recorded under section 14 of the MVAT Act. The ::: Downloaded on - 13/05/2013 21:58:27 ::: krs 2/8 wp8898.12 Director was confronted with 13 purchase invoices in response to which he stated that these bills were given to him by agents in the market and were rt
accounted by the Petitioner in the purchase register for the claim of input tax ou
credit. The Director stated that he did not know the whereabouts of the dealers; that no supporting documents for the movement of goods were available with C
him; that he had no details of the transporters and was unable to explain the disposal of the goods purchased from those parties. The statement of one vendor, K.V. Shah, was also recorded and he stated that he had never actually h
sold or purchased any goods; that he did not possess sale or purchase registers ig
and that the entire operation was being supervised by a hawala operator by the name of Pradip Vyas. The affidavit stated that no sale has been effected to the H
Petitioner and that in his proprietary business, bogus tax invoices had been issued to different dealers. The Sales Tax Department has also investigated y
Pradip Vyas and other vendors of the Petitioner. ba
2. The Sales Tax Department filed a complaint with the Economic Offences Wing of the Crime Branch of the C.I.D. on 16 April, 2012 alleging that the om
Petitioner and its Directors had obtained false bills from hawala dealers and claimed set-off resulting in a loss of revenue of Rs.77.28 lakhs for 2008-09 and B
Rs.44.86 lakhs for 2009-10. On the web-site of the Sales Tax Department, a list was put up on 12 July 2012 of beneficiary dealers against whom police complaints were lodged after 1 April 2011. The claim of the Petitioner appears as a beneficiary at sr. no.17 of that list.
3. The contention of the Petitioner is that an F.I.R. was filed against the ::: Downloaded on - 13/05/2013 21:58:27 ::: krs 3/8 wp8898.12 Petitioner on 22 October 2012. Hence, it is alleged that the name of the Petitioner was uploaded on the web-site on 12 July 2012 even prior to the filing rt
of the F.I.R. Moreover, according to the Petitioner, there was no basis to initiate ou
proceedings under Section 73 of the MVAT Act, 2002 by publication on the web- site, when the assessment was pending. Finally, it has been urged on behalf of C
the Petitioner that it is the duty of the Revenue to pursue the hawala dealers who have collected tax.
h
4. On the other hand, the learned Advocate General appearing on behalf ig
of the State submitted that: (i) The State has cancelled the registrations of the hawala dealers; (ii) A full investigation is being carried out even against hawala H
dealers. However, it has been submitted that the assessment of the Petitioner cannot be made subject to action being pursued against hawala dealers and the y
Petitioner cannot submit or assert that the State must first assess the hawala ba
dealers before taking action against the Petitioner. In the present case, it has been submitted that: (i) There were no actual sales or deliveries of goods; and (ii) Only bogus invoices were raised to obtain the benefit of input tax credit. All om
the seven hawala dealers noticed in the case of the Petitioner supplied non- genuine invoices on the basis of which the Petitioner has claimed input tax B
credit. The Petitioner, it has been submitted, is a beneficiary of hawala transactions and prima facie, the material which has been revealed during the course of investigation including the statements of the Petitioner's Director as well as of the hawala dealers would indicate that a serious attempt has been made to defraud the State revenue. The State has already taken action to institute criminal proceedings against hawala dealers and has cancelled the ::: Downloaded on - 13/05/2013 21:58:27 ::: krs 4/8 wp8898.12 registration certificates.
rt
5. Section 73 of the Maharashtra Value Added Tax Act, 2002 provides a ou
source of authority for the publication and disclosure of information respecting dealers and other persons in public interest. Sub-section (1) of Section 73 C
provides as follows:-
"73. Publication and disclosure of Information respecting dealers and other persons in public h
interest
(1) Notwithstanding anything contained in sections ig
71 and 72, if the State Government is of the opinion that it is necessary or expedient in the public interest to publish or disclose the names of any dealers or other H
persons and any other particulars relating to any proceedings under this Act in respect of such dealers and persons, it may publish or disclose or cause to be published or disclosed such names and particulars in such manner as it thinks fit."
y
ba
Under sub-section (1), the State Government is empowered to publish or disclose the names of any dealers or other persons if it is of the opinion that it is om
necessary or expedient in the public interest to do so. The State is also empowered to publish any other particulars relating to any proceedings under B
the Act in respect of such dealers and persons. The publication by the State on the web-site in the case of the Petitioner is to the effect that the Petitioner has been the beneficiary of a hawala transaction. During the course of the hearing of these proceedings, it is not in dispute that at least seven of the 34 vendors whose invoices were relied upon by the Petitioner to claim input tax credit are bogus entities. As a matter of fact, there were no deliveries of goods or actual ::: Downloaded on - 13/05/2013 21:58:27 ::: krs 5/8 wp8898.12 sales and bogus invoices were raised to get input tax credit. The publication by the State on the web-site falls within the enabling provisions of Section 73(1). rt
The publication on the web-site is a cautionary exercise. It does not cast a ou
stigma. The caution puts dealers on a guard, including in particular those genuine dealers also who should safeguard their position. In the present case, C
the State in its additional affidavit has explained that the investigating authorities had already been moved, on the basis of the material with the Department before the publication on the web-site was uploaded. The action of the State h
does not suffer from any illegality or arbitrariness and is within the purview of the ig
enabling provisions of Section 73.
H
6. The assessment of the Petitioner undoubtedly has to be carried out in accordance with law and all facts relevant or necessary for the purpose of y
assessment will be dealt with in the assessment proceedings. We clarify that ba
the observations contained in this order shall not conclude the assessment proceedings and are only confined to the disposal of the controversy before the Court.
om
7. The Sales Tax Department of the Government of Maharashtra has B
investigated hawala operations of about 1555 hawala operators involving about 39,488 beneficiary dealers. According to the State, the hawala operators during the course of the previous three years have passed on an input tax credit of Rs.1333 crores. The modus operandi is to claim and obtain input tax credit against the declaration of fake tax invoices. There are no actual transactions involving the sale and purchase of goods. However, in order to show that the ::: Downloaded on - 13/05/2013 21:58:27 ::: krs 6/8 wp8898.12 transaction is genuine payments are made against the invoices by cheque or bank transfer and the amounts are then reversed or withdrawn from the bank rt
accounts of the hawala dealers. The constitutional validity of the provisions of ou
Section 48(5) of the Maharashtra Value Added Tax Act, 2002 was upheld by a Division Bench of this Court in Mahalaxmi Cotton Ginning Pressing and Oil C
Industries v. State of Maharashtra and others1. During the course of the judgement, this Court considered in some amount of detail the regime of electronic filing by the State Sales Tax Department which was put into place to h
promote greater transparency in and efficient handling of claims for input tax ig
credit. The judgement of this Court has been confirmed, upon the dismissal of the Special Leave Petition, by the Supreme Court. H
In the course of the decision in Mahalaxmi Cotton Ginning Pressing and Oil Industries (supra), this Court had recorded a statement of the learned Advocate y
General in the following terms:-
ba
"The learned Advocate-General appearing on behalf of the State has tendered a statement of the steps that would be pursued against defaulting selling dealers : om
(1) The Sales Tax Department will identify the defaulters, namely, registered selling dealers who have not paid the full amount of tax due in the Government Treasury either by not filing their returns at all or by filing returns but not paying the full tax due (i.e. "short filing") or where returns are filed but sales to the concerned dealers B
are not shown (i.e. "undisclosed sales"). (2) Set-off will be denied to dealers where at any stage in the chain of sales a tax invoice/certificate by a defaulter is or has been relied on :
(a) In the event of no returns having been filed by the defaulter, the dealers will be denied the corresponding set-off;
(b) In the case of short filing, dealers who have purchased from the defaulter will be granted set-off pro 1 (2012) 51 VST 1 (Bom.)
::: Downloaded on - 13/05/2013 21:58:27 ::: krs 7/8 wp8898.12 rata to the tax paid;
(c) In the case of undisclosed sales, the dealers will be rt
denied the entire amount being claimed as set off in relation to the undisclosed sale;
(d) To prevent a cascading effect, the tax will be ou
recovered only once.
As far as possible, the Sales Tax Department will recover the tax from the dealer who purchases from the defaulter. However, the Sales Tax Department will retain the option C
of denying a set-off and of pursuing all selling dealers in the chain until recovery is ultimately made from any one of them.
(3) The full machinery of the Act will be invoked by h
the Sales Tax Department wherever possible against defaulters with a view to recover the amount of tax due from them, notwithstanding the above. Once there is final ig
recovery (after exhaustion of all legal proceedings) from the defaulter, in whole or part, a refund will be given (after the end of that financial year) to the dealer(s) claiming H
set-off to the extent of the recovery. This refund will be made pro rata if there is more than one dealer who was denied set off;
(4) Refund will be given by the Sales Tax Department even without any refund application having been filed by y
the dealers, since the Sales Tax Department will reconcile the payments, inform the dealer of the recovery from the ba
defaulter concerned and grant the refund; (5) Details of defaulters will be uploaded on the web- site of the Sales Tax Department and dealers denied set- off will also be given the names of the concerned om
defaulter(s);
(6) The above does not apply to transactions by dealers where the certificate/invoice issued is not genuine (including hawala transactions). In such cases, no set-off will be granted to the dealer claiming to be a purchaser; B
(7) The above should not prevent dealers from adopting such remedies as are available to them in law against the defaulters."
As sub-paragraph (6) noted above makes it clear that the modalities which were envisaged were not to apply to transactions by dealers where the certificate/invoice is not genuine (including hawala transactions). It was made ::: Downloaded on - 13/05/2013 21:58:27 ::: krs 8/8 wp8898.12 clear that in such cases, no set-off should be granted to the dealer claiming to be a purchaser. This aspect of the case, it was fairly conceded on behalf of the rt
Petitioner, shall be governed by the decision in Mahalaxmi Cotton Ginning ou
Pressing and Oil Industries (supra). On the issue as to whether and at what stage the State should carry out the assessment of hawala dealers that is not a C
matter which falls for determination in these proceedings. The Petitioner cannot possibly assert that its assessment in accordance with law must be deferred until an assessment is carried out in the first instance against hawala dealers. h
The Petitioner has no case whatsoever to make such an assertion. The State is ig
justified in taking necessary steps to complete the assessment of the Petitioner in accordance with law. We are satisfied from the disclosures which have been H
made by the State Government in the initial affidavit as well as in the additional affidavits that steps are being taken by the State for pursuing the remedies y
lawfully open even against the hawala dealers. A web of complex transactions ba
has been put into place to defraud the revenue and we do not in the course of this judgement intend to circumscribe in any manner whatsoever the full range of powers vested in the State Government through its Sales Tax Department for om
ensuring that due steps are taken to curb or as the case may be deal with hawala transactions which pose a serious threat to the revenue of the State. B
8. For these reasons, we do not find any merit in the petition. The petition shall accordingly stand dismissed.
(Dr. D.Y.Chandrachud, J.)
(A.A. Sayed, J.)
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