1980 (12) TMI 162 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of initiation of proceedings under section 21 of the U.P. Sales Tax Act.
2. Application of proper tax rate on sales of M.S. tubes and tabular sheds.
3. Allowance of exemptions on construction work turnover.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 21 of the U.P. Sales Tax Act:
The assessee contested the notice under section 21 on grounds that no fresh material had been brought on record and that the action was merely a result of a change of opinion. The Additional Judge (Revisions) held that section 21 could not be invoked merely based on a change of opinion. The High Court agreed, stating that "an action under section 21 of the Act cannot be taken as a result of second thought or change of opinion." The key words in section 21(1) are "reason to believe," which necessitates relevant grounds for the formation of belief regarding escaped assessment. The Court cited Hindustan Insulated Cable Co. v. Commissioner of Sales Tax and other cases to support that oversight or inadvertence could justify action under section 21, but not a mere change of opinion.

2. Application of Proper Tax Rate on Sales of M.S. Tubes and Tabular Sheds:
The original assessment accepted that M.S. tubes and tabular sheds were declared goods under section 14 of the Central Sales Tax Act, taxed at 3%. However, the Sales Tax Officer later found this to be incorrect, proposing a higher tax rate. The Court examined whether these items were indeed declared goods under section 14(iv) of the Central Act. It concluded that "M.S. tubes and tabular sheds are not covered within the goods enumerated in this clause and hence they could not have been treated as declared goods." The Court emphasized that the original assessment did not properly consider whether these items fell under the enumerated categories of iron and steel. The Court found that the Sales Tax Officer's failure to apply the correct tax rate constituted non-application of mind, justifying the action under section 21.

3. Allowance of Exemptions on Construction Work Turnover:
The assessee claimed exemptions on the turnover of construction work, which was initially accepted. The Sales Tax Officer later contested this exemption. The High Court agreed with the Additional Judge (Revisions) that the question of whether the turnover represented sales or supplies made in the course of the works contract was not free from doubt. Since this was a matter of second thought, the action under section 21 was not justified. The Court stated, "It is now settled that an action under section 21 of the Act cannot be taken as a result of second thought or change of opinion."

Conclusion:
The High Court partly allowed the revision petition. It upheld the action under section 21 regarding the turnover of M.S. tubes and tabular sheds, restoring the Sales Tax Officer's order for these items. However, it maintained that the action under section 21 was not justified for the construction work turnover, as it was a result of second thought. The Commissioner was awarded costs assessed at Rs. 200. The petition was thus partly allowed.