2007 (9) TMI 541 - HC - VAT and Sales Tax

Reassessment - interpretation of words turnover of sales occurring in notification nos.1093 dated 27th of July 1991; 780 dated 31st of March 1995 and 640 dated 21st of February 1997 all issued under section 4-A of the U.P. Trade Tax Act - Legality and validity of the Circular No.279 dated 6.2.2003 - Held that - Do not agree with the contention of the petitioner that turnover of sales used in the notifications do include stock transfer and transfer of goods from one branch to another. This being so we find no illegality in the impugned circular dated 25.1.2003 it being in consonance with the provisions of section 4-A of the Act and the notifications thereunder are valid and legal. It can be said with reasonable certainty that stock transfer and branch transfer is not included in on turnover of sale in the notifications under consideration. The very initiation of reassessment proceedings is without jurisdiction as it is based upon change of opinion. It is acknowledged legal position that reassessment cannot take place on mere change of opinion and in such circumstances the reassessment is impermissible. The upshot of the above discussion is that the circular dated 25th of January 2003 is legal and valid but on the basis of the said circular the reassessment proceeding cannot be initiated provided the assessment was completed on the basis of the earlier circular dated 15th of September 1998. In the result the Writ Petition succeed and are allowed. The reassessment notices issued for the relevant assessment years are hereby quashed.

Issues Involved:
1. Interpretation of the term "turnover of sales" in various notifications under Section 4-A of the U.P. Trade Tax Act.
2. Legality and validity of Circular No.279 dated 6.2.2003.
3. Initiation of reassessment proceedings based on the said circular.
4. Specific challenge to the circular in Writ Petition No.288 of 2003.

Issue-wise Detailed Analysis:

1. Interpretation of "Turnover of Sales":
The primary issue in these petitions revolves around the interpretation of the term "turnover of sales" as used in notification nos. 1093 dated 27th July 1991; 780 dated 31st March 1995; and 640 dated 21st February 1997, all issued under Section 4-A of the U.P. Trade Tax Act. The petitioners argued that "turnover of sales" should include stock transfers and consignment sales, which are not taxable under the Act or the Central Sales Tax Act. They contended that excluding these from the base production would be contrary to the spirit of the notifications aimed at promoting industrial growth.

Conversely, the respondents argued that the notifications should be interpreted strictly according to their language, which clearly excludes stock transfers and consignment sales from the "turnover of sales." The court agreed with the respondents, stating that the terms "turnover" and "sales" as defined in the Act do not include stock transfers or consignment sales. The court emphasized that the principle of strict interpretation applies here, and the language of the notifications is clear and unambiguous.

2. Legality and Validity of Circular No.279 dated 6.2.2003:
The petitioners challenged the legality of Circular No.279 dated 6th February 2003, which clarified that stock transfers and consignment sales should not be included in the base production for tax exemption purposes. The court found no illegality in the circular, stating that it is in consonance with the provisions of Section 4-A of the Act and the relevant notifications. The court held that the circular correctly interpreted the term "turnover of sales" and is therefore valid and legal.

3. Initiation of Reassessment Proceedings:
The reassessment proceedings were initiated based on the impugned circular dated 25th January 2003. The petitioners argued that this amounted to a change of opinion, which is not permissible for reassessment. The court agreed, citing the Supreme Court's decision in Binani Industries Ltd. v. Assistant Commissioner of Commercial Taxes, which held that reassessment based on a mere change of opinion is impermissible. The court concluded that the reassessment proceedings initiated based on the circular were without jurisdiction and quashed the reassessment notices.

4. Specific Challenge in Writ Petition No.288 of 2003:
In Writ Petition No.288 of 2003, the petitioner specifically challenged the circular dated 25th January 2003. The court dismissed this petition, reiterating that the circular is valid and legal. The court found no merit in the challenge to the circular and upheld its legality.

Conclusion:
The court concluded that the term "turnover of sales" in the notifications under Section 4-A of the U.P. Trade Tax Act does not include stock transfers and consignment sales. The circular dated 25th January 2003 is valid and legal. However, reassessment proceedings based on this circular are impermissible as they amount to a change of opinion. The court quashed the reassessment notices in the relevant writ petitions but dismissed the specific challenge to the circular in Writ Petition No.288 of 2003. No order as to costs was made.

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