2005 (3) TMI 744 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the notice issued under section 21(2) of the U.P. Trade Tax Act, 1948.
2. Validity of the earlier order passed under section 7D of the U.P. Trade Tax Act, 1948.
3. Entitlement to refund of excess tax paid.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 21(2) of the U.P. Trade Tax Act, 1948:
The petitioner challenged the notice dated November 4, 1999, issued under section 21(2) of the U.P. Trade Tax Act, 1948, claiming it was without jurisdiction. The court found that the order dated February 7, 1994, accepting the petitioner's application for compounding under section 7D was still valid and had not been set aside or modified. The court noted, "The issuance of notice and initiation of proceedings under section 21(2) of the Act by means of impugned notice during the existence and currency of the order dated February 7, 1994, passed under section 7D of the Act is totally without jurisdiction." The court emphasized that the power vested in authorities must be exercised for the stated purpose and not for any collateral purpose. Since the petitioner had not concealed any material facts or committed fraud, the reassessment proceedings under section 21 were deemed invalid.

2. Validity of the Earlier Order Passed Under Section 7D of the U.P. Trade Tax Act, 1948:
The court examined the nature of an order passed under section 7D of the Act, which allows for the composition of tax liability by accepting a lumpsum payment in lieu of tax. The court cited the Supreme Court's interpretation in similar cases, noting that "payment of alternate method of taxation is a convenient, hassle-free and simple method of assessment." The court held that once the compounding application is accepted, it becomes an agreed amount of tax binding on both the department and the dealer. The court stated, "The determination of the lumpsum in lieu of tax, displaces the requirement of regular assessment proceedings." The court further noted that the Deputy Commissioner (Executive) had examined the contract and accepted the application with full knowledge, and there was no allegation of fraud or misrepresentation by the petitioner.

3. Entitlement to Refund of Excess Tax Paid:
The petitioner sought a refund of the excess tax paid, which was not disputed by the respondents. The court found that the assessing officer had already passed an order for refunding the excess amount, but the refund voucher was not counter-signed due to the subsequent proceedings under section 22 and the impugned notice. The court concluded that since the notice under section 21(2) was illegal and without jurisdiction, there was no legal hurdle for the refund. The court directed, "The respondents are directed to refund the excess amount realised by them over and above the lumpsum amount payable by the petitioner under section 7D of the Act with interest in accordance with law."

Conclusion:
The court quashed the impugned notice dated November 4, 1999, and allowed the writ petition with costs. The respondents were directed to refund the excess amount with interest. The judgment underscored the binding nature of a compounding order under section 7D and the limitations on reassessment proceedings under section 21 when such an order is in effect.