2006 (8) TMI 559 - HC - VAT and Sales Tax

Issues Involved:
1. Justification of proceedings initiated under section 21 of the U.P. Trade Tax Act.
2. Validity of cancellation of recognition certificate with retrospective effect under section 4B of the U.P. Trade Tax Act.

Issue-wise Detailed Analysis:

1. Justification of proceedings initiated under section 21 of the U.P. Trade Tax Act:

The primary issue in Revision No. 808 of 1995 was whether the Tribunal was justified in holding that the proceedings initiated under section 21 of the U.P. Trade Tax Act were not justified. The assessment order of the respondent-assessee was passed on December 10, 1989, with no tax imposed. However, an information was later received from the Trade Tax Officer indicating that the assessee had sold 342 kg of mentha oil to M/s. Ajmani Chemicals, Rampur, which was not verifiable from the account books and documents submitted by the assessee at the time of the original assessment. This led to the belief that the turnover had escaped assessment, prompting the issuance of a notice under section 21 of the Act.

The assessee objected, arguing there was no material to conclude that any turnover had escaped assessment. The reassessment order dated September 27, 1990, imposed a tax liability of Rs. 35,800, which was upheld by the Assistant Commissioner (Judicial) but overturned by the Tribunal. The Tribunal's decision was challenged on the grounds that there was valid material for initiating proceedings under section 21 of the Act.

The court referred to the legal position established in previous cases, including M.L. Shukla & Co. v. Sales Tax Officer, Sector 17, Kanpur, which clarified that the assessing authority must have "reason to believe" that turnover has escaped assessment, based on rational and relevant grounds. The court found that the information regarding the sale of 342 kg of mentha oil was relevant and had a nexus with the formation of belief regarding escaped assessment. The Tribunal erred in concluding that the information was not positive material. The court held that the proceedings under section 21 were justifiable and based on relevant positive material, not merely a change of opinion.

2. Validity of cancellation of recognition certificate with retrospective effect under section 4B of the U.P. Trade Tax Act:

In Revision No. 828 of 1995, the issue was whether the Trade Tax Tribunal was justified in dismissing the Department's appeal and holding that the assessee had not violated the condition of the recognition certificate. The assessee was granted a recognition certificate on June 9, 1985, for the purchase of mentha oil. The assessment order for 1985-86 was passed on June 21, 1989, accepting the dealer's books of account. However, it was later alleged that the dealer purchased mentha oil from M/s. Ashia Chemicals, Rampur, instead of directly from farmers, leading to the cancellation of the recognition certificate with effect from June 9, 1985.

The first appellate authority set aside the cancellation order, and the Tribunal upheld this decision. The court considered whether the recognition certificate could be cancelled retrospectively. Previous judgments, including Sivalik Collulose Ltd. v. State of U.P. and Jitendra Oil Mills v. State of U.P., established that an order canceling a recognition certificate cannot have retrospective effect. The Tribunal also found no valid reason for the cancellation. The court agreed with the Tribunal, finding no infirmity in its decision, and dismissed Revision No. 828 of 1995.

Conclusion:

Revision No. 808 of 1995 was allowed, setting aside the Tribunal's order in Second Appeal No. 458 of 1991. Revision No. 828 of 1995 was dismissed, maintaining the Tribunal's order in Second Appeal No. 629 of 1991. Each party was ordered to bear its own costs.

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