2008 (5) TMI 621 - HC - VAT and Sales Tax

Reassessment proceedings and orders passed under section 21 of the Act - Held that - Section 15(c) of the Central Act provides reduction of tax leviable on the turnover of rice under the U.P. Trade Tax Act with the tax levied on the paddy out of which such rice was procured. It does not provide any reduction of tax under the Central Act by the tax paid on paddy under the State law out of which such rice was procured. The proceedings under section 21 of the Act have been initiated without any material on the basis of which belief could be formed that there was escaped assessment namely that the tax levied on the interState sales of rice under the Central Act has been wrongly reduced by the tax levied on paddy under the U.P. Trade Tax Act out of which such rice was procured except on account of change of opinion. The initiation of proceedings under section 21(1) of the Act on account of change of opinion are not permissible and therefore the initiation of proceedings under section 21 of the Act in the cases of the petitioners are bad in law.

Issues Involved:
1. Legality of Circular No. 137 dated March 29/30, 2007.
2. Validity of notices dated February 22, 2008, and February 29, 2008, for the assessment year 2001-02.
3. Entitlement of set-off of tax paid on paddy with tax payable on rice under the Central Sales Tax Act, 1956.
4. Legality of initiation of reassessment proceedings under section 21 of the U.P. Trade Tax Act, 1948, based on change of opinion.

Detailed Analysis:

1. Legality of Circular No. 137 dated March 29/30, 2007:
The petitioners challenged the Circular No. 137 issued by the Commissioner of Trade Tax, U.P., which stated that the reduction of tax under section 15(c) of the Central Sales Tax Act (CST Act) was not permissible for inter-State sales. The court held that section 15(c) of the CST Act provides for the reduction of tax leviable on rice under the U.P. Trade Tax Act with the tax levied on paddy, but this reduction is only applicable within the State. The court found no illegality in the circular, as it was in conformity with the plain language of section 15(c) of the CST Act.

2. Validity of Notices Dated February 22, 2008, and February 29, 2008:
The court examined whether the initiation of proceedings under section 21 of the U.P. Trade Tax Act was based on valid grounds. The notices were issued based on the circular, without any fresh material. The court found that the initiation of proceedings was merely based on a change of opinion, which is not permissible. The court emphasized that the belief for reassessment must be based on relevant and new material, not on a mere change of opinion.

3. Entitlement of Set-off of Tax Paid on Paddy with Tax Payable on Rice:
The petitioners argued that they were entitled to set-off the tax paid on paddy with the tax payable on rice under section 15(c) of the CST Act. The court clarified that section 15(c) only provides for the reduction of tax on rice within the State and does not extend to inter-State sales. The court referred to the decision in Satnam Overseas (Export) v. State of Haryana, which supported the interpretation that the reduction of tax under section 15(c) is applicable only within the State.

4. Legality of Initiation of Reassessment Proceedings:
The court scrutinized the initiation of reassessment proceedings under section 21 of the U.P. Trade Tax Act. It was found that the proceedings were initiated based on the circular and without any new material. The court reiterated that reassessment proceedings cannot be initiated merely on a change of opinion. The belief for reassessment must be reasonable and based on new, relevant material. The court cited various precedents, including Johri Lal (HUF) v. Commissioner of Income-tax and Income-tax Officer v. Lakhmani Mewal Das, to emphasize that a mere change of opinion does not justify reassessment.

Conclusion:
The court concluded that the circular issued by the Commissioner of Trade Tax was legally correct and in conformity with section 15(c) of the CST Act. However, the initiation of reassessment proceedings under section 21 of the U.P. Trade Tax Act was invalid as it was based on a mere change of opinion without any new material. The reassessment proceedings and orders were quashed. The court directed that the Commissioner should refrain from issuing such circulars in the future, which interfere with the judicial functions of subordinate officers.

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