2010 (4) TMI 971 - HC - VAT and Sales Tax

Reopening of assessment - whether no tax could be imposed on the petitioner since, the rice bran and rice polish and kinkee were not taken back from the millers in terms of the agreement? Held that - In the present case, the Additional Commissioner while passing the impugned order had considered the submission made by the petitioner in his reply but while concluding his finding and taking decision to remit the matter to the assessing officer for reassessment in pursuance of power conferred by sub-section (2) of section 21 of the Act had not recorded satisfaction after discussing the reply submitted by the petitioner and other evidence on record. The reply submitted by the petitioner should have been considered by the Additional Commissioner and reason should have been assigned as to why the ground enumerated in the reply submitted by the petitioner (annexure 6) is not correct or it is not believable. A writ in the nature of certiorari is issued quashing the impugned order dated November 25, 2009 as contained in annexure 7 to the writ petition with consequential benefit. However, liberty is given to the respondents to proceed afresh and pass a fresh order after giving due opportunity of hearing to the parties. W.P. allowed.

Issues Involved:
1. Imposition of tax on rice bran, rice polish, and kinkee.
2. Reassessment under Section 21(2) of the U.P. Trade Tax Act, 1948.

Detailed Analysis:

1. Imposition of Tax on Rice Bran, Rice Polish, and Kinkee
The petitioner, a registered dealer under the U.P. Trade Tax Act, 1948, engaged in the purchase of paddy under the price support scheme and supplied it to rice millers for processing. According to the agreement, the millers were allowed to retain the by-products such as rice bran, rice polish, and kinkee. The petitioner contended that since these by-products were not taken back from the millers, no tax could be imposed on them.

The assessing officer originally affirmed the petitioner's tax payments, but the Additional Commissioner later issued a notice for reassessment, arguing that tax should be imposed on these by-products because the petitioner did not provide form 3 Ga(1) to the millers. The petitioner responded, reiterating that the by-products were retained by the millers as per the agreement. The Additional Commissioner, however, did not provide a detailed reason for why the original assessment was considered faulty or why the petitioner was liable for the tax on the by-products.

2. Reassessment under Section 21(2) of the U.P. Trade Tax Act, 1948
The petitioner argued that the power conferred by sub-section (2) of section 21 could not be invoked on the same facts and circumstances that were already considered by the assessing authority. Section 21 allows reassessment if the assessing authority has "reason to believe" that part of the turnover has escaped assessment. The term "reason to believe" requires the authority to have a good faith belief based on material evidence, not merely subjective satisfaction.

The court referenced several Supreme Court judgments to emphasize that the reasons for the belief must be recorded in writing and must be based on material evidence. The Additional Commissioner failed to record his satisfaction or provide a detailed analysis of the petitioner's reply and other evidence on record. The court noted that the Additional Commissioner did not explain how the original assessment was flawed or why the petitioner was liable for the escaped tax.

The court highlighted that Article 14 of the Constitution mandates that reasons must be assigned by any administrative or quasi-judicial authority affecting civil rights. The provision in section 21 of the Trade Tax Act requires the competent authority to discuss the material on record and provide reasons for reassessment.

Conclusion
The court concluded that the impugned order by the Additional Commissioner did not survive due to the lack of recorded reasons and detailed analysis. The writ petition was allowed, and a writ of certiorari was issued quashing the impugned order dated November 25, 2009, with consequential benefits to the petitioner. However, the respondents were given the liberty to proceed afresh and pass a new order after providing a due opportunity for a hearing to the parties involved. The writ petition was allowed with no order as to costs.

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