2009 (11) TMI 828 - HC - VAT and Sales Tax

Proceedings initiated against the petitioner under section 21(2) of the U.P. Trade Tax Act 1948 relating to the assessment years 1997-98 (both U.P. and Central) and 1998-99 (both U.P. and Central) asked to be quashed Held that - In the case on hand the law that chewing gum and bubble gum are taxable as unclassified items and therefore liable to be taxed at the rate of 10 per cent has been the law throughout with effect from the date of enforcement of the relevant notification. It shall be deemed to be from the date of notification and as such it is but a clear case of escapement of turnover as these items have been taxed at a lower rate. Learned senior counsel could not dispute that even today a notice for reassessment subject to period of limitation may be issued to tax these items accordingly Applying the stated principle to the facts of the present case together with the judgment of the apex court in the case of Associated Distributors 2008 (5) TMI 394 - SUPREME COURT OF INDIA it will be travesty of justice if by way of judicial engineering the relief is granted to the petitioner by permitting it to pay the tax at a lower rate. W.P. dismissed.

Summary

Issues Involved:
1. Legality of proceedings initiated under section 21(2) of the U.P. Trade Tax Act, 1948.
2. Tax classification of bubble gum and chewing gum.
3. Jurisdiction to reopen assessment based on Supreme Court's interim and final orders.
4. Applicability of judicial pronouncements retrospectively.

Issue-wise Detailed Analysis:

1. Legality of proceedings initiated under section 21(2) of the U.P. Trade Tax Act, 1948:
The petitioner sought to quash the proceedings initiated under section 21(2) of the U.P. Trade Tax Act, 1948, for the assessment years 1997-98 and 1998-99. The proceedings were initiated based on the belief that bubble gum and chewing gum were wrongly taxed at 5% instead of 10%, following the Supreme Court's judgment in Commissioner of Trade Tax v. Associated Distributors [2008] 15 VST 39 (SC); [2008] 7 SCC 409, which classified these items as "unclassified" rather than "confectionery."

2. Tax classification of bubble gum and chewing gum:
Initially, bubble gum and chewing gum were taxed at 5% as "confectionery items" based on a Tribunal judgment. However, the Supreme Court later ruled that these items should be taxed as "unclassified items" at 10%. The petitioner acknowledged this classification but argued that, at the time of the notices, the High Court's judgment (taxing them at 5%) was still in force.

3. Jurisdiction to reopen assessment based on Supreme Court's interim and final orders:
The petitioner contended that the interim stay order by the Supreme Court did not nullify the High Court's judgment, thus there was no basis for reassessment. The court, however, held that the Supreme Court's final judgment, which classified bubble gum and chewing gum as "unclassified items," was binding and retrospective. The apex court's decision effectively meant these items were always taxable at 10%, justifying the reassessment.

4. Applicability of judicial pronouncements retrospectively:
The court emphasized that judicial declarations of law operate retrospectively unless specified otherwise. The Supreme Court's judgment in the case of Associated Distributors did not state it would apply prospectively. Consequently, the law that bubble gum and chewing gum are taxable at 10% was deemed to have been in effect from the date of the relevant notification. The court cited Salmond on Jurisprudence and other legal precedents to support this view.

Additional Considerations:
- The court noted that the petitioner's argument based on the case of Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association CSI Cinod Secretariat, Madras [1992] 3 SCC 1, regarding the difference between interim and final orders, did not apply here since the Supreme Court's final order had already merged with the interim order.
- The court also referenced the principle that a prerogative remedy (like a writ) is not a matter of right but a discretionary remedy, as discussed in Prestige Lights Ltd. v. State Bank of India [2007] 10 JT SC 218.
- The court highlighted that the petition was premature, as the petitioner had not awaited the outcome of its reply to the show-cause notice before approaching the court.

Conclusion:
The writ petition was dismissed, with the court finding no merit in the arguments presented. The court upheld the reassessment proceedings initiated under section 21(2) of the U.P. Trade Tax Act, 1948, based on the Supreme Court's authoritative pronouncement that bubble gum and chewing gum are taxable as "unclassified items" at 10%. No order as to costs was made.