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2014 (11) TMI 1095 - SC - VAT and Sales TaxLevy of purchase tax - legality of the Circular No.137 dated 29-30.03.2007 issued by the Commissioner of Trade Tax - validity of re-assessment proceedings initiated under Section 21 of the U.P. Trade Tax Act 1948 - Central Sales Tax Act 1956 - manufacture of rice from paddy - declared goods - tax at the point of first purchase under the notification issued under Section 3-D(i) of the Act - period of limitation - permission for re-assessment - whether the High Court was justified in quashing the re-assessment proceedings initiated under Section 21(2) of the Act on grounds that it was merely based on change of opinion and therefore bad in law? - Held that - the import of the words reason to believe has also been examined by this Court in cases arising out of proceedings under Section 34 of the Indian Income Tax Act 1922 which also has the same phraseology. It deals with income escaping assessment and confers jurisdiction on the income tax officer to make assessment or re-assessment. While the approval under Section 21(2) of the Act could be granted on the subjective change of opinion no proceeding under Section 21(1) of the Act can be initiated on the ground of change in opinion of the assessing Authority dehors any material on record which justifies such change requiring re-assessment. The requirement of reason to believe in Section 21(1) qualifies the phrase change in opinion as contained in Section 21(2). Subsequent change in law according to which the assessment proceedings were conducted cannot constitute change in opinion of the assessing Authority so as to initiate re-assessment proceedings. In fact the same is impermissible if the Act does not specify the operation of law as retrospective. Reliance placed in the decision of the case S.C. Prashar v. Vasantsen Dwarkadas 1962 (12) TMI 53 - SUPREME COURT held that if after change in law the period of time prescribed for action by the tax authorities has already expired then subsequent change in the law does not make it so retrospective in its effect as to revive the power of the tax authority to take action under the new law. The material in existence remains the same during both the assessment and the reassessment proceedings and no additional material or facts have been referred to explaining such reason to believe as per the mandate of Section 21(1) of the Act before initiating reassessment proceedings. In fact the assessing Authority has not indicated any material at all that has given rise to such reason and thus on the basis of mere change of opinion concluded that exemption on purchase tax has wrongly been allowed - action of High Court justified - purchase tax rightly levied - appeal rejected - decided against appellant.
Issues Involved:
1. Whether under Section 15(c) of the Central Sales Tax Act, 1956, the tax leviable on the sale and inter-State sales of rice procured out of paddy is liable to be reduced by the amount of tax levied on the paddy. 2. Whether Circular No. 137, dated 29.03.2007, issued by the Commissioner of Trade Tax, expressing that such reduction is not permissible, is legally correct. 3. Whether the initiation of proceedings under Section 21 of the U.P. Trade Tax Act, 1948, is based on a mere change of opinion and therefore, bad in law. Detailed Analysis: 1. Set-off under Section 15(c) of the Central Sales Tax Act, 1956: The court examined whether the tax liability on the inter-State sales of rice could be reduced by the amount of purchase tax paid on paddy within Uttar Pradesh. The respondent-assessee, engaged in the manufacture of rice from paddy, claimed such a set-off, which was initially allowed by the assessing authority. However, the Commissioner of Trade Tax later clarified through Circular No. 137 that such a set-off was not permissible under Section 15(c) of the Act, 1956. The High Court upheld the Commissioner's interpretation, rejecting the assessee's claim for set-off. 2. Legality of Circular No. 137: The High Court upheld the legality of Circular No. 137, which clarified that the tax liability on the inter-State sale of rice could not be reduced by the amount of purchase tax paid on paddy. The circular directed that no deduction should be allowed in respect of purchase tax paid on paddy from the tax liability on the sale of rice under the Central Sales Tax Act, 1956. The court found that the circular correctly interpreted the provisions of Section 15(c) of the Act, 1956. 3. Re-assessment Proceedings under Section 21 of the U.P. Trade Tax Act, 1948: The High Court quashed the re-assessment proceedings initiated under Section 21 of the U.P. Trade Tax Act, 1948, on the grounds that they were based on a mere change of opinion. The court emphasized that the "reason to believe" required for initiating re-assessment proceedings must be based on new material or facts, not merely a change in the assessing authority's opinion. The court referred to several precedents, including CST v. Bhagwan Industries (P) Ltd. and CIT v. Kelvinator of India Ltd., to underline that a mere change of opinion does not justify re-assessment. Conclusion: The Supreme Court affirmed the High Court's judgment, concluding that the re-assessment proceedings were invalid as they were based on a mere change of opinion without any new material. The court reiterated that the "reason to believe" for re-assessment must be based on concrete and tangible material, not just a different interpretation of the same facts. The appeals were dismissed, and the High Court's decision to quash the re-assessment proceedings was upheld.
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