2005 (5) TMI 656 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the cancellation of the compounding scheme agreement under Section 7-D of the U.P. Trade Tax Act.
2. Legitimacy of the assessment order issued under Section 21 of the U.P. Trade Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the cancellation of the compounding scheme agreement under Section 7-D of the U.P. Trade Tax Act:

The petitioner, a contractor, was awarded a contract by M/s. RAVE Entertainment Private Limited for electrification in RAVE-3 during the Assessment Year 2001-02. The petitioner applied under the compounding scheme for electrical contracts, which was accepted by the Deputy Commissioner (Assessment)-14, Trade Tax, Kanpur, on 28th February 2002. However, a notice was later issued under Section 7-D for the cancellation of this agreement, alleging that the petitioner also executed a contract for TV/Telephone network, which does not fall under the electrical contract compounding scheme.

The petitioner challenged this notice and subsequent cancellation order dated 29th September 2004, arguing that the nature of the contract was electrical and the inference that it included non-electrical work was baseless. The petitioner contended that once the application under the compounding scheme is accepted, it cannot be canceled unless there is a case of misrepresentation or concealment of fact, neither of which was present in this case.

The court observed that Section 7-D of the Act has an overriding effect and allows for a composition money agreement in lieu of tax payable. Clause 15 of the compounding scheme specifies that only the Commissioner of Trade Tax has the authority to cancel such agreements if any fact is concealed or wrong details are furnished. In this case, the cancellation order was issued by the Deputy Commissioner, who does not have jurisdiction under the scheme. Furthermore, there was no concealment or misrepresentation by the petitioner, as the agreement was duly examined and accepted by the concerned authority.

The court concluded that the cancellation order dated 29th September 2004 was without jurisdiction and not sustainable, as it was not issued by the Commissioner of Trade Tax and there was no concealment or misrepresentation by the petitioner.

2. Legitimacy of the assessment order issued under Section 21 of the U.P. Trade Tax Act:

Following the cancellation of the compounding scheme agreement, a notice under Section 21 was issued for reassessment, resulting in an assessment order dated 30th September 2004, which imposed tax on the petitioner.

The petitioner argued that once the application under the compounding scheme is accepted, no assessment can be made for the amount received for the execution of the contract, and no notice under Section 21 can be issued. The court supported this view, referencing the case of M/s. Kothari Contract Interiors v. Trade Tax Officer, Modinager, which held that Section 7-D has an overriding effect over other provisions of the Act, and once a compounding application is accepted, proceedings under Section 21 cannot be initiated.

The court found that the notice under Section 21 was issued when the compounding agreement was still in effect, rendering the assessment order dated 30th September 2004 unsustainable.

Conclusion:

The writ petition was allowed, and the orders dated 29th September 2004 under Section 7-D and 30th September 2004 under Section 21 were quashed. The court held that the Deputy Commissioner lacked jurisdiction to cancel the compounding scheme agreement and that the subsequent assessment order was invalid due to the existing compounding agreement.