2014 (7) TMI 1225 - HC - VAT and Sales Tax

Trade tax - tractor batteries - Section 3-A of the Tax Act - Entry No.46 of the N/N. dated 15.1.2000 - Entry No.18 of N/N. dated 29.1.2001 - Entry No.18(i) as modified by N/N. dated 19.5.2003 - Based on Entry No.18 of the N/N. dated 9.5.2003, a circular dated 22.5.2007 was issued by the Commissioner of Trade Tax indicating that in view of the inclusion of battery in the N/N. dated 9.5.2003 and non-inclusion of battery in the N/N. dated 15.1.2000, the tractor battery should be subjected to tax as an unclassified item @ 10% - whether the batteries are to be considered as parts or accessories of tractor and at what rate should it be taxed? Held that - a battery, which is fitted in a tractor, is an integral part of a tractor if not an accessory. Assuming that battery is supplementary or subordinate in nature and is not essential for actual functioning of the product, even then, battery would be included as a part, if not, accessory of a tractor under the notification dated 15.1.2000 in view of the words of all kinds . The said words are of wide import and would include battery tractor - We are of the opinion that a battery is an essential component for the functioning of the tractor and is an integral part of the tractor. Consequently, a battery would be covered under the notification dated 15.1.2000. Jurisdiction of AO - reasons to believe to impose tax - The words has reasons to believe must not be arbitrary or irrational but must be based on reasons which are relevant and germane to the issue. The formation of the required opinion and belief by the assessing officer is a condition precedent. Without such formation, the assessing officer will have no jurisdiction to initiate proceedings under Section 21 of the Act Held that - the assessing officer as well as the Additional Commissioner, while granting permission, was of a belief that tractor battery is liable to be taxed as an unclassified item @ 10%. Such belief was based on comparison of the notification dated 9.5.2003 wherein batteries were included as a component, parts and accessories of a vehicle, which excluded tractor and consequently had a reasonable belief and formed an opinion that non-exclusion of battery in the notification dated 15.1.2000, which related to parts and accessories and attachments of tractor would mean that tractor battery cannot be included in the notification dated 15.1.2000 and, therefore, has to be treated as an unclassified item. Further, the belief was formed also on the basis of the circular dated 22.5.2007 issued by the Commissioner, which is binding upon the subordinate authorities. The Court is of the opinion, that such belief forming an opinion that whole or any part of the turnover of a dealer had escaped assessment of tax is not based on any rational basis nor the belief is germane to the issued involved nor such reasons have a nexus with the issue involved. Initiation of re-assessment proceedings under Section 21 of the Act was wholly illegal and without any authority of law. Consequently, the impugned order of the Additional Commissioner of Trade Tax, dated 20.5.2008, granting permission to the assessing authority for reopening the assessment proceedings under Section 21 of the Act as well as notice under Section 21 of the Act, dated 26.3.2008, issued by the Trade Tax Officer and the circular dated 22.5.2007 issued by the Commissioner of Trade Tax are wholly illegal and are quashed. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Imposition of Trade Tax on tractor batteries.
2. Interpretation of relevant notifications under the U.P. Trade Tax Act.
3. Validity of reopening assessment proceedings under Section 21 of the Act.
4. Legality of the circular issued by the Commissioner of Trade Tax.

Detailed Analysis:

1. Imposition of Trade Tax on Tractor Batteries:
The core issue concerns the imposition of Trade Tax on tractor batteries. The assessing authority initially taxed tractor batteries at 5% based on Entry No.46(2) of the notification dated 15.1.2000, which included parts and accessories of tractors. The petitioner argued that the battery is either a part or an accessory of a tractor and should be taxed at 5%. Conversely, the authorities later contended that tractor batteries should be taxed as an unclassified item at 10% based on a circular dated 22.5.2007 and the notification dated 9.5.2003, which included batteries as components of motor vehicles but excluded tractors.

2. Interpretation of Relevant Notifications:
The notification dated 15.1.2000 under Entry No.46(2) did not explicitly mention batteries but included parts and accessories of tractors, excluding specific items like tyres and tubes. The notification dated 29.1.2001 (amended on 9.5.2003) included batteries as components of motor vehicles but excluded tractors. The court held that the notification dated 15.1.2000 was broader, covering all parts and accessories of tractors except those explicitly excluded. The court concluded that a battery is an essential component of a tractor, and thus, should be taxed at 5% under the 15.1.2000 notification.

3. Validity of Reopening Assessment Proceedings:
The assessing authority, based on the circular dated 22.5.2007, sought to reopen the assessment proceedings, believing that the tractor batteries were under-taxed. The Additional Commissioner granted permission for reopening under Section 21(2) of the Act, citing the inclusion of batteries in the 9.5.2003 notification as a reason. The court emphasized that "reasons to believe" must be based on rational and relevant grounds. It found that the belief was not rational or germane to the issue, as the authorities failed to consider the broader scope of the 15.1.2000 notification. Consequently, the court deemed the reopening of assessment proceedings as illegal and based on non-application of mind.

4. Legality of the Circular Issued by the Commissioner of Trade Tax:
The circular dated 22.5.2007 directed that tractor batteries should be taxed as an unclassified item at 10%, based on the 9.5.2003 notification. The court found this circular to be patently illegal, as it contradicted the explicit and broader scope of Entry No.46 in the 15.1.2000 notification. The court held that such a circular, which disregards the clear provisions of the relevant notification, leads to disastrous results and cannot stand.

Conclusion:
The court concluded that the imposition of Trade Tax on tractor batteries should be at 5% under the notification dated 15.1.2000. The reopening of assessment proceedings was deemed illegal due to non-application of mind and lack of rational basis. The circular dated 22.5.2007 was also quashed for being contrary to the explicit provisions of the relevant notifications. The writ petition was allowed, and the impugned orders and circular were quashed. No order as to cost was made.