2010 (2) TMI 937 - SC - VAT and Sales Tax

Recognition certificate - respondents are manufacturers of notified goods - purchase of high speed diesel oil at concessional rate - Department submitted that by mistake HSD has been included in the list - Department seeks to rectify that mistake Held that - under section 4B(4)(ii) of the 1948 Act the assessing authority is vested with discretionary power to amend a recognition certificate granted under sub-section (2) of section 4B of the 1948 Act either on its own motion or on the application of the dealer for any sufficient reason pre-condition of sufficiency of reasons requires a show- cause notice to be given to the dealer in whose favour a recognition certificate exists calling upon him to show cause as to why an item should not be deleted if an order amending the recognition certificate is issued by the assessing authority the same will operate only from the date of issuance of show-cause notice appeals filed by the State of Uttar Pradesh stand disposed of

Issues Involved:
1. Whether the Department was right in issuing show-cause notices to delete High Speed Diesel (HSD) from the recognition certificates under Section 4B of the Uttar Pradesh Trade Tax Act, 1948.
2. The nature of the power exercised by the assessing authority under Section 4B(4)(ii) of the 1948 Act.

Detailed Analysis:

Issue 1: Issuance of Show-Cause Notices to Delete HSD
The respondents are manufacturers of notified goods and have been given Central registration under Section 7 of the Central Sales Tax Act, 1956, and recognition certificates under Section 4B of the Uttar Pradesh Trade Tax Act, 1948, to purchase high-speed diesel oil (HSD) at a concessional rate. The lead matter is the case of Vam Organic Chemicals Limited, which uses HSD to operate diesel generating sets (D.G. sets) for generating electricity used in the manufacturing process of chemicals.

The Department issued a circular on June 20, 2000, based on a decision taken on June 12, 2000, stating that the benefit of form IIIB for the purchase of HSD used in D.G. sets should not be given as it is not directly used in the manufacture of notified goods but for generating electricity. Consequently, show-cause notices were issued to delete HSD from the recognition certificates. The High Court ruled that the Department's stand was highly technical and that HSD was used for manufacturing chemicals as per Section 4B(2) of the 1948 Act. The High Court set aside the show-cause notices and circulars, stating that HSD constitutes a fuel required for manufacturing chemicals.

Issue 2: Power of Assessing Authority under Section 4B(4)(ii)
The Supreme Court examined the nature of the power exercised by the assessing authority under Section 4B(4)(ii) of the 1948 Act. The section grants the assessing authority the discretionary power to amend a recognition certificate for any sufficient reason, provided reasonable opportunity of being heard is given to the dealer. The Department argued that HSD was included in the recognition certificates by mistake and sought to rectify this by deleting HSD.

The Supreme Court noted that the Department's action to amend the recognition certificate by deleting HSD should be viewed as an amendment rather than rectification. The Court emphasized that the benefit of concessional tax rates, once granted, could not be withdrawn retrospectively but only from the date of issuance of the show-cause notice.

Conclusion:
The Supreme Court remitted all cases to the assessing authority, directing them to treat the show-cause notices as proposals to amend the existing recognition certificates. Each assessee will be given a hearing, and cases will be decided on their own merits, uninfluenced by the High-Power Committee's decision or the circulars issued. The assessing authority must provide reasoned orders, and any amendment to the recognition certificate will operate only from the date of the show-cause notice.

The batch of civil appeals filed by the State of Uttar Pradesh was disposed of with no order as to costs.

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