2014 (6) TMI 654 - HC - VAT and Sales Tax

Initiation of reassessment proceeding - Benefit of compounding scheme - UPTT Act 1948 - change of opinion - assessing authority held that out of the above 21 contracts, 9 contracts were such in which the petitioner had purchased more than 5% value of the raw materials from outside the State of U.P. and held that the compounding scheme could not be applied in respect of those 9 contracts. With regard to the remaining 12 contracts the Assessing Authority held that the contract had been executed before introduction of the compounding scheme 2000-01, hence the petitioner was eligible for the benefit of the compounding scheme as prevalent in the Assessment Year 1996-97. Held that - It is not the case of the department that the petitioner did not truly and correctly disclosed the nature of the contract work undertaken by him. It has come on record that the Deputy Commissioner (Executive), Trade Tax examined the contract awarded to the petitioner. After examination of the two contracts he accepted the application for compounding with his wide open eyes. There is not even a slightest whisper either in the impugned notice or in the counter-affidavit that the petitioner is guilty of concealing any material fact or has not truly and correctly disclosed the contract work undertaken by him. There is no allegation that the petitioner by playing fraud obtained the order dated 7th February, 1994 by which the application under Section 7-D of the petitioner was accepted. - Section 7-D opens with non-obstante clause. It gives an overriding effect over the provision in the same or the other Act mentioned in the obstante clause. The words reason to belief as used in Section 21 (1) of the Act, 1948 has not to be based on surmises and conjectures, rather it is to be based on objective satisfaction. There has to be nexus between the reason to belief and the materials on the record. It is true that if there are materials on the record, the Court shall not enter into the sufficiency of the materials for forming a belief, but if there is no material which is referred to for forming a belief the initiation of reassessment proceedings is arbitrary and falls beyond the Sections 21 (1) and (2) of the Act, 1948. There was no material to form a belief that that tax has escaped assessment and the proceedings initiated were not justified - writ petition allowed - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 21(2) of the U.P. Trade Tax Act, 1948 to orders passed under the compounding scheme of Section 7-D.
2. Validity of the reassessment proceedings initiated under Section 21(2) of the U.P. Trade Tax Act, 1948.

Issue-wise Detailed Analysis:

1. Applicability of Section 21(2) of the U.P. Trade Tax Act, 1948 to orders passed under the compounding scheme of Section 7-D:

The petitioner argued that once the tax liability is determined under the compounding scheme of Section 7-D, reassessment proceedings under Section 21(2) cannot be initiated. Section 7-D provides an overriding effect over other provisions of the Act and allows the assessing authority to accept a composition money in lieu of tax. The petitioner contended that the tax assessed under the compounding scheme should not be subject to reassessment, as Section 7-D overrides other provisions of the Act, including Section 21(2). The court, however, did not find it necessary to address this issue conclusively, as the reassessment proceedings were quashed on other grounds.

2. Validity of the reassessment proceedings initiated under Section 21(2) of the U.P. Trade Tax Act, 1948:

The court examined whether the conditions precedent for initiating reassessment proceedings under Section 21(2) were satisfied. The law requires that the assessing authority must have "reason to believe" that the turnover has escaped assessment, which must be based on objective satisfaction and relevant material. The court noted that the assessing authority had already scrutinized the contracts and determined the tax liability under the compounding scheme, considering the 5% limit for importing raw materials from outside the state. The Additional Commissioner's order authorizing reassessment did not indicate any new material or reasons to justify the belief that tax had escaped assessment. The court emphasized that mere change of opinion on the same set of facts does not justify reassessment. The court referenced several judgments, including those from the Supreme Court and Division Benches, to support the principle that reassessment must be based on new and relevant material, not on mere change of opinion.

The court concluded that there was no basis for the belief that tax had escaped assessment, and the initiation of reassessment proceedings was arbitrary and beyond the scope of Sections 21(1) and (2). Consequently, the court quashed the order dated 25/3/2008 by the Additional Commissioner and the reassessment notice dated 26/3/2008 by the Deputy Commissioner.

Conclusion:

The writ petition was allowed, and the reassessment proceedings for the Assessment Year 2001-02 were quashed. The court left open the question of whether Section 21 of the Act applies to composition orders under Section 7-D, as it was not necessary to decide this issue for the case at hand. Each party was ordered to bear its own costs.