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2014 (6) TMI 794 - HC - VAT and Sales TaxExemption from trade tax - Whether Cotton Coated Fabric i.e. Textile Fabrics , impregnated, coated, covered or laminated by PVC is the same thing as PVC fabric for the purpose of taxability under the Act, 1948 - Held that - A perusal of the said notification indicates that cotton fabrics of all varieties manufactured on power loom have been granted exemption from tax. However, certain items have been excluded. One of the excluded item is PVC/HDPE fabrics - it is relevant to refer to the provisions of Act, 1957 which was enacted by the Parliament to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of a part of the net proceeds thereof among the States - different varieties of cotton fabrics are exempted from the tax under the Act, 1948. Textile fabrics impregnated, coated covered or laminated with PVC (polyvinyl chloride) are treated as textile fabric. Even if article is covered by an item which has been excluded, but its species is again covered in an item included in the exemption, the exemption shall not be denied to the species of the item included - although the PVC/H.D.P.E fabrics are excluded, but cotton coated fabrics of all varieties having been included, if the item manufactured by the petitioner is termed as cotton coated fabric, it is exempted from payment of Tax under Act, 1948. Whether the Additional Commissioner has rightly granted permission under Section 21 (2) of the Act, 1948 and as to when the re-assessment proceedings can be initiated under Section 21(2) of the Act, 1948 has been the subject matter of consideration before the Apex Court and this Court in large number of cases - Held that - There cannot be any dispute to the proposition as laid down in the above two cases. In the proposal submitted by the Assessing Officer, no other fact except the judgment of the learned Single Judge in M/s Laxmi Leather Cloth Industries (2007 (10) TMI 577 - ALLAHABAD HIGH COURT) was relied on. The Additional Commissioner, himself has observed in its order dated 25/11/2011 that the question as to whether the tax has escaped assessment is to be examined by the Assessing Officer for determining as to whether the Cotton Coated Fabric manufactured by the petitioner is a PVC fabric or not. Thus, no belief has been formed by the Additional Commissioner that the tax has escaped assessment and the proceedings of re-assessment has been initiated merely on doubt which is not permissible. - Cotton Coated Fabrics are different from PVC fabrics and the judgment of the learned Single Judge in M/s Laxmi Leather Cloth Industries (supra) being not attracted in the present case, we are of the view that the re-assessment proceedings against the petitioner cannot be allowed to continue - Decided in favour of assessee.
Issues Involved:
1. Whether 'Cotton Coated Fabric' i.e. 'Textile Fabrics', impregnated, coated, covered or laminated by PVC is the same as PVC fabric for taxability under the U.P. Trade Tax Act, 1948. 2. Whether there was any material with the respondent authorities to form a belief that tax has escaped assessment to initiate proceedings under Section 21(2) of the U.P. Trade Tax Act, 1948 for the relevant period. Issue-wise Detailed Analysis: 1. Whether 'Cotton Coated Fabric' is the same as PVC fabric for taxability under the Act, 1948: The petitioner, a manufacturer of 'Cotton Coated Fabric', challenged the re-assessment order for the years 2005-06 and 2006-07. The petitioner argued that 'Cotton Coated Fabric' is a 100% cotton cloth coated with PVC resin and other stabilizers, and has been exempted from trade tax under various notifications issued under Section 4 of the U.P. Trade Tax Act, 1948. The assessment for the years 2005-06 and 2006-07 had initially accepted the goods as exempted from trade tax. The controversy arose when the Additional Commissioner relied on the judgment in Commissioner Trade Tax, U.P. Vs. M/s. Laxmi Leather Cloth Industries, which equated 'Cotton Coated Fabric' with PVC fabric, thus denying the exemption. The court examined the notification dated 05/6/1985, which exempted cotton fabrics of all varieties but excluded PVC/HDPE fabrics. The court also considered the provisions of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, which aimed to prevent states from imposing trade tax on certain goods. The court found that 'Cotton Coated Fabric' and PVC fabrics are not the same. The 'Cotton Coated Fabric' is a cotton cloth impregnated, coated, or laminated with PVC, whereas PVC fabric is solely made from PVC without any cloth base. This distinction was supported by the classification under the Central Excise Tariff Act, 1985, where 'Cotton Coated Fabric' falls under Chapter 59.03, and PVC sheets fall under Chapter 39.02. The court concluded that 'Cotton Coated Fabric' is exempted from trade tax under the U.P. Trade Tax Act, 1948, and the judgment in M/s. Laxmi Leather Cloth Industries was not applicable in this case. 2. Whether there was any material to form a belief that tax has escaped assessment under Section 21(2) of the Act, 1948: The petitioner argued that there was no material to form a belief that tax had escaped assessment, making the re-assessment proceedings under Section 21(2) of the Act, 1948, invalid. The court referred to several judgments, including The Commissioner of Sales Tax, U.P. Vs. Bhagwan Industries (P) Ltd., which established that there must be rational grounds for the belief that turnover has escaped assessment. The court noted that the Additional Commissioner authorized the re-assessment based solely on the judgment in M/s. Laxmi Leather Cloth Industries, without forming an independent belief that tax had escaped assessment. The court emphasized that the belief must be held in good faith and should not be a mere pretence. Since the Additional Commissioner himself observed that the question of tax escape was yet to be examined, the court found that the proceedings were initiated on mere doubt, which is not permissible. The court concluded that the re-assessment proceedings could not continue as there was no valid formation of belief that tax had escaped assessment. Consequently, the order dated 25/11/2011 and the consequential notice dated 28/11/2011 were quashed. Conclusion: The writ petition was allowed, and the re-assessment proceedings against the petitioner were quashed. The court held that 'Cotton Coated Fabric' is different from PVC fabric and is exempted from trade tax under the U.P. Trade Tax Act, 1948. The re-assessment proceedings were found to be initiated without a valid belief that tax had escaped assessment.
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