2014 (8) TMI 922 - HC - VAT and Sales Tax

Reopening of assessment - UPTT - why reassessment proceedings under Section 21 of the Act should not be reopened on the ground that enzymes was not a chemical since it only acts as a catalyst and, therefore, is taxable at the rate of 10% as an unclassified item - Held that - There has been no discussion in the original assessment order as to whether enzyme is a chemical or not. In the absence of any finding being given by the Assessing Officer on this aspect, the issue as to whether enzyme is a chemical or not has not been determined. When there is an application of mind and an opinion is formed, in that case reopening the assessment proceedings could be held to be illegal as it would amount to a change of opinion but, in the instant case, we find that there has been no determination as to whether enzyme is a chemical or not. No finding has been given by the Assessing Officer. Consequently, no opinion has been formed. In the absence of determination of a vital issue as to whether enzyme is a chemical or not, the competent authority was justified in granting permission to the Assessing Officer to reopen the assessment. The word reasons to believe would mean cause or justification. The Assessing Officer was justified in forming an opinion that there has been an under assessment. The expression reason to believe cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The same principle applies to the competent authority while granting permission. Only a limited reason is required to be given by the competent authority while granting permission to reopen the assessment. The Court finds that there was sufficient application of mind in coming to a conclusion that it was a case of under assessment and that a finding is required to be given as to whether enzyme is a chemical or not. reassessment proceedings can only take place when there is an assessment order and there is reason to believe that there has been a case of under assessment or escaped assessment. In the event, there is no assessment order there can be no reassessment proceedings. Consequently, initiation of proceedings under Section 21 of the Act when there is no assessment order is a clear case of non application of mind. Consequently, the order of the competent authority granting permission to reopen the assessment proceedings under Section 21 (2) of the Act as well as the consequential notice issued by the Assessing Officer under Section 21 of the Act for the assessment year 2006-07 under U.P. Trade Tax Act was wholly illegal and is quashed - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 21 of the U.P. Trade Tax Act and Central Sales Tax Act.
2. Classification of enzymes as chemicals for tax purposes.
3. Application of mind by the competent authority in granting permission for reassessment.
4. Legality of reassessment proceedings during the pendency of original assessment proceedings.
5. Requirement of fresh material for initiating reassessment proceedings.

Detailed Analysis:

1. Validity of reassessment proceedings under Section 21 of the U.P. Trade Tax Act and Central Sales Tax Act:
The petitioner argued that the reassessment proceedings initiated under Section 21 of the U.P. Trade Tax Act and Central Sales Tax Act were invalid as there was no fresh material to justify the belief that income had escaped assessment. The court held that reassessment on the same material is permissible if valid reasons exist. The original assessment lacked a discussion or finding on whether enzymes are chemicals, justifying the reopening of assessment to conclusively determine this issue.

2. Classification of enzymes as chemicals for tax purposes:
The petitioner contended that enzymes should be classified as chemicals and taxed at 4% under Notification No.1084. The court noted that the original assessment did not address whether enzymes are chemicals. Therefore, reopening the assessment was justified to determine the proper classification and applicable tax rate.

3. Application of mind by the competent authority in granting permission for reassessment:
The petitioner argued that the competent authority did not apply its mind while granting permission for reassessment. The court found that the competent authority had sufficient reason to believe that there was underassessment and that enzymes' classification needed a conclusive finding. The court held that the competent authority's decision was based on a rational basis and justified the reopening of assessment.

4. Legality of reassessment proceedings during the pendency of original assessment proceedings:
For the assessment year 2006-07 under the U.P. Trade Tax Act, the petitioner argued that reassessment proceedings were initiated while the original assessment proceedings were still pending. The court agreed, stating that reassessment proceedings can only occur when there is an existing assessment order. Since the matter was remanded for fresh assessment, initiating reassessment proceedings was illegal and indicated non-application of mind.

5. Requirement of fresh material for initiating reassessment proceedings:
The petitioner claimed that reassessment proceedings require fresh material. The court clarified that while fresh material often justifies reassessment, it is not always necessary. The absence of a finding on whether enzymes are chemicals in the original assessment provided a valid reason for reopening the assessment to address this critical issue.

Conclusion:
The court dismissed Writ Petition Nos.704 and 705 of 2010, upholding the reassessment proceedings for the assessment years 2003-04, 2004-05, and 2005-06. However, Writ Petition No.706 of 2010 was allowed, quashing the reassessment proceedings for the assessment year 2006-07 under the U.P. Trade Tax Act, as they were initiated during the pendency of the original assessment proceedings. The court emphasized the necessity of a conclusive determination on whether enzymes are chemicals for proper tax classification.

← Previous Next →