2015 (10) TMI 1108 - HC - VAT and Sales Tax

Levy of tax - Escape of certain items from assessment of tax - Held that - In the earlier and subsequent Assessment Years, after due discussion on the issues, which is foundation of the impugned authorisation order and the notices; the Assessing Authority, the Additional Commissioner and the Tribunal have themselves accepted the explanation of the petitioners and held that the chemical formula in question cannot be applied as a matter of rule, but, production of zinc oxide would depend upon the quality of raw material. In view of these facts, the very foundation for initiation of proceedings under Section 21 of the Act by the Assessing Authority for the Assessment Years in question becomes non-existent - there was no relevant material before the Assessing Authority giving rise to prima facie inference that some turnover of the petitioners has escaped assessment to tax. Consequently, the impugned authorisation orders as well as notices under Section 21 of the Act issued by the Assessing Authority are without jurisdiction and, therefore, deserve to be quashed. - Decided in favour of assessee.

Summary

Issues involved:
Assessment based on chemical formula, Reassessment proceedings, Jurisdiction of Assessing Authority, Application of mind by Assessing Authority, Prima facie inference for tax assessment.

Analysis:
1. Assessment based on chemical formula: The judgment deals with writ petitions related to assessment years involving the application of chemical formulas to determine tax liabilities. The Assessing Authority initiated reassessment proceedings based on specific chemical formulas for zinc oxide and red lead production, alleging that the petitioners had underreported their production quantities. The petitioners contested these assessments, arguing that the formulas could not be applied without considering the quality of raw materials used in manufacturing.

2. Reassessment proceedings: The Assessing Authority initiated reassessment proceedings for multiple assessment years, alleging that the petitioners had underreported their production quantities based on the chemical formulas provided. The petitioners challenged these reassessment proceedings, highlighting discrepancies in the application of the formulas and the lack of concrete evidence supporting the claims of tax evasion.

3. Jurisdiction of Assessing Authority: The judgment discusses the jurisdiction of the Assessing Authority to initiate reassessment proceedings based on reasons to believe that turnover had escaped assessment to tax. The petitioners argued that the proceedings were without jurisdiction as there was no substantial material indicating tax evasion. The court examined the actions of the Assessing Authority and the validity of the reasons provided for initiating reassessment.

4. Application of mind by Assessing Authority: The court scrutinized whether the Assessing Authority had applied its mind while passing the original assessment orders and subsequently initiating reassessment proceedings. It was observed that the Assessing Authority had failed to consider the chemical formulas during the original assessments, leading to questions regarding the validity of the reassessment based on those formulas.

5. Prima facie inference for tax assessment: The court analyzed the presence of relevant material before the Assessing Authority to establish a prima facie inference that turnover had escaped assessment to tax. It was concluded that the lack of substantial evidence supporting the claims made in the reassessment proceedings rendered the authorisation orders and notices issued by the Assessing Authority as without jurisdiction, leading to the quashing of the same in favor of the petitioners.

In conclusion, the judgment critically evaluates the application of chemical formulas in tax assessments, the jurisdiction and reasoning of the Assessing Authority in initiating reassessment proceedings, and the necessity of concrete evidence to support claims of tax evasion. The court's decision to quash the authorisation orders and notices underscores the importance of substantial material and valid reasons in tax assessments to ensure fairness and legality in the process.