2019 (1) TMI 764 - HC - VAT and Sales Tax

Jurisdiction - Classification of goods - rate of tax - trading of Ammonium Nitrate - initially taxable under Entry 18(1) of Schedule II to the VAT Act which was subsequently deleted and goods were subsequently classified under the residuary Entry - Entry 42A of Schedule II to the VAT Act - the order of assessment was neither challenged by the petitioner nor was taken in revision by the revisional authority and thus achieved finality. On 01.02.2018 the Asst. Commissioner of State Tax issued the impugned Notice purportedly in exercise of powers u/s.34(8A) of the VAT Act. Held that - In terms of subsection (2) of Section 34 of the VAT Act it is open for the Commissioner if any of the grounds mentioned therein are present to serve a notice upon a dealer requiring him to appear on a date and place specified and to produce necessary documents and supporting evidence. Sub section (6) of Section 34 authorizes the Commissioner to complete best judgment assessment in case a dealer does not cooperate with the scrutiny assessment undertaken by the Commissioner. Subsection (7) of Section 34 empowers the Commissioner to impose penalty under certain circumstances - Sub section (8A) of Section 34 which is of importance to us was inserted by the Gujarat Value Added Tax (Amendment) Act 9 of 2013 with effect from 01.04.2013. The Statement of Objects and Reasons for introduction of the said provision provided that the same was added so as to provide to assess the dealers separately in respect of any period for certain transactions or claims not recorded or recorded in an incorrect manner to evade the tax . The legislative intent thus for introduction of the said sub section (8A) clearly is to enable the Revenue to bring to tax certain transactions which are noticed in the course of any of the proceedings under the VAT Act. Such proceedings may be for assessment of the dealer for some other Financial Year or may even be appellate or revisional proceedings. If the proceedings in question relate to appellate or revisional proceedings the authority would place the issue before the concerned authority with a direction to assess the dealer in respect of such transaction or claim - powers under sub section (8A) of Section 34 of the VAT Act would be available when a certain claim or a transaction has not been subjected to audit assessment under sub section (2) of Section 34 of the VAT Act. The powers under sub section (8A) of Section 34 are not akin to the powers of reassessment u/s.35. Essentially under sub section (8A) of Section 34 if the authority in the course of any proceedings notices any evasion of tax he can address to such an issue without carrying out full assessment and if such authority happens to be either the appellate or the revisional authority the issue would be placed before the assessing authority. Two things thus become abundantly clear. Firstly the powers under sub section (8A) of Section 34 are not similar to the powers of re assessment flowing from Section 35 of the VAT Act and secondly such powers cannot be exercised when audit assessment has already been completed in case of a dealer with respect to a certain period. Any other view will make the limitation period provided in Section 35(1) of the VAT Act substantially if not completely redundant. Notices issued by the competent authority in the later two years u/s.35 of the VAT Act - Held that - Perusal of the provision of sub section (1) of Section 35 of the VAT Act would demonstrate that unlike in case of Section 147 of the Income Tax Act 1961 it does not make any distinction between a notice of re assessment within and beyond 04 years. It permits re assessment of turnover that has escaped assessment whether the escapement is on account of any failure on the part of the assessee to disclose truly and fully all material facts or otherwise. However the concept of change of opinion would certainly apply. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Correct rate of VAT on Ammonium Nitrate.
2. Jurisdiction of the Assessing Officer under Section 34(8A) of the VAT Act.
3. Scope of reassessment under Section 35 of the VAT Act.
4. Application of the concept of change of opinion in reassessment proceedings.

Issue-wise Detailed Analysis:

1. Correct rate of VAT on Ammonium Nitrate:
The petitioner, a partnership firm engaged in trading Ammonium Nitrate, classified the product under Entry 18(1) of Schedule II to the VAT Act, attracting 4% VAT and 1% additional tax until 31.07.2009. Post 01.08.2009, the entry was deleted, and the product was classified under the residuary entry. From 15.02.2010, Ammonium Nitrate was included under Entry 42A of Schedule II, inviting a tax rate of 4% plus 1% additional tax. The petitioner paid VAT accordingly. However, the Assessing Officer later contended that the correct rate should have been 12.50% plus 2.50% additional tax under the residuary entry for the period between 01.08.2009 and 14.10.2010.

2. Jurisdiction of the Assessing Officer under Section 34(8A) of the VAT Act:
The Assistant Commissioner issued a notice under Section 34(8A) of the VAT Act, claiming that the petitioner had not correctly discharged VAT liability for the period between 15.02.2010 and 31.03.2010. The court examined whether Section 34(8A) could be invoked to reassess a completed audit assessment. Sub-section (8A) was introduced to assess dealers separately for transactions or claims not recorded or recorded incorrectly to evade tax. The court opined that this provision does not allow the Assessing Officer to correct errors made during the audit assessment, which should be addressed through appeal or revision mechanisms provided in the VAT Act.

3. Scope of reassessment under Section 35 of the VAT Act:
In subsequent years, the Assessing Officer issued notices under Section 35, aiming to reassess the petitioner’s tax liability on the grounds that the tax was levied at a lower rate. The court noted that the original audit assessments had specifically examined and upheld the petitioner’s tax computation at 4% plus 1% additional tax for Ammonium Nitrate. The court emphasized that reassessment under Section 35 should be based on new material or information, not merely a change of opinion.

4. Application of the concept of change of opinion in reassessment proceedings:
The court referenced several decisions, including the Supreme Court’s ruling in Commissioner of Income Tax v. Kelvinator India Ltd., which held that reassessment cannot be equated with the power to review and should not be based on a mere change of opinion. The court applied this principle to the VAT Act, stating that reassessment under Section 35 requires new material or information, and cannot be initiated solely on a change of opinion.

Conclusion:
The court quashed the notices issued under both Section 34(8A) and Section 35 of the VAT Act, as they were based on a change of opinion rather than new material or information. The petitions were allowed, and the impugned notices were set aside.