2019 (1) TMI 1297 - HC - VAT and Sales Tax

Whether upon completion of the assessment under Section 7(3) of the U.P. Trade Tax Act, 1948, the assessing authority had any surviving jurisdiction to pass an order under Section 7(D) of that Act? Held that - In the first place, no clause of the compounding scheme/directions issued by the State Government (under Section 7D of the Act), have been shown as may allow for both for compounding as also regular assessment of the same tax liability. In fact there can be only one assessment of liability either by way of regular assessment or in the alternative, by way of compounding, in lieu of assessment, subject to directions issued by the State Government. The option with the assessee to seek the alternative mode of determination of its tax liability-by way of compounding on contractual basis, cannot survive the stage of assessment. Once the tax liability stood precipitated i.e. determined upon the regular assessment order being passed, the reagent of option lost its freedom to cause a different result of compounding of that tax liability - there existed no circumstance or occasion for the assessing officer to have considered the application under Section 7D of the Act, thereafter. Whether by way of compounding or regular assessment, the liability of tax to be determined always remained one. Once that liability stood determined through regular assessment method, no duplication of such determination was contemplated or permitted. The fact contingency in which such dual method may be adopted is only one - where value of imported goods (against the work contract in question), is beyond a certain value (5% of the value of the contract). Even then, the assessment is split up in two parts without any duplication. One in respect of the whole contract (excluding value of imported goods exceeding 5% of the value of the contract), to be concluded under compounded method and the other with respect to value of imported goods exceeding 5% of the value of the contract, to be concluded under regular assessment method. This too is possible only because the contract for compounding permits or so stipulates and not otherwise - Such is clearly not the case here in as much as the regular assessment procedure was adopted for the entire liability of the assessee and not with respect to goods imported by the assessee in excess of 5% of the contract value. Once the assessment proceedings had been first concluded by the order of regular assessment passed under Section 7(3) of the Act, no assessment proceedings survived before the assessing officer as may have required or permitted any consideration by way of application under Section 7D of the Act. The assessment having been completed by regular method, the alternative method to determine the tax liability of the assessee lost its maintainability, rationale, availability or utility/purpose - The application, irrespective of its status (whether defective or proper), was necessarily rendered infructuous by the action of the assessing authority in having framed the regular assessment order. Therefore, the assessing officer lost his jurisdiction to consider that application under Section 7D of the Act. The question of law is answered in favor of the assessee and against the revenue - revision allowed.

Summary

Issues:
1. Interpretation of provisions under the U.P. Trade Tax Act, 1948 regarding the jurisdiction of the assessing authority to pass orders under Section 7(D) after completion of assessment under Section 7(3).
2. Determination of tax liability through regular assessment method versus compounding under Section 7D of the Act.
3. Analysis of the legality of passing orders under both regular assessment and compounding schemes for the same tax liability.

Issue 1:
The revision was filed against an order passed by the Trade Tax Tribunal, Jhansi Bench-I, for the Assessment Year 2003-04 under the U.P. Trade Tax Act, 1948. The primary question raised was whether the assessing authority had jurisdiction to pass an order under Section 7(D) of the Act after completing the assessment under Section 7(3). The applicant argued that once the regular assessment proceedings were concluded, the application for compounding became irrelevant and the assessing officer lost the jurisdiction to consider it.

Issue 2:
The applicant, an enterprise of the Government of U.P., applied for compounding under Section 7D of the Act during the assessment year 2003-04. Despite the application being defective, the assessing officer proceeded with regular assessment under Section 7(3) and later passed an order under Section 7(D) accepting the compounding application. The Tribunal upheld the order, stating that the applicant had voluntarily sought compounding. However, the High Court emphasized that once tax liability was determined through regular assessment, the compounding option lost its relevance.

Issue 3:
The High Court analyzed the legality of passing orders under both regular assessment and compounding schemes for the same tax liability. It was established that the compounding scheme provides an alternative method for determining tax liability, but this option ceases to exist once the tax liability is determined through regular assessment. The Court cited a Supreme Court judgment emphasizing that compounding is a contractual agreement between the assessee and the assessing authority, and once the regular assessment is finalized, no duplication of determination is permissible.

In conclusion, the High Court ruled in favor of the assessee, stating that once the regular assessment was completed, the assessing officer lost jurisdiction to consider the compounding application. The Court clarified that the compounding option is only applicable if the tax liability has not been determined through regular assessment. The judgment highlighted the importance of finality in assessment proceedings and the exclusivity of determining tax liability through either regular assessment or compounding, but not both simultaneously.