2019 (3) TMI 774 - HC - VAT and Sales Tax

Validity of reassessment proceedings - reopening of assessments - change of opinion - input tax credit - Held that - Admittedly, the reassessment proceedings have been initiated only on the basis of the information received from the Deputy Commissioner (SIB), Commercial Tax, Muzaffarnagar pertaining to the search/survey dated 04.07.2013 at M/s TISCL and search/survey dated 11.07.2013 carried out at the business premises of the petitioner by the DGCEI, New Delhi. On the basis of the said search, notices were issued by the excise authorities and the replies have been submitted by the petitioner. Thereafter, no proceeding, whatsoever, has been undertaken by the excise authorities, nor has levied any duty, tax or imposed penalty upon the petitioner. The basis of reassessment proceedings initiated by the respondents authorities is only the survey/search conducted by the DGCEI, New Delhi and no further action or order has been passed or brought on record by the respondents - The jurisdiction to initiate reassessment proceedings arises only after the Assessing Authority records his reason to believe that any turnover has escaped assessment. Thus, not only is the belief of escapement essential, but, more importantly, it is necessary for the Assessing Authority to record his reason(s) as to existence of the belief of such escapement - In the present case, the respondents, while making proposal for reassessment, record their reason to the effect that survey has been conducted by the Central Excise authorities at the business premises of M/s TISCL, in which certain incriminating materials were found, which represent clandestine removal of goods and non-payment of due taxes and therefore, verification is required for the said figures and reassessment proceedings may be permitted. In the present case, the reassessment proceedings have only been initiated on the basis of the survey/search conducted by the Central Excise authorities, i.e., DGCEI, New Delhi, and this fact is admitted between the parties that no further action has been taken by the said authorities, nor any tax, duty or penalty has been imposed upon the petitioner - the present proceedings of reassessment are absolutely bad in law and are not permissible under the law. Petition allowed.

Summary

Issues:
Challenge to reassessment proceedings under U.P. Value Added Tax Act, 2008 for Assessment Years 2011-12 & 2012-13 based on search/survey conducted by DGCEI, New Delhi.

Detailed Analysis:
The petitioner, a company engaged in manufacturing and sale of iron steel ingots, challenged reassessment proceedings for Assessment Years 2011-12 & 2012-13 under the U.P. VAT Act. The original assessment orders were passed after due verification of books of account and input tax credits. The reassessment was based on a survey conducted by DGCEI at the business premises of another company, M/s TISCL, and subsequently at the petitioner's premises. The petitioner argued that no action had been taken against them by the excise authorities following the survey, and thus, reassessment was impermissible.

The State contended that the reassessment was lawful and necessary, emphasizing that materials found during the survey indicated possible tax evasion. However, the petitioner maintained that reassessment based solely on the survey without any subsequent action or imposition of taxes/penalties was unjustified. The court examined the records and noted that the reassessment was solely initiated on the basis of the survey, with no further actions by the excise authorities against the petitioner.

The court highlighted that reassessment requires the Assessing Authority to have a reason to believe that turnover has escaped assessment, and such belief must be recorded. In this case, the reassessment was proposed solely for verification purposes without fresh material, akin to a fishing expedition. Citing precedents, the court emphasized that reassessment without a valid reason or fresh material is impermissible under the law.

In light of the above analysis, the court quashed the impugned order and reassessment notices for the Assessment Years 2011-12 & 2012-13 under the U.P. VAT Act, ruling that the reassessment proceedings were unlawful and not in accordance with the legal requirements. The writ petition was allowed in favor of the petitioner.