2019 (11) TMI 373 - HC - VAT and Sales Tax

Validity of assessment order - Re-assessment/revision of assessment - benefit of concessional rate of tax - the petitioner received pre-assessment notices dated 06.12.2006 proposing to bring to tax the very same transactions at regular rate, thus denying the petitioner the benefit of concessional rate of tax - change of opinion - whether the authorities of the State Commercial Taxes Department are empowered to initiate proceedings for re-assessment/revision of assessment - scope and width of such powers. HELD THAT - The issue is covered within the scope of Section 16 of U.P. Trade Act, 1948 where it has been stated the provisions for assessmnet of escaped turnover. In the present case, it is the provisions of sub-Section 1(b) that would be attracted, insofar as we are concerned with re-assessment of turnover at a higher rate than what was initially applied. Section 16 provides for assessment of escaped turnover 'for any reason' . The language utilised is wide and grants unrestricted powers to an assessing authority to bring to tax turnover that has in his opinion escaped assessment for any reason whatsoever. Thus, the statutory provision for initiating proceedings for assessment of escaped turnover permits an Assessing Authority under the TNGST Act to initiate proceedings for re-assessment merely if, in his opinion, turnover liable to be brought to tax, has escaped assessment. Concessional rate of tax - Fibre Glass Reinforced Plastic Products - TNGST Act - rate of sales tax chargeable - HELD THAT - There appears to have been an inspection at the petitioners premises on 22.05.2006 and based on a statement recorded therein, a notice dated 22.05.2006 for revision of assessment was issued by the Enforcement Officers. The notice alleged that the inspection of the business premises revealed contravention of the provisions of the Act insofar as the sales in respect of which concessional rate was sought were not so eligible to the same and ought to have been taxed under regular rate. The conclusion of the Assessing Authority to the effect that section 3(5) would apply to 'capital goods' alone is clearly incorrect and does not appear to have any basis. Capital goods being machinery as well as parts, accessories and tools thereof fall within the ambit of clause (3) of the Eighth schedule and consequently within the beneficial sweep of section 3(5) as well. There is no dispute in this case that the purchaser is an industrial consumer and is not a trader/retailer. Being a manufacturer, the petitioners case is that the FGRP supplied has been used by the purchasers in their manufacturing activity. This argument has been specifically raised by the petitioner in reply dated 11.01.2007 more than once and has not been controverted or denied by the Assessing Officer. It is hence uncontroverted that the ultimate consumer in this case is a manufacturer. Thus, in summation, the commodities in question fall within the cover of the Eighth schedule and have been purchased for use in the activity of manufacturing by the purchaser. The provisions of section 3(5) are thus applicable on all fours in this case. The objections of the Assessing Officer to the effect that the averments in Form XVII declaration would have to be proved by a selling dealer, is clearly misplaced and does not stand to reason. The orders of assessment are quashed on merits - Petition allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Authority to initiate re-assessment.
2. Merits of the re-assessment denying concessional rate of tax.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Authority to Initiate Re-assessment:

The petitioner argued that the impugned re-assessments for the periods 2001-02 and 2002-03 constitute a review and are hence impermissible in law. The original assessments had concluded that the concessional rate of tax claimed was in order. The petitioner contended that the pre-assessment notices and impugned orders did not refer to any new material or information warranting the revision of assessments. The petitioner relied on the Supreme Court judgment in State of Uttar Pradesh and Others Vs. Aryaverth Chawl Udyoug and Others, which states that reassessment can only be based on new material and not a change of opinion.

The respondents, however, cited several decisions supporting the authority's power to reassess, including Dinod Cashew Corporation Vs. The Deputy Commercial Tax Officer, Yercaud Coffee Curing Works Ltd. Vs. The State of Tamil Nadu, and Surya Fertilisers and Chemicals Vs. The State of Tamil Nadu.

The court referred to Section 16 of the Tamil Nadu General Sales Tax Act, 1959, which allows reassessment of escaped turnover for any reason within five years. The court noted that this provision grants wide powers to the assessing authority. The court distinguished the language of the TNGST Act from the Income Tax Act, emphasizing that the former does not impose the same restrictions as the latter.

The court concluded that the statutory provision permits reassessment if the assessing authority believes that turnover liable to tax has escaped assessment. The reliance on the U.P. Trade Tax Act judgment was deemed irrelevant. The plea regarding lack of jurisdiction was rejected.

2. Merits of the Re-assessment Denying Concessional Rate of Tax:

The petitioner, a manufacturer of Fibre Glass Reinforced Plastic Products (FGRP), claimed a concessional rate of tax based on Form XVII declarations from purchasers. The original assessments had accepted this claim. However, an inspection and subsequent notice alleged that the sales were not eligible for the concessional rate and should be taxed at the regular rate.

The petitioner argued that the notice was vague and unsupported by material evidence. The petitioner emphasized compliance with Section 3(5) of the Act and argued that any penalty should target the purchasing dealer, not the selling dealer. The assessing officer, however, denied the concessional rate on several grounds, including that FGRP does not constitute capital goods and that the sales transactions were knowingly ineligible for the concessional rate.

The court analyzed Section 3(5) and the relevant portion of the Eighth Schedule, concluding that the concessional rate applies to machinery and parts used in manufacturing. The court found that the purchaser was an industrial consumer and a manufacturer, and the FGRP was used in manufacturing activities. The court rejected the assessing officer's objections and emphasized that the selling dealer is not responsible for proving the use of goods by the purchasing dealer.

The court cited the Division Bench decision in Sree Murugan Engineering Products V. Commercial Tax Officer, Coimbatore, which held that liability can only be fastened on the purchasing dealer, not the seller.

In conclusion, the court quashed the orders of assessment on merits and allowed the writ petitions. The connected miscellaneous petitions were also closed.