2024 (5) TMI 841 - HC - VAT and Sales Tax

Validity of reassessment order - disallowance of ITC claim - purchase of various raw materials to manufacture Mentha Oil - reason to believe to reassess the petitioner was founded on the fact that the petitioner had sold Mentha Oil in the course of export against statutory Form I issued under the Central Sales Tax Act 1956 - HELD THAT - Plainly ITC is not part of determination of turnover or tax liablity. On the contrary it is an allowance that arises to certain dealers in the prescribed manner upon fulfillment of specified circumstances. That amount may be corrected both at the instance of the assessee as also the assessing officer. Once crystallized the allowance thus created would be adjusted against the gross tax liability that may arise against the assessee. By its very nature ITC is different and distinct from assessment/determination of turnover. It is an allowance utilized to pay tax dues. Neither the legislature intended nor there is any warrant to otherwise reach a conclusion that computation of ITC allowance is part and parcel of procedure to assess the turnover of sale or turnover of purchase of goods. Again amount of ITC admissible has been included as part of the regular assessment that may be made. Undeniably Section 29(1) of the Act is the only provision that could give rise to jurisdiction to initiate reassessment proceedings. It does not include within its scope an eventuality where ITC may have been wrongly computed i.e. in excess of its entitlement. In absence of any jurisdiction vested (by the legislature) in the Assessing Officer to initiate reassessment proceedings to recompute the ITC or to disallow ITC or to RITC there is no other principle in law available as may allow the revenue to assume that jurisdiction - jurisdiction to reassess may never arise under Section 29 of the Act - to RITC where purchase turnover giving rise to ITC was not first disturbed under Section 29 of the Act for reason of it s escapement. The issue whether RITC may be done where jurisdiction may have been validly initiated is not here. Thus the scheme of the Act is - the computation of correct ITC may be examined by the Assessing Authority not later than the stage of making the regular assessment order i.e. at the stage of Section 28 of the Act. That order may remain amenable to jurisdiction of suo moto revision. Suffice to note that jurisdiction has not arisen in the present case. Therefore the reassessment proceedings initiated against the petitioner only to RITC was without jurisdiction. Insofar as Section 29 of the Act did not empower the assessing authority to generally initiate the assessment proceedings on a sweeping allegation of escapement of tax but on a specific allegation of escapement from assessment of any turnover of a dealer etc. based on a reason to believe (as discussed above) there are no merit in the objection being raised by the State that the reassessment proceedings were within jurisdiction in this case - there was inherent and complete lack of jurisdiction to reassess the petitioner only to RITC. Also the reassessment order was passed in complete violation of principles of natural justice. On both counts the bar of alternative remedy is lifted in the present facts. Conduct of Reassessment Proceedings - Principles of Natural Justice - HELD THAT - The court found that the reassessment proceedings were conducted in great haste violating the principles of natural justice. The Additional Commissioner granted permission to the Assessing Officer on 18.3.2023 and the notice was issued on 22.3.2023 served on the petitioner on 24.3.2023 with the reassessment order passed on 28.3.2023. The court noted that the petitioner was not given a reasonable opportunity to respond as only two days were provided to respond to the reassessment notice. The court held that such a procedure undermined the trust in the rule of law and was unacceptable. The writ petition deserves and is allowed.

Summary

Issues Involved:
1. Jurisdiction to initiate reassessment proceedings u/s 29(7) of the Uttar Pradesh Value Added Tax Act, 2008.
2. Validity of the reassessment proceedings conducted in haste.
3. Eligibility and computation of Input Tax Credit (ITC).
4. Violation of principles of natural justice.

Summary:

1. Jurisdiction to initiate reassessment proceedings u/s 29(7) of the Uttar Pradesh Value Added Tax Act, 2008:
The petitioner challenged the reassessment order dated 28.03.2023 and the notice dated 22.03.2023 issued u/s 29(7) of the Act for A.Y. 2014-15. The court found that the reassessment proceedings were without jurisdiction as ITC is not part of the determination of turnover or tax liability but an allowance. The court clarified that Section 29(1) of the Act does not empower the assessing authority to initiate reassessment proceedings to recompute ITC or to Reverse Input Tax Credit (RITC). Therefore, the reassessment notice and proceedings were invalid.

2. Validity of the reassessment proceedings conducted in haste:
The court noted that the reassessment proceedings were conducted in great haste. The Additional Commissioner granted permission on 18.3.2023, the notice was issued on 22.3.2023, served on 24.3.2023, and the reassessment order was passed on 28.03.2023. The court held that such a procedure dilutes the trust in the rule of law and violates the principles of natural justice as reasonable opportunity to respond was not provided to the petitioner.

3. Eligibility and computation of Input Tax Credit (ITC):
The petitioner, a manufacturer of 'Mentha Oil', claimed ITC on raw materials purchased. The court held that ITC is an allowance arising upon fulfillment of statutory conditions and is distinct from the assessment of turnover. The court emphasized that ITC computation should be part of regular assessment proceedings and not reassessment proceedings. The court found no provision allowing the assessing officer to initiate fresh proceedings to redetermine ITC or to RITC after the regular assessment order.

4. Violation of principles of natural justice:
The court found that the reassessment order was passed in violation of principles of natural justice. The petitioner was not given a reasonable opportunity to respond to the reassessment notice. The court highlighted that the assessing authority should conduct proceedings in a manner that inspires confidence in the noticee, irrespective of their status as an honest taxpayer or a tax evader.

Conclusion:
The writ petition was allowed, and the impugned order dated 28.3.2023 was quashed. The court held that the reassessment proceedings were without jurisdiction and conducted in violation of principles of natural justice. No order as to cost.