2009 (7) TMI 1189 - HC - VAT and Sales Tax

Issuance of notice under section 21 of the U.P. Trade Tax Act, 1948 challenged - Held that - While issuing notices under section 21 of the Act on March 29, 2000 the assessing authority has not recorded any reasons for his satisfaction. The material on which the Assistant Commissioner (Assessment), Trade Tax, formed its belief must be on record and those material should be relevant for forming the belief that the turnover had escaped assessment to tax. In view of the foregoing discussions the impugned notices issued under section 21 of the U.P. Trade Tax Act as well as under Central Sales Tax Act, 1956 cannot be sustained and are accordingly quashed. Appeal allowed.

Summary

Issues Involved:
1. Legality and jurisdiction of the proceedings under section 21 of the U.P. Trade Tax Act, 1948.
2. Validity of notices issued under section 21 of the U.P. Trade Tax Act, 1948.
3. Grounds for reassessment based on information received from Trade Tax Officers.

Issue-wise Detailed Analysis:

1. Legality and Jurisdiction of the Proceedings under Section 21 of the U.P. Trade Tax Act, 1948:
The petitioner challenged the legality and jurisdiction of the proceedings initiated under section 21 of the U.P. Trade Tax Act, 1948, arguing that the proceedings were "wholly illegal and without jurisdiction" and based on the respondent's whims. The petitioner contended that there were no valid reasons to believe that any part of the turnover of tax-paid menthol oil had escaped assessment, especially since the purchases and form IIIC(2) were duly verified and signed by the respondent during the regular assessment. The court noted that the belief of the officer must be based upon relevant material and not purely subjective. The court emphasized that it is not open to the officer to initiate proceedings under section 21 with a view to conducting a fishing and roving inquiry without having some material pointing towards the escapement of turnover.

2. Validity of Notices Issued under Section 21 of the U.P. Trade Tax Act, 1948:
The petitioner sought to quash the notices dated March 29, 2000, July 25, 2000, and August 4, 2000, issued under section 21 of the Act. The court observed that the only basis for issuing the notice was the information received from the Trade Tax Officer, Chandpur, and the Assistant Commissioner (Assessment), Trade Tax, Khatima. The court found that the form IIIC(2) used for the purchase of menthol oil was issued by the Trade Tax Officer, Chandpur, and the sale of menthol oil for Rs. 51 lacs was duly verified during the regular assessment. Since the selling dealer, M/s. Laxmi Trading Company, did not disclose the sale or the issuance of form IIIC(2) to its assessing authority, the petitioner could not be held liable for any tax on the purchase of menthol oil. The court cited the decision in Om Trading Company v. Commissioner of Trade Tax, which held that the assessee should not be penalized if the selling dealer fails to furnish details to its assessing officer.

3. Grounds for Reassessment Based on Information Received from Trade Tax Officers:
The court examined the grounds for reassessment based on the information received from the Trade Tax Officers. The court noted that the form IIIB No. 032474, used for the purchase of polythene bags, was issued on December 22, 1998, during the assessment year 1998-99, and was used on July 22, 1999. Since the form was issued after the assessment year 1997-98, the use of the form could not have been shown in that year. The court emphasized that the issuance of notice under section 21 based on this information had no foundation. The court reiterated that the existence of reasons for the belief that certain turnover had escaped assessment is a condition precedent for acquiring jurisdiction under section 21. The material forming the basis of the belief must be relevant and on record.

Conclusion:
The court concluded that the impugned notices issued under section 21 of the U.P. Trade Tax Act and the Central Sales Tax Act, 1956, could not be sustained and were accordingly quashed. The petition succeeded, and there was no order as to costs.