2013 (9) TMI 259 - HC - VAT and Sales Tax

Notice for Re-assessment - Notices u/s 21 (2) of the U.P. Trade Tax Act for reassessment of the completed assessments - Held that - The assessing authority in all the four relevant assessment orders, did not apply his mind, considered and discussed the bulk purchases of diesel and its co-relation with the consumption in manufacture, sale and turnover of paper - It may not have been necessary to consider the unit-wise consumption per tonne of manufacture of paper but it was necessary for the assessing authority to consider as to how much quantity of purchase of diesel was utilised for manufacture of paper and the quantities which had no co-relation with such manufacturer and was used for allied purposes, before accepting the disclosed turnover M/s Palco Lining Co. v. State of UP 1983 (9) TMI 261 - ALLAHABAD HIGH COURT - Section 21 (1) does not permit reassessment of turnover, which after due consideration had been subjected to assessment for tax - where an opinion had been formed in the assessment order, that the turnover of sale was exempted from sales tax, the assessing authority should not issue notice under Section 21 for re-assessment. The huge quantity of diesel purchased by the assesse for running diesel generating sets should have been examined both for the purposes of its utilisation in manufacture and for ancillary purposes - There was no such error in law, in recording the reasons to believe, that the failure of the assessing authority to consider the utilisation of the diesel oil as fuel purchased by the petitioner was not sufficient material, even if it was disclosed by the assessee for the purposes of the assessment. Reassessment of Escaped Turnover - The assessing authority may also not be allowed to have a second thought about the applicability or effect of the survey - where primary facts necessary for assessment or fully and truly disclosed to the Income Tax Officer at the stage of original assessment proceedings, he was not entitled on a change of opinion to commence proceedings - but where the assessing authority did not apply its mind at all and completely omitted consideration of the purchase of raw material in bulk quantity, even if it was in relation to both manufacture and ancillary activities, the reason to believe for reassessment may not be doubted - Commissioner of Income Tax v. Bhanji Lavji 1971 (1) TMI 6 - SUPREME Court - There had to be application of mind by the assessing authority and the consideration of the material having co-relation with manufacture, turnover or sale, before it can be said that there is any change of opinion or re-assessment on the turnover, which had already been assessed. The huge quantity of diesel purchased by the petitioner for running diesel generating sets should have been examined both for the purposes of its utilisation in manufacture and for ancillary purposes. - Decided against the assessee.

Issues Involved:
1. Validity of reassessment notices under Section 21(2) of the U.P. Trade Tax Act.
2. Requirement of recording reasons for reassessment.
3. Examination of diesel consumption in relation to production and ancillary activities.
4. Alleged change of opinion by the assessing authority.

Detailed Analysis:

1. Validity of Reassessment Notices under Section 21(2):
The petitioner-company challenged the notices dated 10.3.2004 and 17.3.2004 for reassessment of the completed assessments for the years 1997-98, 1998-99, 1999-2000, and 2000-2001. The company also sought to quash the order dated 1.2.2004 by the Additional Commissioner, Trade Tax, Allahabad, which granted sanction for reassessment of escaped turnover. The court examined whether the reassessment notices and the sanction for reassessment were valid under Section 21(2) of the U.P. Trade Tax Act.

2. Requirement of Recording Reasons for Reassessment:
The petitioner argued that the reassessment notices were invalid as the reasons for reassessment were not recorded in writing by the assessing authority, as mandated by Section 21(2) and relevant circulars. The court noted that the petitioner had requested the reasons for reassessment, but the reasons were not communicated. The court emphasized the necessity of recording reasons for reassessment to prevent arbitrary use of power by the assessing authority.

3. Examination of Diesel Consumption in Relation to Production and Ancillary Activities:
The court scrutinized the petitioner's claim that the entire manufacturing process relied on electricity generated from diesel sets, and the details of diesel purchases were disclosed during the original assessments. The court found that the assessment orders did not discuss the number of units of electricity produced, its utilization in manufacturing paper, or other ancillary activities. The court held that the assessing authority failed to consider the co-relation between diesel consumption and production, which justified the reassessment.

4. Alleged Change of Opinion by the Assessing Authority:
The petitioner contended that the reassessment was based on a mere change of opinion, which is not permissible under Section 21(1). The court referred to the Supreme Court's judgment in *Commissioner of Income-Tax v. Kelvinator of India Ltd.*, which held that reassessment should be based on "tangible material" and not a mere change of opinion. The court concluded that the assessing authority did not apply its mind to the material disclosed during the original assessment, which warranted reassessment.

Conclusion:
The court dismissed the writ petition, holding that the reassessment notices were valid. The court found that the assessing authority had sufficient reason to believe that the turnover had escaped assessment due to the failure to consider the utilization of diesel. The court emphasized the importance of recording reasons for reassessment to ensure transparency and prevent arbitrary use of power. The reassessment was justified as the original assessment did not adequately examine the co-relation between diesel consumption and production.

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