2014 (5) TMI 414 - HC - VAT and Sales Tax

Whether there is some relevant material giving rise to prima facie inference that some turnover has escaped assessment - Escapement of turnover - Order of Reopening of assessment Order passed under the proviso to Section 21(2) of the U.P. Trade Tax Act - Material to form reason to believe - Excess stocks raw-materials and finished goods Held that - It is matter of record that in a search operation carried on by the Officers of Central Excise Department, a discrepancy was found with regard to raw-materials and finished goods on physical verification vis- -vis as found in the accounts book - Whatever may be proceedings under the Central Excise Act, the fact remains that assessee has not been totally exonerated nor there is any such case in the writ petition - In a search operation, excess stocks of raw-materials and finished goods were physically found - Where and in what manner, the excess stock has been dealt with by the petitioner and where it has gone, remains unexplained - Relying upon Commissioner of Sales Tax, U.P. versus M/s Bhagwan Industries (P) Ltd., Lucknow 1972 (10) TMI 90 - SUPREME COURT OF INDIA the relevant consideration at the stage of issue of notice is whether there is some relevant material giving rise to prima facie inference that some turnover has escaped assessment - Whether that material is sufficient for making assessment or re-assessment u/s 21 would be gone into after notice is issued to the dealer and he has been heard in the matter or given an opportunity for that purpose. Effect of Repeal of U.P. Trade Tax Act on proceedings Held that - Learned counsel for Assessee in all fairness did not pursue the said argument when it was pointed out by learned Addl. Chief Standing Counsel that the issue stands settled against the petitioner by a Division Bench decision of this Court based on Supreme Court s decision Therefore, there is relevant material on record to form a honest belief that the turnover of the petitioner has escaped taxation so as to justify the initiation of proceedings u/s 21 There is no illegality or infirmity in the impugned order granting permission to the Assessing Authority to initiate re-assessment proceedings - The writ petition is dismissed Decided against assessee.

Issues Involved:
1. Validity of the order dated 29th February 2012 passed by Additional Commissioner-I, Commercial Tax, Kanpur Zone-2, Kanpur authorizing the Assessing Officer to reopen the assessment under Section 21(2) of the U.P. Trade Tax Act, 1948.
2. Formation of "reason to believe" by the Assessing Authority for reopening the assessment.
3. Sufficiency and relevance of the information provided by the Deputy Accountant General, U.P.
4. Impact of the findings of the Central Excise Department on the reassessment process.
5. Procedural correctness of the reassessment notice issued by the Assessing Officer.
6. Applicability of the U.P. Trade Tax Act provisions post-repeal and replacement by the U.P. VAT Act.

Issue-wise Detailed Analysis:

1. Validity of the Order Authorizing Reopening of Assessment:
The primary issue was whether the order dated 29th February 2012, authorizing the Assessing Officer to reopen the assessment under Section 21(2) of the U.P. Trade Tax Act, 1948, was valid. The court examined the background facts, noting that the petitioner's turnover for the assessment year 2007-08 was initially accepted by the Assessing Officer on 4th February 2010. The reassessment was initiated based on information from the Deputy Accountant General, U.P., regarding excess stock found during a search by the Central Excise Department. The court upheld the validity of the order, finding no illegality or infirmity in granting permission for reassessment.

2. Formation of "Reason to Believe":
The petitioner argued that the Assessing Authority acted merely on the information provided by the Deputy Accountant General without forming an independent "reason to believe" that the turnover had escaped assessment. The court referred to precedents, including the Supreme Court's judgment in The Commissioner of Sales Tax, U.P. vs. M/s Bhagwan Industries (P) Ltd., emphasizing that there must be a rational basis for forming such a belief. The court concluded that the information regarding excess stock was sufficient to form a belief that the turnover had escaped assessment.

3. Sufficiency and Relevance of Information:
The petitioner contended that the information from the Deputy Accountant General was not germane to form a belief of escaped turnover. The court noted that during the Central Excise Department's search, a discrepancy was found between the physical stock and the recorded stock, which was relevant information. The court held that the information was sufficient to form a prima facie inference of escaped assessment, thus justifying the reassessment proceedings.

4. Impact of Central Excise Department Findings:
The court considered the findings of the Central Excise Department, which had detected excess stock during their search. Although the petitioner argued that the Central Excise Department had ultimately accepted their explanation, the court observed that the petitioner was not completely exonerated. The excess stock was not accounted for in the closing stock, raising a valid concern about potential tax evasion. Therefore, the findings of the Central Excise Department were deemed relevant for the reassessment under the U.P. Trade Tax Act.

5. Procedural Correctness of Reassessment Notice:
The petitioner alleged that the reassessment notice was issued before the order granting permission. The court dismissed this argument, clarifying that the notice was signed on 1st March 2012, after the permission was granted on 29th February 2012. The court found no procedural irregularity in the issuance of the reassessment notice.

6. Applicability of U.P. Trade Tax Act Provisions Post-Repeal:
The petitioner argued that the reassessment proceedings were not saved by the repealing and saving clause of the U.P. VAT Act, which replaced the U.P. Trade Tax Act. The court rejected this argument, citing a Division Bench decision and a Supreme Court ruling that settled the issue against the petitioner. The court affirmed that the reassessment proceedings were validly initiated under the provisions of the repealed U.P. Trade Tax Act.

Conclusion:
The court concluded that there was relevant material to form a belief that the petitioner's turnover had escaped taxation, justifying the initiation of reassessment proceedings under Section 21 of the Act. The writ petition was dismissed summarily, upholding the order authorizing the reassessment.

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