2015 (8) TMI 740 - HC - VAT and Sales Tax

Reassessment - levy of entry tax - Respondents in original assessment, did not impose tax in matter of purchase of MS steel scrap from seller, who did not make any endorsement that said goods were local goods and not tax paid Later respondent authorities issued notices under section 28(1) Commercial Tax Act, 1994 and imposed penalty for escaping assessment Held that - Admitted that petitioner purchased M. S. steel scrap and while selling those goods, petitioner did not declare goods as local goods Under Act, 1976, entry tax was leviable on entry of goods in local area for consumption, use or sale therein Incidence of taxation was not sale and purchase but entry of goods into local area and tax was to be paid by dealer who has effected entry of goods Once iron and steel items were subjected to entry tax, steel scrap which was generated out of repair and maintenance, in absence of any endorsement, would not create any liability for payment of entry tax by its purchaser In absence of any such declaration by seller, there was no liability cast on petitioner under section 3 of Act to pay entry tax in respect of purchases made Assessing authority during original assessment, despite all details, did not form any opinion that goods purchased by petitioner were different items manufactured by seller, thus, were local goods within its meaning Once it was held that basis for reassessment was change of opinion, such reassessment was impermissible under law, as laid down in case of Sales Tax Officer, Ganjam v. Uttareswari Rice Mills 1972 (9) TMI 109 - SUPREME COURT OF INDIA Reassessment proceedings on ground that purchase has escaped assessment, was clearly illegal and unsustainable in law in view of authoritative pronouncement of Supreme Court in case of Commissioner of Income-tax v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA Reassessment orders set aside Decided in favour of Assesse.

Summary

Issues Involved:
1. Legality of reassessment orders under Section 28(1) of the Commercial Tax Act, 1994 read with Section 13 of the Entry Tax Act, 1976.
2. Liability of entry tax on M. S. steel scrap purchased from BALCO.
3. Validity of penalty imposed on the petitioner.

Detailed Analysis:

1. Legality of Reassessment Orders:
The petitioner challenged the reassessment orders for the assessment years 2000-01, 2001-02, and 2002-03, arguing that the reassessment was based on a change of opinion, which is impermissible under the law. Initially, the petitioner was not subjected to entry tax on the purchase of M. S. steel scrap from BALCO. However, reassessment notices were later issued under Section 28(1) of the Commercial Tax Act, 1994, read with Section 13 of the Entry Tax Act, 1976.

The court noted that the original assessment did not levy entry tax on the M. S. steel scrap as it was treated as tax-paid purchases. The reassessment orders were passed on the basis that the M. S. steel scrap was local goods and not tax-paid, which was a change of opinion by the assessing authority. The court held that reassessment based on a change of opinion is impermissible, citing several precedents, including Sales Tax Officer, Ganjam v. Uttareswari Rice Mills [1972] 30 STC 567 (SC) and Commissioner of Income-tax v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC).

2. Liability of Entry Tax on M. S. Steel Scrap:
The petitioner argued that the M. S. steel scrap generated during the repair and maintenance of plant and machinery by BALCO was not a manufactured product and thus not liable for entry tax. The court agreed, stating that the steel scrap was not a new commercial commodity produced through a manufacturing process but was merely a by-product of repair and maintenance activities. The court referred to the Supreme Court's decision in Grasim Industries Ltd. v. Union of India [2011] 11 GSTR 176 (SC), which held that metal scrap generated during repair and maintenance is not a by-product of a manufacturing process and is not liable for excise duty.

3. Validity of Penalty Imposed:
The reassessment orders also imposed penalties on the petitioner for the alleged non-payment of entry tax. The court found that since the reassessment itself was based on an impermissible change of opinion, the penalties imposed were also unsustainable. The court emphasized that the burden of proving that the M. S. steel scrap was local goods and not tax-paid lay with the Revenue, which it failed to discharge.

Conclusion:
The court concluded that the reassessment orders and the penalties imposed were illegal and unsustainable in law. The reassessment was based on a change of opinion, which is not permissible under Section 28(1) of the Commercial Tax Act, 1994. Additionally, the M. S. steel scrap purchased by the petitioner from BALCO was not liable for entry tax as it was not a manufactured product but a by-product of repair and maintenance activities. Consequently, the writ petitions were allowed, and the reassessment orders and penalties were set aside. No orders as to cost were made.