2017 (3) TMI 155 - HC - VAT and Sales Tax

Reassessment proceedings for assessment year 2009-10 - Rule 9(3) of the Rules - extended period of limitation - works contract on turn key basis - separate components for supply and labour work under the contracts - wrongful allowance on account of labour charges - whether reassessment permissible? - Held that - It is settled law that the jurisdiction to initiate reassessment proceedings arises only after the assessing authority records his reason to believe that any turnover has escaped assessment Thus, not only is the belief of escapement essential but more importantly, it is necessary for the Assessing Authority to record his reason/s as to existence of the belief of such escapement - the belief of escapement has not been shown to exist on record. Mere statement that the deduction towards labour charges is allowable under Rule 9 (3) of the Rules, even if accepted to be absolute does not automatically, give rise to the necessary belief of escapement of any part of the turnover for which reassessment proceedings may be initiated. To claim jurisdiction to reassess the petitioner, the burden was solely on the assessing authority to categorically bring on record such information or material as may establish presence of the pre-condition for application of Rule 9 (3) of the Rules. In the context of reassessment proceedings initiated by the Assessing Authority, it was mandatory to record such a fact by way of a reason (based on some material or evidence) that one of the three statutory pre-condition for application of Rule 9 (3) existed - In absence of any material it was not open to the authorities to assume existence of such facts for the purpose of acquiring jurisdiction and to later, in the course of reassessment proceedings to conduct an inquiry as to its existence or otherwise. The petitioner s Assessing Authority had not fulfilled the requirement of recording a reason to believe to apply Rule 9 (3) of the Rules. The assessing authority is clearly wrong in treating it to be a mandatory rule of normal application and not a rule of exception. In absence of any fact or reason recorded to establish existence, of either three mandatory pre-conditions for applicability of Rule 9 (3) of the Rules, the Assessing Authority could never assume jurisdiction to compute the deduction on account of labour and service charges and profit thereon in accordance with Rule 9 (3). This is a clearly impermissible course and the action of the Assessing Authority is without jurisdiction. Moreover, even if Rule 9 (3) were to be applied, even then, at this stage, there is complete absence of any belief and reason or application of mind as to the amount, which in the opinion of the assessing authority has escaped assessment. Thus, the reassessment proceedings initiated at present appear to be an exercise merely to conduct an inquiry, by way of review of the original assessment order, which is clearly impermissible on account of lack of jurisdiction. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Validity of the reassessment order dated 05.02.2014.
2. Whether the original contracts and account books were produced during the initial assessment.
3. Applicability of Rule 9(3) of the U.P. Value Added Tax Rules, 2008.
4. Jurisdictional fact and reason to believe for reassessment.
5. Alleged change of opinion in reassessment.

Detailed Analysis:

1. Validity of the reassessment order dated 05.02.2014:
The petitioner challenged the reassessment order dated 05.02.2014, arguing that it was based on a mere change of opinion and re-examination of the same material available during the original assessment. The court found that the reassessment was impermissible as it was not based on new material but rather on a re-evaluation of existing documents.

2. Whether the original contracts and account books were produced during the initial assessment:
The petitioner contended that the original contracts and account books were produced during the initial assessment for the year 2009-10. The court examined the original assessment order and found that the petitioner had indeed furnished details of the work contracts and that the Assessing Authority had discussed the billing and payments, verifying the purchase of steel and cement. Thus, the court concluded that the books of account and contract documents were produced and examined during the original assessment.

3. Applicability of Rule 9(3) of the U.P. Value Added Tax Rules, 2008:
The reassessment was proposed based on the belief that the petitioner was wrongly allowed deductions in excess of 10% for labor charges under Rule 9(3). However, the court noted that Rule 9(3) applies only if the accounts do not show separately the value of labor and services or are not worthy of credence. The court found no evidence or material to suggest that the petitioner’s accounts were unworthy of credence or that they did not show the value of labor and services separately. Therefore, the court held that Rule 9(3) was inapplicable.

4. Jurisdictional fact and reason to believe for reassessment:
The court emphasized that the jurisdiction to initiate reassessment arises only after the Assessing Authority records a reason to believe that any turnover has escaped assessment. The court found that the Assessing Authority did not provide any specific figures or details to support the belief of escapement. The belief was based on presumptions without factual basis or reasonable grounds. The court held that the Assessing Authority failed to establish the jurisdictional fact necessary for reassessment.

5. Alleged change of opinion in reassessment:
The petitioner argued that the reassessment was merely a change of opinion. The court acknowledged that there was no change of opinion by the Assessing Authority in the original assessment regarding the value of labor and services charges. However, the court concluded that the reassessment proceedings were impermissible due to the lack of jurisdictional facts and reasons to believe in escapement.

Conclusion:
The writ petition was allowed, and the reassessment order dated 05.02.2014 was quashed. The court held that the reassessment proceedings were initiated without proper jurisdiction and were based on presumptions rather than concrete evidence. The Assessing Authority failed to establish the necessary preconditions for applying Rule 9(3) and did not provide a valid reason to believe in the escapement of turnover.

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