2017 (5) TMI 1276 - HC - VAT and Sales Tax

Validity of re-assessment proceedings - permission u/s 29(7) of the U.P. VAT Act, 2008 - Held that - neither in the notice nor in the impugned order any material or fresh material has been referred to for the formation of the opinion with regard to the reason to believe that the matter requires reassessment. It is only on the basis of the fact that the royalty amount has not been clarified in the invoices that a decision has been taken to reopen the assessment. This by itself is not sufficient and a good ground when the assessing authority was possessed with all material at the time of initial assessment and nothing material was concealed from him. There was no material or any reason to believe on part of the respondent no. 2 for granting permission u/s 29(7) of the Act for reassessing the petitioner for the assessment year 2009-10 - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to order granting permission for reassessment under Section 29(7) of U.P. Value Added Tax Act, 2008 based on non-payment of royalty. Interpretation of "reason to believe" for reassessment. Liability of dealer for royalty on stone, grit, and sand purchases. Comparison of Section 29 of 'the Act' with Section 21 of U.P. Trade Tax Act.

Analysis:
The petitioner, a stone, grit, and sand dealer, challenges the order granting permission for reassessment under Section 29(7) of the U.P. Value Added Tax Act, 2008, for the year 2009-10. The basis for reassessment is the alleged non-payment of royalty on purchases made from unregistered dealers. The petitioner contends that the reassessment lacks fresh material for forming a 'reason to believe' as required by the Act. The respondent argues that non-payment of royalty justifies reassessment, citing relevant case law. The petitioner's non-involvement in mining activities raises doubts about the royalty liability.

The court examines the definition of purchase price under 'the Act' and clarifies that the petitioner's turnover should be assessed based on the purchase price alone, excluding any royalty amount. Section 29 of 'the Act' allows reassessment if turnover has escaped assessment, been under-assessed, assessed at a lower rate, or if deductions/exemptions were wrongly allowed. The assessing authority must have a 'reason to believe' for reassessment, mirroring Section 21 of the U.P. Trade Tax Act.

The court references the Supreme Court's interpretation of 'reason to believe' in tax laws, emphasizing the need for specific, rational material to support reassessment. Arbitrary or vague reasons for reassessment are deemed unlawful. In this case, the court finds no valid reason or material for the reassessment decision based solely on the absence of royalty clarification in invoices. The lack of fresh material or valid 'reason to believe' leads to the quashing of the reassessment order and notice.

In conclusion, the court rules in favor of the petitioner, quashing the reassessment order and notice. The judgment highlights the necessity of a valid 'reason to believe' supported by specific material for initiating reassessment proceedings, emphasizing the importance of adherence to legal provisions and precedents in tax matters.