2017 (11) TMI 1501 - HC - VAT and Sales Tax

Initiation of reassessment proceedings - Section 21 of the 1948 Act - sale of SSF - Held that - In view of the inextricable and umbilical link between the material and the formation of an opinion, in the considered view of this Court, it was wholly improper for the assessing authority to proceeded to assess the revisionist with respect to the sale of SSF - the assessing authority had never decided to reassess the revisionist on the issue of SSF. The formation of opinion was based solely upon material which seemed to suggest that the disclosure with respect to closing stock of forms was incorrect. Scope of SCN - Held that - During the reassessment or after the said process was set in motion, it was not open to the assessing authority to review the entire assessment undertaken earlier. The path which the assessing authority proceeded to traverse could not have been validated or conferred an imprimatur by the Tribunal. This more fundamentally so since this issue neither formed the subject matter of the permission which was accorded by the Additional Commissioner, nor did it form part of the show cause notice. This fundamental flaw in the course adopted by the assessing authority could not have been cured by the liberty which was accorded by the Tribunal in terms of the order impugned. This additionally because the power to reassess was authorized by the Additional Commissioner in terms of the proviso to section 21. But for this permission, admittedly, the assessing authority had no jurisdiction to initiate or commence proceedings for reassessment. Revision allowed.

Issues Involved:
1. Validity of reassessment proceedings under Section 21 of the 1948 Act.
2. Inclusion of SSF (manufactured from coal) in reassessment without prior notice.
3. Scope and limits of the "reason to believe" for reassessment.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 21 of the 1948 Act:
The Tribunal's order dated 12 April 2007 validated reassessment proceedings initiated by the assessing authority under Section 21 of the 1948 Act. The reassessment was based on the Additional Commissioner’s permission letter dated 27 March 2003, which highlighted discrepancies in the closing stock for the Assessment Year 1996-97. The assessing officer found that certain import declarations shown in closing stock were actually utilized during the assessment year. This led to the formation of a "reason to believe" that part of the turnover had escaped assessment, thus justifying the reassessment under Section 21. The Tribunal's validation of these proceedings was challenged, highlighting that the power to reassess must be based on material that originally led to the formation of the opinion that turnover had escaped assessment.

2. Inclusion of SSF (manufactured from coal) in reassessment without prior notice:
The reassessment order dated 29 March 2003 included an assessment of SSF, which was not part of the initial show cause notice. The assessing authority estimated the total sales turnover of SSF to be ?52,80,000 and computed an additional tax of ?2,11,200. The assessee objected to this inclusion, arguing that SSF was never part of the show cause notice. The Tribunal agreed, stating that the issue of SSF did not form part of the show cause notice, and thus, the assessing authority should have confined the reassessment to the material initially considered. The Tribunal's decision to allow the assessing authority to issue a fresh notice and proceed afresh was found to be improper, as it expanded the scope of reassessment beyond the original material.

3. Scope and limits of the "reason to believe" for reassessment:
The Court reiterated the legal standard for "reason to believe" under Section 21, which requires the assessing authority to have a rational basis for believing that part of the turnover has escaped assessment. This belief must be based on material on record, and the reassessment must be confined to this material. The Court referred to precedents, emphasizing that the power to reassess does not permit a de novo assessment or a change of opinion based on the same material. The material leading to the formation of the opinion must be relevant and have a nexus with the belief of escaped assessment. In this case, the formation of opinion was solely based on discrepancies in the closing stock forms, and the inclusion of SSF was beyond the scope of the original reassessment notice.

Conclusion:
The revision was allowed, setting aside the Tribunal's order that permitted the assessing authority to proceed afresh with a new notice. The reassessment concerning the sales turnover of SSF was invalidated, as it was not part of the original show cause notice or the Additional Commissioner's permission. The respondents were not precluded from proceeding further if permissible by law.

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