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TMI Blog2008 (5) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... amus commanding the respondents, not to initiate any reassessment proceedings for the assessment year 2001-02, against any of the petitioners. (v) issue any other writ, order or direction which this honourable court may deem fit and proper in the facts and circumstances of the case. (vi) an order for costs." The brief facts of the case giving rise to the present petitions are that the dispute relates to the assessment year 2001-02 under the Central Sales Tax Act, 1956 (hereinafter referred to as, "the Central Act"). The petitioners are rice miller and engaged in the business of manufacturing of rice from paddy. Both paddy and rice are declared commodity under section 14 of the Central Act and are the goods of special importance and liable to tax at the point of first purchase under the notification issued under section 3D(i) of the U.P. Trade Tax Act, 1948 (hereinafter referred to as, "the Act"). The petitioners claimed to have purchased paddy after paying the tax under the Act on their purchases and procured/manufactured rice out of such paddy and such procured rice has been sold inside the State of U.P. and outside the State of U.P. in the course of inter-State sales. Under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it only under the State law and not under the Central Act. He submitted that in the absence of any word being used in section 15(c) of the Act contemplating benefit of set-off with the tax on the sale in the course of inter-State sales only, the benefit of set-off of tax paid on paddy is available both for intraState sales as well and inter-State sales of rice. He further submitted that section 15 of the Act has been introduced to reduce the burden of tax on the customer. He further submitted that the impugned circular dated March 29, 2007, which is annexure 1 to the writ petition, is contrary to plain language of section 15(c) of the Central Act and the circular dated March 18, 1998 issued in respect of new unit for the purposes of computation of the exemption limit provides the benefit of the set-off of the tax paid on paddy with the tax payable on rice on the sale in the course of inter-State sales which indicates that the Commissioner was of the view that the set-off of the tax paid on paddy was allowable with the tax payable on rice in the course of inter-State sales under section 15(c) of the Central Act. He submitted that from the plain reading of section 15(c) of the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance is placed on the decision of this court in the case of Pawansut Trading Company v. Commissioner of Trade Tax reported in [2007] 9 VST 509; [2007] UPTC 636 (paras 13, 14 and 17 of VST), (paras 9, 10 and 13 of UPTC). He submitted that no proceeding under section 21 of the Act can be initiated on account of change of opinion. The approval may be granted in the case of change of opinion, but in the absence of any such word being used under section 21(1) of the Act, the assessing authority cannot initiate the proceeding under section 21 of the Act on account of change of opinion as it settled by the decisions of the apex court and various High Courts. He submitted that for the initiation of proceeding under section 21 of the Act, there should be some material on the basis of which belief can be formed that the tax under the Central Act has been wrongly reduced. In the present case, whatever material was available in existence at the time of passing of the assessment orders the same material existed at the time of the initiation of the proceeding under section 21 of the Act. No material has been referred in the notice under section 21 of the Act on the basis of which belief was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India, the Parliament has power to put restriction in respect of inter-State sales and in exercise of said power, section 15 of the Central Act has been introduced, therefore, section 15(c) of the Central Act provides set-off with the tax payable on the interState sales. Sri N.C. Mishra, learned counsel for the petitioners, submitted that in the fiscal statute the literal meaning of the word used in the statute should be given. He submitted that wherever the Legislature wanted to use the words "State law" in section 15 of the Central Act, it has been specifically used. In section 15(c) of the Central Act for the paddy the words "under the State law" are used, but for the procured rice, the words under the State law have not been used which means that the object is to provide set-off of the tax paid on paddy with the tax payable both under the State law as well as under the Central Act. He submitted that the Commissioner can issue circular only in exercise of power under rule 4(2) in consistency with the provisions of the Act and any circular issued contrary to the provisions of the Act is illegal, not binding and liable to be set aside. He submitted that the Commissioner has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "286. Restrictions as to imposition of tax on the sale or purchase of goods.-(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place,- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." Report of the Taxation Enquiry Commission Volume 3 reads as follows: "Taxation Enquiry Commission.-The Commission in its report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, will be that the importing State should not levy either a sales tax or a purchase tax on these goods if at the export end they have already been subjected to tax; otherwise these commodities would be taxed more than once and the object of controlling the incidence thereon will be frustrated.' Power to control State taxation.-Article 283(3), as it appears after the Sixth Amendment of the Constitution, but before the Constitution (Forty-sixth) Amendment Act, 1982, places certain limitations on the taxing power of a State. It says: 'Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law, to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.' It means that the Parliament may declare particular goods to be of special importance in inter-State trade or commerce. The Parliament may place restrictions and conditions on a State law imposing tax on the sale or purchase of such goods. The restrictions and conditions to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les Tax Act. Object of section 15.-Section 15 is designed to override and control the State power to tax transactions of sales and purchases of declared goods. The twin purpose which is sought to be effected by placing section 15 on the statute books is (i) to prescribe the maximum rate of sale or purchase tax under a State law, at one precise stage, and (ii) to prevent subjecting the same goods to tax under the State law and the Central law where the goods are, later, sold in the course of inter-State trade or commerce. Object (i) is sought to be fulfilled by enacting clause (a) and object (ii) by enacting clause (b) of section 15. The underlying object seems to be have uniformity, at least in respect of declared goods, of the rate and mode of tax levy throughout India. Section 21. Assessment of tax on the turnover not assessed during the year.-(1) If the assessing authority has reason to believe that the whole or any part of the turnover of the dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under-assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever is later: Provided also that the assessment or reassessment for the assessment year 1989-90 may be made by March 31, 1995. Section 15 of the Central Act. "15. Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.-Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely:- (a) The tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof; (b) Where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India prescribes the restriction as to the imposition of a tax on sale or purchase of goods enumerated therein. Article 286(1) of the Constitution of India lays down the restriction on a State law as to the imposition or authorising the imposition of a tax on sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of import of goods into or export of goods out of the territory of India. Clause (2) thereof empowers the Parliament to formulate principles for determining as to when a sale or purchase of goods takes place in any of the ways aforementioned. The directive embodied in clause (3) is that any law of State shall, insofar as it imposes or authorises the imposition of tax, specified in sub-clauses (a) and (b) thereof, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidence of tax, as the Parliament may by law specify. The said sub-clauses are as follows: (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce (the declared goods); or (b) a tax on the sale or purchase of goods being a tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1996), with effect from 28 September, 1996. It directs that where a tax on sale or purchase of paddy is leviable under a State law and the rice procured out of such paddy is exported out of India then for purposes of penultimate sale under section 5(3), the paddy and rice shall be treated as a single commodity. In the circumstances mentioned in clause (ca), it brings paddy on par with pulses dealt with in clause (d), the mandate embodied in clause (d) is that pulses enumerated in clause (vi-a) of section 14, whether whole or separated, and whether with or without husk, shall be treated as a single commodity for the purposes of levy of tax under any State law. In State of Punjab v. Punjab Fibres Ltd. reported in [2005] 139 STC 200 (SC); AIR 2004 SCW 6988, dealing with the notification issued under the Punjab General Sales Tax Act, it has been held as follows: (page 203 of STC) "It is settled law that to avail of the benefits of a notification the party must strictly comply with the conditions of the notification. It is also settled law that the notification has to be interpreted in terms of its wording. Where the language is very clear and unambiguous, benefit cannot be grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Ltd. v. Additional Commissioner, Sales Tax reported in [1978] 41 STC 409 (SC); [1979] UPTC 129, the apex court observed as follows: (page 426, 427 of STC) "If the language of a statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the law-giver. It would not be right to refuse to place on the language of the statute the plain and natural meaning which it must bear on the ground that it produces a consequence which could not have been intended by the Legislature. It is only from the language of the statute that the intention of the Legislature must be gathered for the Legislature means no more and no less than what it says. It is not permissible to the court to speculate as to what the Legislature must have intended and then to twist or bend the language of the statute to make it accord with the presumed intention of the Legislature... It must also be remembered that section 5(2)(a)(ii) and the second proviso occur in a taxing statute and it is well-settled rule of interpretation that in construing a taxing statute 'one must have regard to the strict letter of the law and not merely to the spirit of the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission Vol. II also support our views: "Power to control State taxation.-Article 283(3), as it appears after the Sixth Amendment of the Constitution, but before the Constitution (Forty-sixth) Amendment Act, 1982, places certain limitations on the taxing power of a State. It says: 'Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.' It means that the Parliament may declare particular goods to be of special importance in inter-State trade or commerce. The Parliament may place restrictions and conditions on a State law imposing tax on the sale or purchase of such goods. The restrictions and conditions to be prescribed by the Parliament by law should be related to the system of levy, rates and other incidents of the tax. In accordance with this provision, the Parliament has enacted sections 14 and 15 of the Central Sales Tax Act, 1956. Sections 14 and 15 to be rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable in the State law has been taken. It may be mentioned here that under section 8 of the Central Act the turnover of rice against form "C" is liable to tax at four per cent and without form "C" is liable to tax at eight per cent being a declared commodity. (In the case of other commodities, the general rate applicable is 10 per cent without form "C"). It is also useful to refer the case of Mahendrakumar Iswarlal and Co. v. Commercial Tax Officer reported in AIR 1968 Mad 90. The Division Bench of the Madras High Court has considered article 286(3) of the Constitution and held "That means the Parliament may declare particular goods to be of special importance in inter-State trade or commerce. The Parliament may place such restrictions and conditions on a State law imposing tax on the sale or purchase of such goods. The restrictions and conditions to be prescribed by the Parliament by law should be related to the system of levy, rates and other incidents of the tax. In accordance with this provision, the Parliament has enacted sections 14 and 15 of the Central Sales Tax Act, 1956..." Now coming to the decision of the Andhra Pradesh High Court in the case of Aitha Narasaiah & Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred hereinabove. The decision of the Orissa High Court in the case of Shree Hanuman Rice Mill v. State of Orissa reported in [1988] 70 STC 316, is also based on section 8(2A) of the Central Sales Tax Act and thus, is not applicable and is clearly distinguishable. In the decision of the Punjab and Haryana High Court in the case of Food Corporation of India v. State of Punjab reported in [2006] 148 STC 312, the dispute relates to the set-off of the tax paid on paddy with the tax payable on rice under the State law and not under the Central Sales Tax Act. Thus, this case has no relevance. In this view of the matter, we are of the view that there is no illegality in the impugned circular dated March 29/30, 2007 issued by the Commissioner of Trade Tax, which is in conformity with the plain language of section 15(c) of the Central Act. We have also examined the circular dated March 18, 1998. The said circular was issued in the case of new unit. We have perused the circular. There is nothing in the circular which provides the benefit of the reduction of tax leviable under the Central Act on the inter-State sale of rice by the tax levied on paddy. This circular does not help the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The material should be relating to the particular year for which the assessment is sought to be reopened. It is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of income. In the case of Johri Lal (HUF) v. Commissioner of Income-tax, U.P. reported in [1973] 88 ITR 439 (SC), the apex court has held as follows: "The formation of required belief by the Income-tax Officer before proceedings can be validly initiated under section 34(1)(a) is a condition precedent: the fulfilment of this condition is not a mere formality, it is mandatory, and failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief is not the only requirement: the officer is further required to record his reasons for taking action under section 34(1)(a) and obtain the sanction of the Central Board or the Commissioner, as the case may be." In Joti Prashad v. State of Haryana [1992] 6 JT 94 SC the honourable Supreme Court while dealing with the meaning of expression "reason to believe" in section 26 of the Indian Penal Code held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer [1965] 57 ITR 637 (SC). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the assessing officer could not have reason to believe. In such a case, the notice issued by him would be liable to be struck down as invalid as held in the case of Ganga Saran & Sons P. Ltd. v. Income-tax Officer [1981] 130 ITR 1 (SC). In the case of Indra Prastha Chemicals Pvt. Ltd. v. Commissioner of Income-tax reported in [2004] 271 ITR 113; [2005] UPTC 53 this court held as follows: (page 119 of ITR) "Thus, it is well-settled that the 'reason to believe' under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Further, this court in proceedings under article 226 of the Constitution of India can scrutinize the reasons recorded by the assessing officer for initiating the proceedings under section 147/148 of the Act. The sufficiency of the material cannot be gone into but rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961, namely, the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year, income chargeable to tax has escaped assessment for that year. The escapement envisaged by section 21 of the Act for the purposes of reassessment need not necessarily spring from a source extraneous to the original record. However, a second thought or a mere change of opinion, by the assessing authority on the same set of facts and the material on the record would not clothe the assessing authority with a valid jurisdiction. ... We are not impressed by the argument that the instant case is a case of change of opinion. Change of opinion necessarily postulates that the assessing authority had an occasion to consider the material earlier, and on the same set of facts another opinion was sought to be formed. The question of change of opinion cannot arise where there has been no previous proceeding of assessment in respect of a turnover in dispute. As pointed out by the Calcutta High Court in Income-tax Officer v. Mahadeo Lal Tulsyan [1978] 111 ITR 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision where we find under section 34 of the Income-tax Act, 1922 which is similar to the provision of section 21 of the U.P. Sales Tax Act, after considering the provision of section 34 of the said Act the following observation has been made by the apex court in the case of Commissioner of Income-tax v. Bhanji Lavji [1971] 79 ITR 582, which is quoted as under: (at page 583) "When the primary facts necessary for assessment are fully and truly disclosed to the Income-tax Officer at the stage of the original assessment proceedings, he is not entitled, on a change of opinion, to commence proceedings for reassessment under section 34(1)(a)." To the similar effect is also the decision of Commissioner of Income-tax v. Dinesh Chandra H. Shah reported in [1971] 82 ITR 367 (SC) wherein it is held that: (page 371) "...It appears that the Income-tax Officer clearly sought to justify the reopening of the assessment under section 34(1)(b) merely on the ground of change of opinion. It is well-settled by now, and Mr. Desai quite rightly does not dispute the proposition, that mere change of opinion could not be a valid ground for reopening the assessment under section 34(1)(b) of the Act. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " In the case of IL & FS Investment Managers Ltd. v. Income-tax Officer reported in [2008] 298 ITR 32 (Bom); [2007] 209 CTR 1 (Bom), the Bombay High Court held that the proceeding cannot be reopened merely because the assessing authority is of the view that the depreciation has been wrongly allowed merely on a change of opinion. In the case of Anil Kumar Bhandari v. Joint Commissioner of Income-tax reported in [2007] 294 ITR 222 (Cal), the deduction was allowed under section 80HHC and the case was reopened on the ground that the deduction has been wrongly allowed. The Division Bench of the Calcutta High Court held that the initiation of reassessment proceeding by the assessing authority purportedly to reopen the assessment upon the change of opinion on the same facts is not justified. In the case of Mercury Laboratories Pvt. Ltd. v. State of U.P. reported in [2000] 119 STC 271 (All); [2000] UPTC 82, the Division Bench of this court held as follows: (page 286 of STC) "After giving anxious consideration to the arguments raised by the learned counsel for the parties we find that the Commissioner, Sales Tax had no authority to either issue directions, instructions, guidelines or me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and does not constitute material on the basis of which a belief could be formed to reopen the case. Further, perusal of the notices (one of the notice being referred hereinabove) issued by the assessing authority reveals that no material has been referred on the basis of which belief was formed to reopen the case under section 21(1) of the Act. In the original assessment order under section 9 of the Central Act, the tax levied on the turnover of rice under the Central Act has been reduced by the tax levied on the paddy out of which such rice was procured. Some of the assessment orders passed under section 9 of the Central Act have been filed along with counter and rejoinder affidavits. The reduction of tax could only be possible under section 15(c) of the Central Act. Several writ petitions which have been filed at Lucknow Bench and at Allahabad reveal that the assessing authority has understood section 15(c) of the Central Act that reduction of tax under the Central Act on the turnover of rice with the tax levied on paddy was permissible. The notices under section 21 of the Act have been issued without any fresh material and only on account of change of opinion. Initial opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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