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TMI Blog2024 (5) TMI 841X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturer of 'Mentha Oil'. During the A.Y. in question, it purchased various raw materials to manufacture 'Mentha Oil'. Arising from such purchases, it claimed benefit of Input Tax Credit (ITC in short). That claim had been examined by the Assessing Officer in the course of regular assessment proceedings that culminated in the assessment order dated 16.3.2017. In that, the Assessing Officer disallowed ITC claim to the extent of Rs. 3,24,456/-, being composite amount of ITC claimed against raw materials purchased from unregistered dealers. At the same time, the Assessing Officer allowed ITC claimed by the petitioner, Rs. 6,64,75,453/-. 4. While the assessment was thus completed and that assessment order attained finality, on 13.3.2023, the petitioner was visited with a notice issued under Section 29(7) of the Act. Thereby, the Additional Commissioner proposed to grant permission to the petitioner's assessing authority, to reassess the petitioner for the A.Y. 2014-15 (U.P.), in the extended period of limitation. The 'reason to believe' to reassess the petitioner was founded on the fact that the petitioner had sold 'Mentha Oil' in the course of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer on 18.3.2023. The Assessing Officer issued notice on 22.3.2023 and thus assumed jurisdiction. Notice was served on the petitioner on 24.3.2023 and the reassessment order was passed on 28.3.2023. Thus, no real and/or reasonable opportunity of hearing was afforded to the petitioner. 9. On the other hand, learned Standing Counsel for the revenue would contend, besides the jurisdiction vested under Section 14 of the Act, RITC being part of 'tax', its escapement would allow for initiation of reassessment proceeding to arise. Therefore, the wrong availment of ITC may be corrected in the reassessment proceedings. Therefore, RITC would continue to be included within the scope of Section 29 of the Act inasmuch as that was a wrongful deduction claimed by the petitioner. In any case, a wrongful benefit had been availed by the petitioner. Therefore, the revenue authorities are right in their approach in seeking to reverse the same through reassessment procedure. On merits, learned Standing Counsel would submit, all submissions being advanced would remain open to the assessee to raise before the appeal authority. 10. Thus, the learned Standing Counsel has submitted, by vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing observed by the statutory authorities. Even if it were a case of a tax evader, the rule of law would, by its very stature and basic requirement, commend to all quasi-judicial authorities including the assessing authority, to conduct their proceedings in a manner that may be fair and therefore inspire confidence in the noticee, irrespective of a his status - whether an honest tax-payer or a tax evader. 14. Even if the proceeding was at risk of becoming time barred, Section 29(7) of the Act provided sufficient safeguard inasmuch as if the assessing authority was of the view that the normal period of limitation was about to expire within days, he ought to have applied to the Commissioner to issue necessary directions in that regard. Merely because the Assessing Officer may have himself woken up late on the issue of alleged escapement of turnover, he may not have caused undue prejudice to the assessee - by closing the proceedings on the first date of hearing itself. 15. Leaving that issue for a while, we find, the Act defines the terms "turnover of purchase" and "turnover of sale" under Section 2(ap) and Section 2(aq) of the Act. They read as below: "2. Defintions.............. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tured or processed goods; (ii) manufacture of any goods includes processing of such goods and packing of such manufactured or processed goods; and (iii )where during the process of manufacture of any taxable goods any exempt goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of taxable goods. Conversely, where during the process of manufacture of any exempt goods any taxable goods are produced as by-product or waste product; it shall be deemed that purchased goods have been used in the manufacture of exempt goods. [(iv) where during the process of manufacture of any vat goods any non-vat goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of vat goods. Similarly, where during the process of manufacture of any non vat goods any vat goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of non vat goods.] (w.e.f. 01.01.2008)" 18. Further, Section 14 of the Act provides for reversal of ITC where such ITC may have been claimed against the provisions of the Act or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that computation of ITC allowance is part and parcel of procedure to assess the 'turnover of sale' or 'turnover of purchase' of goods. However, in its wisdom, the legislature has otherwise included computation of ITC as part of regular assessment proceedings, only. 21. Thus, Section 25 of the Act includes within the scope of the power of the assessing authority to make a regular assessment order, amongst others, "the amount of tax payable and amount of input tax credit admissible, in any case" as part and parcel of regular assessment proceeding. Also, Section 26 of the Act relating to assessment of tax reads as below: "26. Assessment of tax for an assessment year.- Subject to provisions of this Act, in respect of every taxable dealer, for each assessment year, there shall be an assessment of tax payable by him and amount of input tax credit admissible to him: Provided that where the dealer has carried on business during a part of the assessment year, such assessment shall be for such part of the assessment year : [PROVIDED FURTHER that in case of person who being a dealer other than a registered dealer brings any taxable goods from outside the State, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of this section and of section 31, "assessing authority" means the officer or authority who passed the earlier assessment order, if any, and includes the officer or authority having jurisdiction for the time being to assess the dealer. Explanation III: - Notwithstanding the issuance of notice under this sub-section, where an order of assessment or re-assessment is in existence from before the issuance of such notice it shall continue to be effective as such, until varied by an order of assessment or re-assessment made under this section in pursuance of such notice." 26. While there is no doubt as to the meaning of the words "reason to believe" - that lay the foundation of jurisdiction to reassess and therefore we do not propose to discuss the same, the subject matter of reassessment proceedings has been specified by the legislature. First, it is referable to "turnover of a dealer". Per se, the word "turnover" has not been defined. However, the phrase "turnover of purchase" and "turnover of sale" defined under Section 2(ap) and 2(aq) leave no manner of doubt that the subject matter of reassessment may be the determination of aggregate of the amount of purchase price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings to redetermine ITC or to RITC. Therefore ITC - that remained an allowance to be utilized to discharge tax liability (that may either be self-assessed by the assessee or assessed by the assessing officer), continued to fall outside the scope of a reassessment proceedings, by its nature as an allowance on activity carried on by the petitioner and not by way of a tax that was chargeable at any rate specified under the Schedule to the Act. 30. The third "event" that could give rise to initiate reassessment proceedings could be where any "deduction" or "exemption" from tax had been wrongly claimed - again with respect to the "turnover of purchase" or the "turnover of sale" of goods, as the case may be. It is true, Section 2(ag) of the Act defines "tax" and includes therein RITC. Classically, that eventuality could arise where certain expenses or charges liable to be deducted from the "turnover of purchase" or "turnover of sale" of goods, may have been wrongly claimed or allowed - in excess of the allowable claim. 31. The last eventuality were reassessment could be initiated was where any "exemption" from tax may have been wrongly claimed viz-a-viz the "turnover of purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are, (i) Whether export duty can be levied under the provisions of the Special Economic Zones Act, 2005? (ii) Whether export duty could be imposed under the Customs Act, 1962 while incorporating the definition of the expression "export" under the SEZ Act, 2005, into the Customs Act, 1962?" 35. Answering those questions, the Karnataka High Court has observed as below: "A reading of Rule 23 of the SEZ Rules, 2006 would indicate that supplies from the DTA to a SEZ would be eligible for export benefits as admissible under the FTP. The procedure to claim such benefits is provided under Rules 24 and 30. Rule 27 permits a unit or a developer under the SEZ to import or procure from the DTA all types of goods without payment of duty or procure form the DTA such goods after availing export entitlements. This would lead to the conclusion that export entitlements available on account of either the export of goods from the DTA to the SEZ are available either to the DTA supplier or a SEZ unit or a developer, at their option. Therefore, duty drawback and other export benefits would be available to either party at their option. Such provision exempts goods brought in by the SEZ unit fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead to that conclusion. What may be inferred therefrom, on a subjective consideration of that opinion expressed by the Karnataka High Court, may never have formed a "reason to believe" to initiate reassessment proceedings against the petitioner. Unless Mentha Oil was a commodity generally exempt under the Act or the Central Sales Tax Act, 1956, no ineligibility may have been earned by the petitioner to claim ITC on purchase of raw materials used to manufacture Mentha Oil, merely because quantities of it were exported outside the country leading to conditional exemption from levy domestic tax - for reason of special nature of the export transaction. 37. Thus, the submission of learned Standing Counsel that the Assessing Officer could exercise the jurisdiction to reassess the petitioner to RITC, is misconceived. Reassessment notice being jurisdictional, it could not be issued except where jurisdiction to reassess an assessee arose strictly in accordance with the law. As discussed above, those conditions did not exist in the present case. Merely because RITC is included in the definition of 'tax' under Section 2(ag) of the Act, makes no difference to valid assumption of juris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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