M/S Gondwana Enterprises Vs State Of U.P. And 3 Others

Allahabad High Court (Division Bench (DB)- Two Judge)

WRIT - A, 544 of 2015, Judgment Date: Jul 14, 2015

Case :- WRIT TAX No. - 544 of 2015
Petitioner :- M/S Gondwana Enterprises
Respondent :- State Of U.P. And 3 Others
Counsel for Petitioner :- N.C. Gupta
Counsel for Respondent :- C.S.C.
Hon'ble Tarun Agarwala,J.
Hon'ble Surya Prakash Kesarwani,J.
(Per: Tarun Agarwala,J.)
Heard Sri N.C. Gupta, learned counsel for the
petitioner and Sri C.B. Tripathi, the learned Special
Counsel appearing for the Commercial Tax
Department.
The petitioner claims to be a registered dealer under
the U.P. Trade Tax Act and Central Sales Tax Act and
now under the U.P. Value Added Tax Act and is
engaged in manufacture, sales and forging of steel
and metal fabricated goods. The petitioner is also
doing job works for other parties on the basis of
labour charge.
For the assessment year 2009-10 under the U.P. Value
Added Tax an assessment order dated 9th April, 2013
was passed in which a rebate of entry tax on sale of
forging was granted. Subsequently, a notice under
Section 29 (7) of the Act was issued proposing to
make a re-assessment for the assessment year 2009-
10. Since no reply was received, the appropriate
authority granted permission to the assessing
authority to initiate proceedings for re-assessment
under Section 29 of the Act. The petitioner being
aggrieved by the issuance of the notice and the
granting of the permission by the Additional
Commissioner, Gautam Budh Nagar, NOIDA has
filed the present writ petition praying for its
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quashing.
The contention of the learned counsel for the
petitioner is, that the assessing authority, after
considering the material on record, had granted a
rebate of entry tax on the goods brought by the
petitioner and sold thereafter. The contention of the
learned counsel for the petitioner is, that there was no
fresh material before the assessing officer to have any
reasons to believe that any tax had escaped
assessment which required issuance of a notice
inviting re-assessment. The learned counsel further
contended that apart from the fact that there was no
fresh material, the issuance of notice was based on
the same material which was already existing and,
consequently, it was a change of opinion which was
not permissible.
In support of his submission the learned counsel has
relied upon the decision in 2011 TLD (1) Dabur
India Ltd, Ghaziabad Vs. State of U.P. and
another, wherein the Court held that there being no
fresh material, the assessing officer could not initiate
reassessment proceedings under Section 21 of the
Trade Tax Act. The learned counsel has also relied
upon a decision in M/s Radico Khaitan Ltd. Bareilly
Road, Rampur Vs. State of U.P. and others 2010
U.P.T.C. 674 which postulated the theory that reassessment
proceedings could not be initiated on the
basis of same material which amounts to a change of
opinion. The petitioner has also placed reliance upon
the decision in M/s Aryaverth Chawal Udyog &
others Vs. State of U.P. & others 2008 NTN (Vol.
37) page 231.
On the other hand, Sri C.B. Tripathi, the learned
counsel for the State has relied upon the decision of
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Honble Supreme Court in The Commissioner of
Sales Tax, U.P. Vs. Bhagwan Industries (P) Ltd.,
Lucknow AIR 1973 SC 370 which postulated the
theory with regard to “reasons to believe” and the
rational basis for the assessing authority to form an
opinion that the whole or any part of the turnover of a
dealer for any reasons escaped assessment to tax for a
particular year. The Supreme Court held that if such
basis exist, the assessing authority was justified in
proceeding in the manner laid down in the section.
The Supreme Court held:
“The controversy between the parties has centered
on the point as to whether the assessing authority
in the present case had reason to believe that any
part of the turnover of the respondent had escaped
assessment to tax for the assessment year 1957-58.
Question in the circumstances arises as to what is
the import of the words “reason to believe”, as
used in the section. In our opinion, these words
convey that there must be some rational basis for
the assessing authority to form the belief that the
whole or any part of the turnover of a dealer has,
for any reason, escaped assessment to tax for some
year. If such a basis exists, the assessing authority
can proceed in the manner laid down in the section.
To put it differently, if there are, in fact, some
reasonable grounds for the assessing authority to
believe that the whole or any part of the turnover of
a dealer has escaped assessment, it can take action
under the section. Reasonable grounds necessarily
postulate that they must be germane to the
formation of the belief regarding escaped
assessment. If the grounds are of an extraneous
character, the same would not warrant initiation of
proceedings under the above section. If, however,
the grounds are relevant and have a nexus with the
formation of belief regarding escaped assessment,
the assessing authority would be clothed with
jurisdiction to take action under the section. If,
however, the grounds are relevant and have a nexus
with the formation of belief regarding escaped
assessment, the assessing authority would be
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clothed with jurisdiction to take action under the
section. Whether the grounds are adequate or not is
not a matter which would be gone into by the High
Court or this Court, for the sufficiency of the
grounds which included the assessing authority to
act is not a justiciable issue. What can be
challenged is the existence of the belief but not the
sufficiency of reasons for the belief. At the same
time, it is necessary to observe that the belief must
be held in good faith and should not be a mere
pretence.”
In M/s Shyam Babu Vausgta and company and
another Vs. Assistant Commissioner of Trade Tax,
Khand-2 Banda and others 2004 UPTC 210 a
Division Bench of this Court held that the term “turn
over has escaped assessment to tax”, which includes
under assessment, may as well be as a result of lack
of care on the part of the Assessing Officer or by
reasons of inadvertence on his part. The Division
Bench further held that Section 21 does not prohibit
obtaining of information from the material on the
record of the original assessment.
In Moser Baer India Ltd. Vs. State of U.P. and
others 2014 NTN (vol. 55) page 26 another Division
Bench held that if the exemption was wrongly
allowed, it would be permissible to reopen the reassessment
proceedings and such re-opening would
not amount to change of opinion.
The learned counsel for the State has further relied
upon a decision in Catalysts Vs. State of U.P. and
others 2014 NTN (Vol. 55) page 360 wherein the
Court held as follows:
“The contention that no reassessment proceedings can
be made on the same material is incorrect.
Reassessment on the same material can be permitted for
valid reasons. In the instant case, we find that in the
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original assessment proceedings there has been no
discussion nor any finding has been given as to whether
enzyme is a chemical or not. Unles and until a
discussion is made or a finding is given by the Assessing
Officer that enzyme is a chemical, only then, it could be
taxed under the entry “chemical of all kinds”.
In the absence of any finding being recorded by the
assessing Officer on this aspect, we are of the opinion
that the respondents were justified in reopening the
assessment so that a conclusive finding is given as to
whether enzyme is a chemical or not and, consequently,
whether it is liable to be taxed at the rate of 4% or as
an unclassified item at the rate of 10%.”
Section 4 (6) of the U.P. Tax on Entry of Goods Into
Local Areas Act, 2007 provides as under:
“Notwithstanding anything to the contrary contained in
sub-section (1) or sub-section (3), no tax shall be levied
on or collected from a dealer, who brings or causes to
be brought into a local area any goods which are-
(i) consigned without using them in the local
area to any place outside the State; or
(ii) sold or re-sold either in the course of
inter-State trade or commerce or in the course of
export out of the territory of India;
EXPLANATION-Section 3, Section 5 and Section 6A of
the Central Sales Tax Act, 1956 shall apply for the
purpose of determining whether or not any goods has
been sold by a dealer in the course of inter-State trade
or commerce or in the course of export out of the
territory of India:
PROVIDED that where at the time of entry of goods
into a local area, the quantity or value of goods to be
sold within such local area for the purpose of being
taken outside the State without consumption, use or sale
in such local area, is not ascertainable, the dealer shall
pay the amount of tax on the value of total quantity of
goods and after the goods are consigned or sold outside
or in the course of, export, the dealer may claim refund
or adjustment of the amount so paid as tax in the month
in which such goods are transferred outside the State or
sold in the course of inter-State trade or commerce or
the course of export, in respect of such goods.”
From a perusal of the aforesaid it is clear that if the
goods are brought into the local area and sold in the
same form in the course of inter state trade or
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commerce, then rebate is permissible.
Section 29 (1) of the Act provides as under:
“29. (1) If the assessing authority has
reason to believe that the whole or any
part of the turnover of a dealer, for any
assessment year or part Assessment of tax
of turnover escaped from assessment
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 have been
wrongly allowed in respect thereof, the
assessing authority may, after issuing
notice to the dealer and making such
inquiry as it may consider necessary,
assess or re-assess the dealer to tax
according to law :
Provided that the tax shall be charged at
the rate at which it would have been
charged had the turnover not escaped
assessment or full assessment as the case
may be.
Explanation I:- Nothing in this sub-section
shall be deemed to prevent the assessing
authority from making an assessment to
the best of its judgment.
Explanation II:- For 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
reassessment 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 reassessment made
under this section in pursuance of such
notice.”
From a perusal of the aforesaid we find that if the
assessing authority has reasons to believe that the
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whole or any part of turnover had escaped assessment
or any deduction or exemption had wrongly been
allowed, the assessing authority may after issuing a
notice to the dealer and after making such inquiry, as
it may consider necessary, assess or re-assess the
dealer to tax according to law. The words “any
deduction or exemptions have been wrongly
allowed” would, in our opinion, also include a rebate
which has wrongly been allowed.
We have perused the assessment order and we find
that there is no discussion or any finding as to how
rebate was permissible to the petitioner. Section 4 (6)
of the Entry Tax Act clearly indicates that the goods
brought into the local area has to be sold or re-sold in
the same form in the course of inter-state trade and
commerce in order to be eligible for a rebate. If any
manufacturing activity is carried on, rebate is not
permissible. What would be the effect of forging is
left open to be decided in the assessment proceedings
as it requires evidence.
In the light of the aforesaid, we are of the opinion
that there was sufficient reasons to believe for the
assessing authority to seek permission for reopening
the assessment. The belief was based on valid and
cogent reasons. We are of the opinion that in the
instant case, re-assessment on the same material was
permissible for valid reasons inasmuch as we find
that there was no discussion or any finding as to
whether in the given case rebate was permissible to
the petitioner. Consequently, we do not find any
reason to interfere in the impugned notice issued
under Section 29 (7) of the Act.
The writ petition fails and is dismissed at the
admission stage itself. It would, however, be open to
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the petitioner to place all materials before the
assessing authority to show that no manufacturing
activity was being carried out and that the petitioner
was entitled for rebate under law.
Order Date :- 14.7.2015

(Surya Prakash Kesarwani,J.) (Tarun Agarwala,J.)