Allahabad High Court
M/S Kejriwal And Sons vs State Of U.P. And 2 Others on 20 November, 2017
Bench: Abhinava Upadhya, Ashok Kumar
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Reserved on: 31.10.2017 Delivered on: 20 .11.2017 Case :- WRIT TAX No. - 281 of 2017 Petitioner :- M/S Kejriwal And Sons Respondent :- State Of U.P. And 2 Others Counsel for Petitioner :- Aloke Kumar Counsel for Respondent :- C.S.C. Connected with Case :- WRIT TAX No. - 285 of 2017 Petitioner :- M/S Kejriwal And Sons, Chandauli Respondent :- State Of U.P. And 2 Others Counsel for Petitioner :- Aloke Kumar Counsel for Respondent :- C.S.C. And Case :- WRIT TAX No. - 286 of 2017 Petitioner :- M/S Kejriwal And Sons, Chandauli Respondent :- State Of U.P. And 2 Others Counsel for Petitioner :- Aloke Kumar Counsel for Respondent :- C.S.C. Hon'ble Abhinava Upadhya,J.
Hon'ble Ashok Kumar,J.
(Delivered by Hon'ble Ashok Kumar,J.) In all the above writ petitions the issue involved is one and the same and, therefore, by a common judgment, they are being decided by us.
By means of the writ petitions the petitioner has challenged the orders dated 30.3.2017 passed by the Additional Commissioner, Grade-I. Commercial Tax, Varanasi Zone-I, Varanasi and the consequential notices issued by the respondent no.3, i.e., Deputy Commissioner, Commercial Tax, Section-II, Chandauli under Section 28 read with Section 29 of the U.P.Value Added Tax Act, 2008 (in short 'The Act').
The brief facts of the case are that the petitioner is a partnership firm and holding the tax identification number issued by the respondent-department. The petitioner is carrying on the business of purchase and sale of different kinds of Tyres and Tubes used in different kinds of automobile vehicles and Flaps etc. The petitioner has filed the return for the assessment years 2010-11, 2011-12 and 2012-13. The assessing authority has passed the assessment orders under Section 28(2) of the VAT Act dated 28.9.2013 (assessment years 2010-2011), dated 24.12.2014 (assessment year 2011-12) and dated 18.1.2015 (assessment year 2012-13). The assessing authority has accepted the books of accounts of the petitioner and has passed the detailed assessment orders.
It is noticed that during the course of original assessment proceedings, the assessing authority of the petitioner had required the explanation of the petitioner with regard to certain queries, which are mentioned in the notices and in the orders passed under Section 28(2) of the Act. The petitioner has participated in the proceedings and has placed all the relevant and required documents/records, which have been duly examined and verified by the assessing authority and after due verification the claim of the petitioner has been accepted.
The instant writ petitions have been filed by the petitioner by which the petitioner has challenged the impugned re-assessment proceedings initiated by the respondents particularly the order passed under Section 29(7), granting permission by the Additional Commissioner, Commercial Tax to the assessing authority of the petitioner to re-open the cases of the petitioner and to pass the fresh orders under Section 29 of the VAT Act. The Additional Commissioner, Commercial Tax has sanctioned the permission by his order dated 30.3.2017 indicating therein that the assessing authority has sought his permission on the ground that the petitioner has affected the purchases against tax invoices on the higher value whereas the sale of the said purchased goods are affected on lower rate, therefore, the petitioner has not fulfilled the conditions so stipulated in Notification dated 20.8.2010 as well as the conditions so provided under Section 13(1)(f) of the U.P. VAT Act.
After the grant of permission, by the Additional Commissioner, the assessing authority of the petitioner has issued notices under Section 28 read with Section 29 of the VAT Act dated 3.4.2017 by which the assessing authority of the petitioner has directed the petitioner to participate in the re-assessment proceedings.
By means of the writ petitions, the petitioner has challenged the said orders granting permission dated 30.3.2017 and the notice issued in pursuance thereto by the assessing authority dated 3.4.2017. In all the cases the counter affidavits and rejoinder affidavits have been exchanged.
We have heard Sri Aloke Kumar, learned counsel for the petitioner and Sri C.B.Tripathi, learned special counsel representing the respondents.
Learned counsel for the petitioner has submitted that the petitioner has filed all the details with regard to its claim in the nature of credit note of Rs. 1,20,12,941-23 (for the assessment year 2010-2011) at the time of original assessment proceeding. It is submitted that such credit notes were duly issued by the seller company from whom the petitioner has affected the purchases, as per the scheme of sale promotion.
Learned counsel for the petitioner has further submitted that after due scrutiny of all the books of accounts as well as credit notes, the books of account of the petitioner are accepted by the assessing authority, as such the petitioner's disclosed turn over has been accepted and is allowed.
It is contended that even from the perusal of the records, it is clearly verified that while examining the books of accounts at the original assessment stage the assessing authority has carefully scrutinized and examined the issue and has recorded a categorical finding in its assessment orders.
For the perusal, we are mentioning the relevant contents mentioned in the notice and the findings recorded by the assessing authority in its original/regular assessment proceedings and order dated 28.9.2013, which are quoted here-in-below:
"1.laxr o"kZds fy, nkf[ky :ii=&26 eas [kjhn :0 1]20]12]941&23 ds dzsfMV uksV dk ykHk ysrs gq, bl /kujkf'k dks lexz [kjhn esa tksM+rs gq, vkbZ0Vh0lh0 dk ykHk fy;k x;k gS] tcfd bl /kujkf'k ij RITC fd;k tkuk pkfg,A dzsfMV uksV ds iw.kZ fooj.k lfgr izi= visf{kr gSA"
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"ys[kkiqLrdksa dh tkap ds nkSjku dS'k cqd] dS'k bu gSaM ist la0&09] fnukad 31-03-11 :0 17]69]021&00 [kjhn ;w0ih0$bDl ;w0ih0] fn0 31-3-11] ist la0&06] :0 32]95]23]505&18] fodzh ist la0&12] :0 30]69]93]136&00] [kjhn chtd 1590060387@31-3-11 loZ Jh ts0ds0Vk;j] fcy ,ekmUV&999935&17] loZ Jh lh0,V fy0&98385130@31-3-11] :0 2]49]457&39] fodzh chtd VSDl buok;l la0&32@1590@31-3-11] ew0 :0 47640&00] lsy buok;l&176@8781@ 31-3-11] 11]607&00 dqy :0 13]400&00 gLrk{kj fd;k x;kA O;kikjh }kjk tkjh uksfVl ds fcUnqvksa ds laca/k esa Li"Vhdj.k nkf[ky fd;k x;k gSA laf{kIr foospu fuEuor gS & 1- laxr o"kZds fy, nkf[ky :ii=&26 eas [kjhn :0 1]20]12]941&23 ds dzsfMV uksV dk ykHk ysrs gq, bl /kujkf'k dks lexz [kjhn esa tksM+rs gq, vkbZ0Vh0lh0 dk ykHk fy;k x;k gS] tcfd bl /kujkf'k ij vkj0vkbZ0Vh0lh0 fd;k tkuk pkfg,A dzsfMV uksV ds iw.kZ fooj.k lfgr izi= visf{kr gS] ds mRrj esa dgk x;k gS fd O;kikjh }kjk laxr o"kZ esa izkIr vUnj ls rFkk izkUr ckgj ls tks eky dz; fd;k x;k gS] ml eky ds fodzrk dEifu;ksa }kjk viuh fofHkUu Ldheksa ds en esa dzsfMV uksV tkjh fd;s x;s gS] ftldk dqy ;ksx :0 1]20]12]941&23 gSA blesa izkUr vUnj vkSj izkUr ckgj dh /kujkf'k lfEefyr gSA dFku ds leFkZu eas vko';d fooj.k nkf[ky fd;k tk jgk gSA tkWp dh x;hA O;kikjks }kjk laxr o"kZ esa izkIr :0 1]20]12]941&23 dh dzsfMV uksV ds laca/k esa fooj.k fn;k x;k gSA blesa ls loZ Jh fcjyk Vk;j] loZ Jh fl,V fy0] loZ Jh ts0ds0Vk;j loZ Jh vyksiks Vk;j fy0] loZ Jh xqM bZ;j rFkk loZ Jh dUVhusUVy bafM;k fy0 }kjk fuxZr izek.k i= fn;k x;k gS] ftles ;g mYys[k fd;k x;k gS fd dzsfMV uksV dh /kujkf'k esa buiqV VSDl dk dEiksusUV lfUufgr ugh gSA vr% bl dszfMV uksV ij dksbZ vkbZ0Vh0lh0 fjolZ ugh dh tk,xhA"
Learned counsel for the petitioner has, therefore, submitted that once the specific categorical finding has been recorded by the assessing authority in its regular assessment orders on the issue, which has been raised in the show cause notices, issued under Section 28 read with Section 29 of the VAT Act, there is no justification at the hands of the respondents to re-open the case or issue again without any fresh material.
Learned counsel for the petitioner has submitted that in fact on the facts, which are duly examined and considered, the assessing authority should not have referred the matter under sub-section (7) of Section 29 of the VAT Act for re-opening the case to the Commissioner.
It is further contended by the learned counsel for the petitioner that in pursuance of the notices issued under Section 29(7) of the VAT Act issued by the Additional Commissioner, a detailed reply has been filed in which it has been submitted that the original assessment orders were passed after due scrutiny of the records of the petitioner and further that all the materials related to the issue so raised in the notice issued under Section 29(7) of the VAT Act has been duly considered and verified by the assessing authority and nothing left to re-open the proceedings.
In support of his submission, learned counsel for the petitioner has relied upon a decision of this Court in the case of Varun Beverages Ltd. Vs. State of U.P. and others, reported in 2016(62) NTN DX 324. Learned counsel for the petitioner has submitted that without considering the reply and without examining the records, the permission sought by the assessing authority has been granted by the Additional Commissioner by passing an order under Section 29(7) of the VAT Act. According to the learned counsel for the petitioner, the order granting permission is bad and as such, is liable to be quashed.
Reliance has also been placed on a Division Bench judgment of this Court in the case of M/s. Bharat Heavy Electricals Limited Vs. State of U.P. and others, reported in 2017 UPTC-205 wherein in paragraph-8, this Court has held as under:
"8.Learned Senior Counsel for the petitioner submits, the sanction order is bad inasmuch as the reassessment is proposed to be made on a mere change of opinion and re-examination of the same material which was available before and which had been examined by the Assessing Authority while framing the original assessment order and that such course is impermissible in view of recent decision of our Division Bench of this Court in (M/S Varun Beverages Ltd. Vs. State of U.P. and 2 others, 2016 UPTC-807 (para 9)."
Learned counsel for the petitioner has pointed out that even in the order granting permission, one can notice that the contents as mentioned are almost identical as has been discussed by the assessing authority while passing the regular assessment orders. It is submitted that at the time of original assessment proceedings, the assessing authority was well aware and the material was available on record to indicate that the sale price is lesser than purchase price for the reasons that the seller company has issued the credit notes for discount, which has been extended by the petitioner-company to the purchasers, which is duly indicated in all the tax/sale invoice. These tax/sale invoices are duly examined and verified and, therefore, the proceedings impugned under Section 29(7) are wholly illegal and arbitrary, as such there is nothing to provide a fresh opportunity or inning to the department, to unnecessary continue the proceedings a fresh.
It is also submitted that it is nothing but clearly an harassment to the petitioner at the behest of the higher authority. In support of his submission the counsel for the petitioner has also placed/relied the relevant portion of para-9 of the aforesaid judgment in the case of M/s. Bharat Heavy Electricals Limited (supra), which is quoted here-in-below:
"9. ........credit notes and books of account were produced before the Assessing Authority at the time of making the original assessment order. Statement to the contrary in the proposal for reassessment made by the petitioner's assessing authority is factually incorrect and jurisdiction cannot be claimed on such incorrect statement of fact established/apparent on record. In this regard he has taken us through the original assessment order and relied on observations made therein that clearly suggest that the assessing authority was cognizant of the contract documents and various clauses in the contract as also that authority had examined the books of account of the petitioner. He thus relies on passages in the original assessment order to submit that the same could not have found place in the assessment order unless its author i.e. the assessing authority had before him those documents............
10.Third, it has been strenuously urged on behalf of petitioner that there is neither any information nor material on record nor any reason has been recorded................................................"
Section 29 of the VAT Act provides the procedure of assessment of tax on turnover as escaped from the assessment. Sub-section (1) of Section 29 of the VAT Act provides that if the assessing authority has 'reason to believe' that the whole or any part of the turn over of a 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..................., 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.
Sub-section (1) of Section 29 of the VAT Act clearly provides the procedure for assessment and re-assessment and the conditions are stipulated for doing so.
The first condition is 'that any part of the turn over has escaped from assessment to tax', in that event the assessing authority is required to record the reasons to believe to initiate the re-assessment proceedings. The second part is 'that when the assessing authority has found that any turn over has been under assessed or has been assessed to tax at a lower rate' in that event also he has to record the reasons to believe and to initiate the proceedings under Sections 29 of the VAT Act. The third part so stipulated in sub-section (1) of Section 29 is 'that in case any deductions or exemptions have wrongly been allowed to the assessee', the assessing authority may proceed under sub-section (1) of Section 29.
Learned counsel for the petitioner, therefore, has submitted that none of the above conditions exist in the present case, therefore, no re-assessment proceedings can be initiated on the same material by the same authority, if there is no valid reason for doing so.
Learned counsel for the petitioner has also relied upon the judgment of this Court in the case of M/s. Vikrant Tyres Limited Vs. State of U.P. and others, reported in 2005 UPTC-501 and the decision of the Hon'ble Supreme Court in the case of State of U.P. and others Vs. M/s Aryawart Chawal Udyog and others reported in 2017 UPTC262.
Learned counsel for the petitioner has emphasized and heavily relied upon by the observations of the Hon'ble Apex Court in the case of M/s Aryawart Chawal Udyog (supra) particularly paragraph-30 of the said judgment, which is quoted here-in-below.
"30.In case of there being a change of opinion, there must be necessarily be a nexus that requires to be established between the "change of opinion and the material present before the Assessing Authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to re initiate proceedings under Section 21(1) of the Act on the basis of change in subjective opinion (CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC360)."
At the end, learned counsel for the petitioner has submitted that since admittedly there was no occasion to initiate re-assessment proceedings as no fresh material is available, which may permit the authority to re-assess the petitioner, hence the entire proceedings are not only mis-conceived but are nothing as such clearly abuse of process of law.
In support of his submission the counsel for the petitioner has relied paras 14, 15 and 16 of the judgment of M/s. Bharat Heavy Electricals Limited (supra). For ready reference paragraph nos.14, 15 and 16 of the aforesaid judgment are quoted here-in-below:
"14.It is settled law that the jurisdiction to initiate reassessment proceedings arises only after the assessing authority records his reason to believe that any turnover has escaped assessment Thus, not only is the belief of escapement essential but more importantly, it is necessary for the Assessing Authority to record his reason/s as to existence of the belief of such escapement. In Commissioner of Sales Tax Vs. Bhagwan Industries (P) Ltd. (1973) 31 STC 293 (SC) the phrase "reason to believe"appearing in a similar provision in Section 21 of the U.P, Sales Tax Act, 1948 providing for reassessment was interpreted thus:
"The words "reason to believe" in Section 21 of the U.P. Sales Tax Act convey that there must be some rational basis for the assessing authority to form the believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. 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 ground are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relavant 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. Whether the ground are adequate or not is not a matter which would be gone into by the High Court or the Supreme Court, for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. What can be challenged is the existence of the belief but not the sufficiency or reasons for the belief. At the same time, the belief must be held in good faith and should not be a mere pretence."
15.Applying the above principle, this court, in the case of Rathi Industries Limited Vs. State of U.P. and another has further elaborated -
" From a perusal of the aforesaid, it is apparently clear that the words "reason to believe" in Section 21 of the U.P. Trade Tax Act conveys that there must be some rational basis for the assessing authority to form a belief that the whole or any party of the turnover of a dealer has for any reasons escaped assessment. Such reason or reasonable ground to believe that the whole or any part of the turnover had escaped assessment must be germane to the formation of the believe regarding escaped assessment. Such reasons or grounds must have a nexus with the formation of the belief. The approach has to be practical and not pedantic."
16.In the instant case the petitioner's assessing authority while making the proposal for reassessment recorded his reasons to the effect that in view of discrepancies noticed in the petitioner's monthly return for A.Y. 2012-13 (March), it had been subjected to a provisional assessment proceedings wherein the petitioner was required to and it produced copies of all work contracts awarded to it and that upon examination of the same it became clear that those contracts were contracts for Supply, Erection and Commissioning of Complete Power Plants on turnkey basis. On this information and material he claims to have entertained the belief that the petitioner was not entitled to claim deduction towards labour charges over and above 10% of the payments received by relying on Rule 9(3) of the Rules. In other words according to the petitioner's assessing authority: (i) petitioner had not produced the entire work contract documents during the original assessment proceedings for Assement Year 2009-10 (U.P.) (ii) in the course of provisional assessment proceedings for subsequent period for March 2013, the entire contract documents were produced wherefrom it appeared to the petitioner's assessing authority that the petitioner had been awarded contracts for Supply, Erection and Commissioning of complete Power Plants on turnkey basis. Based, upon these two fact allegations it has been inferred (iii) the petitioner was liable to deduction (on account of value of labour and service charges and profit thereon) at the rate 10% only on all payments received against such contracts in view of Rule 9 (3) of the Rules."
He has, therefore, submitted that the belief of escapement has not been shown to exist on record. The belief must be founded on reasonable grounds as has been held in the case of Commissioner of Sales Tax Vs. Bhagwan Industries (P) Ltd. reported in (1973)31 STC 293 (SC). In the instant case, no reason has been assigned to reach such a belief.
We have noticed that in the present case, no fresh information, material or fact or reason has been recorded by the assessing authority to establish the satisfaction of any of the required pre-conditions of the applicability of the provisions of Section 29 of the VAT Act.
On the other hand, learned counsel for the respondents has submitted that the re-assessment proceedings are wholly legal in nature, as such are valid. He has submitted that the Additional Commissioner has rightly granted the permission upon his satisfaction while relying on the material on record and has further submitted that in the present case, the record clearly establishes the relevant fact that the value on which the petitioner has made, the sale was lesser to the value of the purchase price as shown by the petitioner, hence the petitioner was not entitled to claim input tax credit in view of Section 13(1)(f) of the VAT Act read with Rule 22 of the U.P.VAT Rules. He has submitted that the petitioner is, therefore, liable to reverse input tax credit, which has rightly been proposed by the assessing authority, as such, is the subject matter of re-assessment proceedings.
We are surprised to note/see the contents of paragraphs 8 and 13 of the counter affidavit.
Learned counsel for the petitioner has pointed out in his rejoinder reply that it was surprising to see the contents of para-8 of the counter affidavit which clearly indicates that there was no occasion nor there was any fresh material, which would entitle the authorities to initiate the re-assessment proceedings. He has further submitted that in para-13 of the counter affidavit the averments are contradictory in nature.
For the convenience, it would be relevant to quote the contents of paras 8 and 13 of the counter affidavit:
"8. That with regard to the contents of paragraph nos. 12 to 14 of the writ petition it is stated that it is true that the books of account of the petitioner were accepted by the assessing officer who pass the assessment order dated 29.8.13. It is further necessary to bring to the kind notice of this Hon'ble Court that the assessment order dated 28.9.13 was passed by Sri A.K.Singh, Deputy Commissioner, Commercial Tax, Sector 2, Chandauli whereas the proposal which was sent to the Additional Commissioner for reassessment was sent by the assessing officer namely Sri Rajeev Aurthor, Deputy Commissioner, Commercial Tax, Sector 2, Chandauli who was holding the charge of the assessing officer of the petitioner at the relevant time when the proposal was sent."
"13. That with regard to the contents of paragraph nos. 20 to 23 of the writ petition it is stated that section 29(1) of the U.P.Value Added Tax Act prescribes as follows:
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 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,l the assessing authority may, after issuing notice to t he dealer and making such inquiry as it may consider necessary, access or re-assess the dealer to tax according to law:
Under this provision that when the assessing officer has reason to believe that the assessment or any part thereof has been under assessed or any deduction has wrongly been allowed in respect thereof reassessment proceeding can be done. The material on the basis of which the respondent no.2 has granted permission for reassessment was undoubtedly not examined by the assessing officer who pass the assessment order on this fact he did not apply his mind as such the Input Tax Credit who was claimed by the petitioner was wrongly allowed by him. When the assessing officer who pass the assessment order examine the record and he found out in the assessment order the claim of Input Tax Credit was wrongly allowed and accordingly he send the proposal to the respondent no.2 for grant of permission so that the reassessment proceeding can be initiated. Under these circumstances, it cannot be said that there was a change of opinion."
We see that in Paragraph-27 of the judgment in the case of M/s. Bharat Heavy Electricals Limited (supra) this Court has dealt with the similar situation which is quoted here-in-below:
"27.Nothing has been brought on record even by way of counter affidavit to show what had actually been produced by the petitioner in the course of the assessment proceedings (described as contract documents and books of account in the original assessment order) perusal whereof may have lead to another inference. Be that as it may, the unsubstantiated bald averments made in the counter affidavit, in complete absence of any material or information or belief as also reason to entertain a belief of escapement, is nothing but a self serving statement that cannot be accepted and is accordingly rejected."
Learned counsel for the Department has relied upon the decision of this Court in the case of Moser Baer India Limited Vs. State of U.P. and others, reported in 2014 NTN 26. He has submitted that this Court while considering the identical set of facts, following the decision in the case of M/s Pernod Ricard India (P) Ltd. Vs. State of U.P. and others, reported in 2010 NTN (43) has held as follows:
"We are of the view that only those cases fall under the purview of change of opinion, where the issue is determined on the application of mind and an opinion is formed in respect thereof by brief reasoning or detailed reasoning. In case where the issue is not at all determined, no finding in respect thereof is recorded, in as much as no opinion in respect thereof is formed, it does not fall within the purview of change of opinion."
He has also relied upon a decision of this Court in the case of Kalpana Kala Kendra Vs. Salex Tax Officer, reported in 1989 UPTC 59 in which it has been held that Section 21(para materia of Section 29 of the VAT Act) of the Trade Tax Act is based upon the theory that the taxes observed must be collected by the statutory machinery. He has, therefore, submitted that in the said decision this Court has clearly observed that on account of result of negligence or ignorance of the Assessing Authority, the proceedings under Section 21 of the Act for re-opening the assessment cannot be dropped.
Sri Tripathi, learned counsel appearing for the department also relied upon a decision of the Hon'ble Supreme Court in the case of Eveready Industries India Ltd. Vs.State of Karnataka, reported in 2016 (94) VST 302 (SC). He submitted that in the said judgment the Hon'ble Apex Court has held that the exemption notification requires strict interpretation. In order to get benefit of exemption notification, the assessee has to satisfy that it fulfills all the conditions contained in the notification. He has heavily relied upon the contents of para-22 of the said judgment of 'Eveready Industries India Ltd' (supra). The other judgment, which has been relied upon by the learned counsel for the State is of the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd. Vs. State of Jharkhand and others reported in 2017 NTN (Vol.64)-166. In this case, re-assessment proceedings were initiated on the ground of change of opinion and the Hon'ble Supreme Court has considered the issue as to whether the assessing authority is justified to form an opinion to the effect that the turnover has escaped from assessment on the ground of audit objection, which construed as an opinion with the meaning of State Act. This aspect has been considered in paragraphs 21 and 22 of the judgment of the Hon'ble Apex Court.
We have considered the submissions of the learned counsel for the department and perused the aforesaid judgments and we find that the judgments which are relied upon by the learned counsel for the department, are not applicable in the present case as the issue involved in the present case is entirely different than the cases relied.
On the other hand, learned counsel for the petitioner has placed a recent Division Bench judgment of this Court dated 2.5.2017 in Writ Tax No. 48 of 2017 (M/s. Shivalik Buildtech Pvt. Ltd. Vs. State of U.P. and others. In the case of the M/s Shivalik Buildtech Pvt. Ltd.(supra) the issue came up for consideration before a Division Bench of this Court was almost identical as of the issue in the present writ petitions.
This Court, after considering the submission of the learned counsels and after perusal of relevant provisions of law as well as the perusal of material available on record, find that Section 29 of the VAT Act provides for reassessment of tax on turnover escaping from assessment. It lays down that if the assessing authority has reason to believe that the whole or any part of a turnover of a 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 the Act.......................The assessing authority may after issuing notice to the dealer and making such inquiry .........................., assess or re- assess the dealer to tax.
A plain reading of the provisions of Section 29(1) of the VAT Act reveals that the power of re-assessment is confined upon the assessing authority in the following four circumstances:
(1) the tax is escaped assessment (2) it is under assessed, (3) it has been assessed at a lower rate, (4) any deductions or exemptions have wrongly been allowed.
This is subject to the satisfaction recorded by the assessing authority that he has reason to believe that any of the above four conditions exist.
In view of the above, recording of the satisfaction as to the reason to believe that either of the above four conditions exist are necessary for issuing notice for making reassessment.
The aforesaid provision is paramateria with Section 21 of the U.P. Trade Tax Act, 1948. Section 21 of the said Act also uses the phrase 'reason to believe' and it is only on that ground that the assessing authority under this Act has been empowered to reopen the assessment and to reassess the assessee for the purpose of tax in the relevant year.
The phrase 'reason to believe' used in Section 21 which is paramateria with Section 29 of 'the Act' has come up for consideration number of times before the law Courts and the law on the point has been crystallized in the case of State of U.P. And others vs. Aryaverth Chawl Udyog and others reported in [2016] 91 VST 1 (SC). The 3 judges Bench of the Supreme Court in the above case while interpreting the phrase 'reason to believe' used under Section 21(1) of U.P. Trade Tax Act, 1948 held that reassessment proceedings can be initiated only if the assessing authority has 'reason to believe' that there is a case of escaped assessment and not otherwise. In every case where the statute provides for 'reason to believe', either the reason should appear on the face of the notice or they must be available on the material which have been placed before the authorities concerned. The expression 'reason to believe' does not mean a power subjecting assessment on part of the assessing authority on the basis of the material or fact available before it. The material on which the assessing authority forms its opinion must not be a vague distant or irrelevant material which must have some nexus and some rationale with the object sought to be achieved. In the absence of any material the action taken by the assessing authority can always be held to be arbitrary and bad in law. The relevant paragraph of the above decision of the Supreme Court is quoted below:
"This court has consistently held that such material on which the assessing authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the assessing authority in pursuance of such belief. In case of absence of such material, this Court in clear terms has held the action taken by assessing authority on such "reason to believe" as arbitrary and bad in law. In case of the same material being present before the assessing authority during both, the assessment proceedings and the issuance of notice for reassessment proceedings, it cannot be said by the assessing authority that "reason to believe" for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See DCM vs. State of Rajasthan [1980] 4 SCC 71."
This Court in the case of M/s. Shivalik Buildtech Pvt. Ltd(supra) has considered the decision of the Hon'ble Apex Court by a three Judge Bench and came to the conclusion 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 consideration and accordingly, the order granting permission and notice issued for re-assessment are quashed.
In the case of M/s. Vikrant Tyres Limited (supra) a Division Bench of this Court has considered the provisions of Section 21 of the Trade Tax Act (para materia of Section 29 of VAT Act). The relevant extracts of the said judgment are quoted here-in-below:
"13.The fact that decision to initiate re-assessment proceedings can be taken after giving notice and opportunity of hearing to the dealer, shows that Assessing Authority has to act judiciously and it cannot act arbitrarily or upon whims i.e. without disclosing ground acceptable in law. The Assessing Officer has to justify ''reassessment' on a ground covered under Section 21(1), and it most not be opposed to good conscience, fair play and public policy.
14.Re-assessment on the same material by same authority, if permitted, for no valid reason, will open flood gate for arbitrary action exposing one to unending process, permitting uncertainty, re-opening of closed chapters without assigning good reason, depending upon whims of individuals and in the end precipitating anomalous situations.
15.It, therefore, naturally follows that there has to be some valid ground viz. some relevant document or material having escaped notice or there has been wrong calculation due to human err bonafide committed, or ignorance of correct and complete facts due to mistake or ignorance or fraud/mis-representation ( but not mere change of opinion on same material)."
Learned counsel for the State has placed the provisions of Section 13 of the VAT Act. Section 13 provides the procedure of Input Tax Credit. Sub-section (1) of Section 13 provides as follows:
"(1)Subject to provisions of this Act, dealers referred to in the following clauses and holding valid registration certificate under this Act, shall, in respect of taxable goods purchased from within the State and mentioned in such clauses, subject to conditions given therein and such other conditions and restrictions as may be prescribed, be allowed credit of an amount, as input tax credit, to the extent provided by or under the relevant clause:(For condition prescribed see Rule 24)."
Sub clause(f) of Section 13(1) provides as follows:
"(f) Notwithstanding anything to the contrary contained in this sub-section where goods purchased are resold or goods manufactured or processed by using or utilizing such purchased goods are sold, at the price which in lower than
(i)purchase price of such goods in case of resale; or
(ii) cost price in case of manufacture, the amount of input tax credit shall be claimed and be allowed to the extent of tax payable on the sale value of goods or manufactured goods."
Sub-section (1) of Section 13 provides that the dealer shall, subject to conditions given..............................., allow the credit of an amount, as input tax credit, to the extent provided by or under relevant clause.
In this regard the contents of paragraph nos.30, 31 and 34 of the judgment of M/s. Bharat Heavy Electricals Limited (supra) are relevant and are quoted here-in-below:
"30.To claim jurisdiction to reassess the petitioner, the burden was solely on the assessing authority to categorically bring on record such information or material as may establish presence of the pre-condition for application under Section 13(1)(f). In the context of reassessment proceedings initiated by the Assessing Authority, it was mandatory to record such a fact by way of a reason (based on some material or evidence) that one of the two statutory pre-condition for application under Section 13 (1)(f) existed.
31.In absence of any material it was not open to the authorities to assume existence of such facts for the purpose of acquiring jurisdiction and to later, in the course of reassessment proceedings to conduct an inquiry as to its existence or otherwise. The Supreme Court in the case of Arun Kumar & Ors Vs. Union of India & Ors (2007) 1 SCC 732 has categorically held :
74.A "jurisdictional fact" is a fact which must exist before a court, tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess.
75. In Halsbury's Laws of England, it has been stated:
"Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs my be described as preliminary to, or collateral to the merits if, the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling it not conclusive."
76. The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction.
84. From the above decisions, it is clear that existence of "jurisdictional fact" is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of "jurisdictional fact", it can decide the "fact in issue" or "adjudicatory fact". A wrong decision on "fact in issue" or on "adjudicatory fact" would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present."
34.However, for initiation of reassessment proceedings thereafter the burden lies on the assessing authority to find out and allege as a fact, in his reason to believe, that such value had not not separately shown. We do not find any such allegation or factual assertion. Thus to allow reassessment proceedings at present would only amount to allowing the reassessment for the sake of making the verification of facts or as has been often described to enter into a fishing expedition or roving inquiry, all falling outside the scope of reassessment proceedings."
Sri Tripathi, learned counsel for the department has placed Clause(f) of Section 13(1) (quoted here-in-above) which provides that where goods purchased are resold ........................, at the price which is lower than (i) purchase price of such goods in case of resale; or (ii) cost price in case of manufacture. It provides that the amount of input tax credit shall be claimed and be allowed to the extent of tax payable on the sale value of goods or manufactured goods.
Learned counsel for the department, therefore, has submitted that in any case in view of the provisions of Section 13(1)(f) the amount of input tax credit cannot be lower than the purchase price. He has submitted that this aspect requires consideration by the assessing authority. Therefore, re-assessment proceedings are valid.
We have examined the issue in detail and found that the submission of the learned counsel for the department, appears to be attractive, however, in the present set of facts, particularly when admittedly the transaction has properly been examined and verified and where there is no fresh material available with the assessing authority, re-assessment proceedings are nothing but are roving and fishing inquiry of the matter, which is not permissible under the law nor it is permissible under Section 29 of the VAT Act.
In this regard we will like to refer paragraph nos.36 and 37 of the judgment in the case of M/s. Bharat Heavy Electricals Limited (supra) which are quoted here-in-below:
"36.Thus we do not find there exist any reason less so cogent or germane to the belief of escapement, if any. In fact there neither exists a belief with the petitioner's assessing authority as to escapement of turnover nor there exist any reason to justify a belief of escapement. The initiation of reassessment proceedings against the petitioner is based on presumptions devoid of factual basis or reasonable ground germane to the formation of belief regarding escaped turnover.
37.To allow the respondents to reassess the petitioner in the present facts would allow the State to make an inquiry into the facts on which its authorities have not entertained a reason to believe inasmuch as the sanction order and the proposal containing the belief do not even remotely suggest that the Assessing Authority has any material or information that the petitioner had not shown separately the value of labour and services and amount of profit accrued on such labour and services."
Thus, from the perusal of the record we find that in the assessment orders the assessing authority has properly examined the entire material and thereafter has allowed input tax credit on the sale price by accepting the credit notes, which are issued by the seller and once this aspect has been considered and examined, there was no occasion to the assessing authority to seek permission for re-assessment for re-opening the matter and in view of the aforesaid reasons the writ petitions stand allowed. The orders dated 30.3.2017 passed by the Additional Commissioner granting the permission to the assessing authority to re-assess the petitioners for the assessment years 2010-11, 2011-12 and 2012-13 are quashed and the consequential notices issued by the assessing authority dated 03.04.2017 are also quashed.
In view of the above, the writ petitions stand allowed. However, there shall be no order as to costs.
Order Date :- 20.11.2017 SKM (Ashok Kumar,J.) (Abhinava Upadhya,J.)