Allahabad High Court
M/S Swati Menthal And Allied Chemical ... vs State Of U.P. And 3 Others on 10 November, 2025
Author: Saumitra Dayal Singh
Bench: Saumitra Dayal Singh
HIGH COURT OF JUDICATURE AT ALLAHABAD
HIGH COURT OF JUDICATURE AT ALLAHABAD
WRIT TAX No. -263 of 2023
M/s Swati Menthal and Allied Chemical Ltd.
..Petitioners(s)
Versus
State of U.P. & 3 Others
..Respondents(s)
Counsel for Petitioners(s)
:
Rahul Agarwal
Counsel for Respondent(s)
:
C.S.C.
Along with:-
1. Writ Tax No. 1495 of 2023:
Arora Aromatics Pvt. Ltd.
Versus
State of U.P. and 2 others
2. Writ Tax No. 261 of 2023:
M/S Swati Menthal and Allied Chemical Ltd.
Versus
State of U.P. and 3 others
3. Writ Tax No.262 of 2023:
M/S Swati Menthal and Allied Chemical Ltd.
Versus
State of U.P. and 3 others
4. Writ Tax No. 660 of 2025 :
Arora Aromatics Pvt. Ltd.
Versus
State of U.P. and 2 others)
Court No. - 3
HONBLE SAUMITRA DAYAL SINGH, J.
HONBLE INDRAJEET SHUKLA, J.
(Per Indrajeet Shukla)
1. Heard Sri Ankur Agrawal and Sri Neeraj Kumar Singh, learned counsel for the petitioners and Sri Ankur Agarwal (another one), learned standing counsel for the State and perused the record.
2. Since batch of all these five writ petitions are founded on similar facts and are raising common question of law as such they were connected by earlier order passed by this Hon'ble Court, hence, they are being decided by this common judgement having binding effect upon all five matters, taking Writ-Tax No. 263 of 2023 as leading one.
3. For ready reference reliefs claimed in all the writ petitions are quoted as under:-
Writ-Tax No.263 of 2023"(i) issue a writ, order or direction in the nature of certiorari and to quash the impugned order dated 04.08.2022 issued by the Additional Commissioner, Grade-1, State Tax, Moradabad Zone, Moradabad for the Assessment Year 2014-15(UP) as well as order dated 04.08.2022 for the Assessment Year 2014-15 (Central) under the proviso to Section 29(7) of the U.P. Vat Act;
(ii) issue a writ, order or direction in the nature of certiorari and to quash the impugned notice dated 22.02.2023 issued by the Deputy Commissioner, Sector-1, Rampur for the Assessment Year 2014-15 (UP) as well as the Assessment Year 2014-15 (Central) under the proviso to Section 29 of the U.P. VAT Act;
(iii) issue a writ, order or direction in the nature mandamus restraining the respondents from proceeding with any consequential reassessment proceedings;"Writ-Tax No.261 of 2023
"(i) issue a writ, order or direction in the nature of certiorari and to quash the impugned order dated 04.08.2022 issued by the Additional Commissioner, Grade-1, State Tax, Moradabad Zone, Moradabad for the Assessment Year 2015-16(UP) as well as order dated 04.08.2022 for the Assessment Year 2015-16 (Central) under the proviso to Section 29(7) of the U.P. Vat Act;
(ii) issue a writ, order or direction in the nature of certiorari and to quash the impugned notice dated 22.02.2023 issued by the Deputy Commissioner, Sector-1, Rampur for the Assessment Year 2015-16 (UP) as well as the Assessment Year 2015-16 (Central) under the proviso to Section 29 of the U.P. VAT Act;
(iii) issue a writ, order or direction in the nature mandamus restraining the respondents from proceeding with any consequential reassessment proceedings;"Writ-Tax No. 262 of 2023
"(i) issue a writ, order or direction in the nature of certiorari and to quash the impugned order dated 14.09.2022 issued by the Additional Commissioner, Grade-1, State Tax, Moradabad Zone, Moradabad for the Assessment Year 2016-17(UP) as well as order dated 14.09.2022 for the Assessment Year 2016-17 (Central) under the proviso to Section 29(7) of the U.P. Vat Act;
(ii) issue a writ, order or direction in the nature of certiorari and to quash the impugned notice dated 22.02.2023 issued by the Deputy Commissioner, Sector-1, Rampur for the Assessment Year 2016-17 (UP) as well as the Assessment Year 2016-17 (Central) under the proviso to Section 29 of the U.P. VAT Act;
(iii) issue a writ, order or direction in the nature mandamus restraining the respondents from proceeding with any consequential reassessment proceedings;"Writ-Tax No. 1495 of 2023
(i) issue a writ, order or direction in the nature of certiorari quashing the order dated 07.12.2023 issued by the Additional Commissioner, Grade-1, Commercial Tax/State Tax, Moradabad Zone, Moradabad, under Section 29 (7) of the UPVAT Act, 2008 for the Assessment Year 2015-16 (U.P.).
(ii) Issue a writ, order or direction in the nature of mandamus restraining the respondents, from proceeding with any consequential reassessment proceedings.
Writ-Tax No.660 of 2025(i) issue a writ, order or direction in the nature of certiorari quashing the order dated 30.12.2024 issued by the Additional Commissioner, Grade-I, Commercial Tax/State Tax, Moradabad Zone, Moradabad under Section 29 (7) of the UPVAT Act, 2008 for the Assessment Year 2016-17 (U.P.).
(ii) issue a writ, order or direction in the nature of certiorari quashing the notice dated 10.02.2025 issued by the Joint Commissioner (Corporate Circle), Commercial Tax, Moradabad Zone, Moradabad, under Section 29 of the UPVAT Act, 2008 for the Assessment Year 2016-17 (U.P.).
(iii) Issue a writ, order or direction in the nature of mandamus restraining the respondents from proceeding with any consequential reassessment proceedings.
FACTUAL MATRIX OF WRIT-TAX NOs.261 , 262 & 263 of 2023
4. The petitioner in Writ-Tax Nos. 261, 262 & 263 of 2023 is one and same with only difference in Assessment Year and magnitude/amount of I.T.C. claimed. Petitioner was engaged in the business of manufacturing and trading of D.M.O. Mentha Tarpine Oil etc. produced from mentha oil. The turnover of the petitioner was subjected to regular assessment for the Assessment Years 2014-15, 2015-16 and 2016-17. The assessing authority had issued show cause notices to the petitioner seeking explanations on various issues. The petitioner filed its reply, thereafter, assessment orders were passed on 16.03.2016, 17.03.2017 and 23.01.2019 respectively against the petitioner with specific note that the petitioner had made various sales against Form-I. In the said assessment orders the claim of the petitioner for input tax credit in respect of sales made against Form-I was accepted and nothing adverse was observed. Form-I is prescribed in Central Sales Tax Act, 1956 as the Form to be used in respect of sales made by way of inter-state trade or commerce to a unit located in a Special Economic Zone (in short 'SEZ'). Consequently, the petitioner had claimed input tax credit (I.T.C.) in respect of raw material used in manufacturing goods supplied by it against Form-I to units situated in SEZ.
5. Once the petitioner had claimed the input tax credit, the assessing authority obtained approval from the Joint Commissioner (Executive), Commercial Tax, Moradabad Range-B, Moradabad to initiate reassessment proceedings for reversing the input tax credit claimed by the petitioner and issued notices to the petitioner calling upon its objection on the proposal forwarded by the assessing authority. The petitioner responded to the said notices and filed its reply stating that the proposal to reverse the input tax credit is based on a change of opinion and is impermissible, inasmuch as the sales made against Form-I are duly disclosed and accepted in the assessment order. It was further stated in reply that the judgement of Karnataka High Court in the case of M/s Shamaraju and Company (India Pvt. Ltd. And others vs. Union of India reported in 2010 (256) ELT 193 (Kar.) mentioned in the notice, which formed the foundation of the proposed re-assessment proceedings is firstly not related to VAT laws and pertains to the export duty/customs duty and secondly it is a judgement the year 2010-11 and was in existence at the time of passing of assessment order and is presumed to be in the knowledge of the assessing authority.
6. Thereafter, the Additional Commissioner, Grade-I, State Tax, Moradabad Zone, Moradabad passed the order dated 04.08.2022 for the Assessment Year 2014-15, 2015-16 and 2016-17 (Central) under the proviso to Section 29(7) of the U.P. Vat Act observing that the factum of non-reversal of input tax credit on the sales made by the petitioner against Form-I/Form-D to unit located in the SEZ area came to light subsequent to the passing of original assessment order as such it is a fit case for initiation of re-assessment proceedings and permitted the assessing authority for proceeding with re-assessment proceedings by invoking the extended period of limitation. The reassessment order dated 04.08.2022 is impugned in present writ petitions.
FACTUAL MATRIX OF WRIT-TAX NOS.1495 of 2023 & 660 OF 2025
7. The petitioner was engaged in the business of manufacturing and trading of mentha oil crystals etc, for the Assessment Years 2015-16 and 2016-17 regular assessment proceedings were initiated and the petitioner was served with notices, which were replied by the petitioner, subsequently, the assessing authority passed the order dated 26.08.2016 (Writ-Tax No.1495 of 2023) as well as the order dated 24.01.2019 (Writ-Tax No.660 of 2025), under Section 28(2) (ii) of the U.P. Value Added Tax Act, 2008 accepting the sales made against Form-I, consequently, the petitioner had claimed input tax credit (in short 'ITC') in respect of raw material used in manufacturing goods supplied by it against Form-I to units situated in SEZ.
8. Once the petitioner had claimed the input tax credit, the assessing authority submitted a proposal to respondent no.2 to initiate reassessment proceedings for the Assessment Years 2015-16 and 2016-17 for reversing the input tax credit claimed by the petitioner to the goods manufactured and sold against Form-I to the units in the SEZ area, thereafter, based on the proposal forwarded by the assessing authority respondent no.2 issued notices to the petitioner under Section 29(7) of the Act to show cause as to why the approval be not accorded to the assessing authority to initiate re-assessment proceedings once in the relevant year sales to the SEZ units have been accepted in terms of the order passed by the Karnataka High Court in M/s Shamaraju (supra) qua reversal of I.T.C.
9. The petitioner responded to the said notices and submitted its reply explaining that the basis of issuing of notice under Section 29 (7) of the Act is misinterpretation of the judgement of Karnataka High Court in M/s Shamaraju (supra), hence, the notice/proceedings may be dropped, however, the assessing authority passed the impugned orders dated 07.12.2023 and 30.12.2024 permitting the assessing authority to proceed with the reassessment proceedings observing that the factum of non-reversal of input tax credit on the sale made by the petitioner against Form-I to units located in SEZ area came to light subsequent to passing of the assessment order of original assessment. The orders dated 07.12.2023 and 30.12.2024 are impugned by virtue of these writ petitions.
10. Learned counsel for the petitioner argued that the claim for ITC may arise under Section 13 of the VAT Act. If the amount claimed is contrary to the provisions of the Act or Rules, framed thereunder, proceedings can be undertaken to Reverse Input Tax Credit (RITC in short), under Section 14 of the Act. That proceeding was never initiated- to RITC of the amount in question. Such proceeding may have been initiated only during the course of the tax period, which stood expired and authority had no jurisdiction to seek RITC, thus, any attempt of Reversal of Input Tax Credit is barred by limitation.
11. Further submissions are that the reassessment proceeding under Section 29 of the Act could be initiated only in cases involving escapement of turnover. The ITC in an issue not involving determination of the 'turnover' of sale or purchase and further inasmuch as the petitioner is not liable to tax on 'turnover of purchase', the reassessment proceeding initiated against the petitioner to RITC, is wholly without jurisdiction and authority of law.
12. It is further contended on behalf of the petitioner that the judgement of Karnataka High Court in M/s Shamaraju (supra) relied by respondent authority in orders impugned is of no avail as the Court in the judgement of Samsung India Electronics Pvt. Ltd. Vs. State of U.P. and others, Writ-Tax No.435 of 2016, has held that the re-assessment proceeding could not be initiated on the basis of subsequent judgement as it would amount to a change of opinion.
13. Learned counsel for the petitioner has also placed reliance on a coordinate bench judgement dated 25.4.2024 passed in Writ-Tax No.683 of 2023, Mentha and Allied Products Ltd. V. State of U.P. and 3 others (against which SLP preferred before Honble Supreme Court bearing Special Leave Petition (Civil) Diary No.48979 of 2024, State of U.P. & Others vs. Mentha and Allied Product Ltd. has been dismissed vide order dated 03.01.2025) and submitted that the controversy is squarely covered.
14. Lastly, it is submitted that the reassessment proceeding initiated against the petitioner to RITC, is wholly without jurisdiction and is liable to be quashed by this Court.
15. Prime submission advanced by learned Standing Counsel for the revenue is to the effect that, besides the jurisdiction vested under Section 14 of the Act, RITC being component 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 by virtue of Section 29 of the Act, inasmuch as that the petitioners had obtained an unfair advantage leading them undue enrichment. In any case, the petitioners had obtained an unfair advantage.
16. Further submission advanced by learned Standing Counsel is that by virtue of definition of 'tax' envisaged under Section 2(ag) of the Act, jurisdiction would vest in the Assessing Officer to initiate reassessment proceedings, on excess availment of ITC. Therefore, the revenue authorities are well within their jurisdiction to undertake the recourse of RITC through reassessment procedure but could not dispute the fact that the issue/controversy in question is squarely covered by the judgment of this Court passed in the case of Mentha and Allied Products Ltd (supra).
17. We have perused the judgement of coordinate bench passed in the case of Mentha and Allied Products Ltd (supra). For ready reference, relevant paragraphs of the said judgement are extracted below:-
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.....................
(ap) "turnover of purchase" with its cognate expressions means the aggregate of the amounts of purchase prices paid or payable in respect of purchase of goods made by a dealer either directly or through another dealer, whether on his own account or on account of others, after deducting the amount, if any, refunded by the seller in respect of any goods returned to such seller within such period as may be prescribed;
(aq) "turnover of sale" means the aggregate of amount of sale prices of goods, sold or supplied or distributed by way of sale by a dealer, either directly or through another, whether on his own account or on account of others."
16. Then, Section 13(1) of the Act provides for allowance of ITC to the extent provided therein. The petitioner being manufacturer was entitled to claim ITC in terms of Clause 2 of the table appended to sub-section (1) of Section 13 of the Act. Section 13 (1) of the Act reads as below:
"13. Input tax credit.- (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."
17. Then, Section 13(11) of the Act reads as below:
"(11) Where it appears to the assessing authority that amount of input tax or amount of input tax credit shown in any statement furnished by any dealer is incorrect or is not worthy of credence, it may, after giving reasonable opportunity of being heard to such dealer and after making such inquiry as it may deem fit, determine the amount of input tax or amount of input tax credit, as the case may be, by making an order in writing;
Provided that where matter relates to any tax return submitted under section 24 or in any assessment proceedings under any section of this Act, proceedings shall be completed in accordance with provisions of relevant sections.
Explanation. For the purposes of this section,-
(i) goods for use in manufacture of any goods includes goods required for use, consumption or utilization in manufacture or processing of such goods or goods required for use in packing of such manufactured 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 the Rules framed thereunder or may have otherwise been wrongly claimed. For ready reference, provisions of Section 14 of the Act read as below:
"14. Reverse input tax credit.- (1) Consistent with the provisions of this Act, the State Government may prescribe the circumstances in which and the goods in respect of which input tax credit shall be neither claimed nor allowed.
(2) Where, in respect of any goods, a dealer has already claimed input tax credit against the provisions of this Act or the rules framed there under or has wrongly claimed input tax credit in respect of any goods, benefit of input tax credit to the extent it is not admissible, shall stand reversed and such amount of reverse input tax credit shall be deducted from the amount of input tax credit already claimed by the dealer in the tax period in which event giving rise to reverse input tax credit has occurred:
Provided that where event, giving rise to reverse input tax credit, comes to the notice of the dealer after the tax return, for the tax period in which such event has occurred, has been submitted, the dealer shall be liable to pay such amount of reverse input tax credit within thirty days after the event comes to the notice of the dealer, along with simple interest at a rate of fifteen percent per annum for the period commencing on the date following the last date prescribed for submitting tax return of the tax period in which event has occurred and ending on the date on which amount has been deposited."
19. Then, Section 15 of the Act provides, the gross amount of ITC admissible may be adjusted against the gross amount of tax payable for the tax period. It would determine the net amount of tax payable for that tax period.
20. Plainly, ITC is not part of determination of turnover or tax liablity. On the contrary, it is an allowance that arises to certain dealers in the prescribed manner, upon fulfillment of specified circumstances. That amount may be corrected both at the instance of the assessee as also the assessing officer. Once crystallized, the allowance thus created would be adjusted against the gross tax liability that may arise against the assessee. By its very nature, ITC is different and distinct from assessment/determination of turnover. It is an allowance utilized to pay tax dues. Neither the legislature intended nor there is any warrant to otherwise reach a conclusion 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 assessing authority may make separate assessments for each receipt of such goods by the dealer."
22. Again, amount of ITC admissible has been included as part of the regular assessment that may be made.
23. Next, under Section 27 of the Act, it is provided, the deemed assessment order that may arise in certain circumstances, would include, the amount of ITC shown admissible in the return, specifically with respect to regular assessment order passed by the Assessing Authority. Upon due application of mind, under Section 28(2) of the Act, the Assessing Authority has been vested with the power to determine not only the turnover but also the amount of ITC admissible or the RITC payable by the dealer.
25. Having done that, the Assessing Officer exhausted the power vested in him to RITC. We do not find any provision of law where under the assessing officer was permitted to initiate fresh proceedings to redetermine the ITC or to compute RITC payable by the petitioner by seeking to reassess the petitioner, thereafter. The provision of Section 29(1) of the Act is pari materia to the provision of Section 21 of the U.P. Trade Tax Act, 1948 - the law that pre-existed the enforcement of the Act. For ready reference, Section 29 of the Act reads as below:
"29. Assessment of tax of turnover escaped from assessment.- (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, 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 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 prices or the sale prices of goods purchased or sold by the assessee, as the case may be. Therefore, the jurisdiction to reassess may arise if the Assessing Officer forms "reason to believe" that the said "turnover of purchase" or "turnover of sale" of goods by the assessee had been "under assessed" i.e. the correct/higher figures of such turnover had not been considered.
27. Second, reassessment proceedings could be initiated where wrong/lower rate of "tax" may have been applied either to the "turnover of purchase" or the "turnover of sale" of goods as determined, as the case may be. Thus, Section 2(ag) of the Act reads as below:
"[(ag) "tax" means a tax leviable under this Act, on the sale or purchase or both, as the case may be, of goods other than news paper; and shall include,-
(i) Composition money either at an agreed rate or in lump sum, as the case may be, payable, in lieu of actual amount of tax due on turnover of sales, in accordance with provisions of section 6 or section 6A;
(ii) amount of reverse input tax credit;]"
28. At the same time, RITC is not to be assessed (qua the "turnover" of either purchase or sale of goods at any "rate"), that may be either described as "lower" than that at which it may be "assessable" in law. The "rate" of tax is referable only to the rate of tax to be charged as prescribed under of the Schedule to the Act. On the other hand, RITC that may have been wrongly claimed may never described as a "rate" of tax on the "turnover". By using the words "rate" in conjunction with "assessed"/"under assessed lower than that at which it is assessable", the legislature has unexceptionally confined the scope of reassessment proceeding to that part of assessment procedure as may involve determination of chargeable tax liability that would arise either on sale or purchase of goods i.e. the amount of tax that would be chargeable on "rate" basis on those activities.
29. On the other hand, ITC did not arise as a "rate" applied to "turnover". It was an "allowance" created/arising upon fulfillment of statutory conditions. If those conditions were not fulfilled, RITC could be done, under Section 14 of the Act and also in the course of regular assessment - for reason of that power specifically vested by the legislature. No such power/jurisdiction has been vested under Section 29(1) of the Act to assume jurisdiction to initiate reassessment 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 purchase" or the "turnover of sale" of goods. Typically, that eventuality would arise where the goods may have been wrongly described/assessed to tax - treating the same to be exempt from payment of tax.
32. Undeniably, Section 29(1) of the Act is the only provision that could give rise to jurisdiction to initiate reassessment proceedings. It does not include within its scope an eventuality where ITC may have been wrongly computed i.e. in excess of its entitlement. In absence of any jurisdiction vested (by the legislature), in the Assessing Officer to initiate reassessment proceedings to recompute the ITC or to disallow ITC or to RITC, there is no other principle in law available, as may allow the revenue to assume that jurisdiction. That jurisdiction must remain referable and confined to determine/redetermine the correct figure of turnover and/or the quantum of tax chargeable thereon. RITC not being part of the assessment of turnover, any doubt as to its computation may never give rise to a valid reassessment proceedings. Thus jurisdiction to reassess may never arise under Section 29 of the Act - to RITC, where purchase turnover giving rise to ITC was not first disturbed under Section 29 of the Act, for reason of it's escapement. The issue whether RITC may be done where jurisdiction may have been validly initiated, is not before us. That issue may be dealt with in appropriate case.
33. Thus, the scheme of the Act is - the computation of correct ITC may be examined by the Assessing Authority, not later than the stage of making the regular assessment order i.e. at the stage of Section 28 of the Act. That order may remain amenable to jurisdiction of suo moto revision. Suffice to note, that jurisdiction has not arisen in the present case. Therefore, the reassessment proceedings initiated against the petitioner only to RITC was without jurisdiction.
34. Even otherwise, the Assessing Officer appears to have wrongly placed reliance on the decision of the Karnataka High Court in M/s Shayamaraju & Co. (India) Pvt. Ltd. & Ors. vs. Union of India, (2011) NTN (Vol-46) 87. That was a case arising under entirely different provision of law namely, Special Economic Zones Act, 2005. Only this much may be noted that in the said case, the following questions were considered by that Court.
"In the light of the above contentions, the questions that would arise for consideration 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 from all levies and duties and since the duty is leviable on the goods, it is not rational to contend that the export leviable on the goods, it is not rational to contend that the export from the DTA to the SEZ should be taxed be taxed while the inward movement of the goods from the DTA to the SEZ would be exempt. It is thus clear from the Statement of objects to the SEZ Act that the intention of the Legislature was to make available goods and services to the developer or unit, within the SEZ free of taxes and duties. Hence, the levy of export duty is neither expressly nor impliedly contemplated under the Act. The movement of goods from the DTA to the SEZ is treated as an export under the SEZ Act only by a legal fiction for the purposes of the Act, namely, for making available benefits as in the case of actual exports drawback and other export benefits to the SEZ unit or the developer of a DTA supplier at their option. To construe this movement of goods as entailing a liability of payment of duty would run counter to the purpose for which the legal fiction is created under the SEZ Act. The levy of export duty as is evident arises under the Customs law and not under the SEZ Act. The levy of customs duty on exports is sanctioned by Entry-83 of List-I of the VII Schedule to the Constitution.
The respondents seeking to rely on the provisions of the SEZ Act would render the provisions unconstitutional as a levy of customs duty on export of goods from India cannot be with reference to the provisions of the SEZ Act. The authorities under the SEZ Act are without jurisdiction in seeking to enforce the liability which could arise only under the Customs Act. Hence, the instructions issued by the respondents under the impugned notifications are wholly illegal and cannot be sustained. It is therefore, declared that no export duty as would be payable for supply of goods by the parties in the DTA to the petitioners in the SEZs and all proceedings initiated in this regard are therefore liable to be quashed. The petitions are allowed accordingly."
36. We are unable to appreciate how the petitioner's Assessing Authority could be persuaded by the above reasoning to reach a conclusion that any turnover had escaped assessment at the hands of the petitioner or that excess ITC had been allowed. Plainly, the ratio of the decision noticed by the Assessing Authority does not lead 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.
18. The orders impugned also reflects that the authority while exercising power under section 29(7) of the act had relied upon the coordinate bench judgement of this Hon'ble Court rendered in Writ Tax No. 671 of 2020 titled as M/s Ramki Infrastructure vs State of U.P. apart from the judgement of Karnataka High Court in M/S Shamaraju (supra), which was not mentioned in the initial show-cause notice but in any view of the matter same is absolutely not related to reversal of Input Tax Credit and same relates to authorization by Commissioner to assessing authority 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. Thus, where whole of the turnover has escaped assessment on account of not passing an assessment order, the provisions of Section 29(1) of the Act, 2008 can be invoked by the Assessing Authority and the authorisation under sub-section (7) can be granted by the competent authority. The logical consequence of the aforesaid finding is that the reliance placed by the revenue is misplaced, as the context in that case was entirely different.
19. In view of the analysis and reasoning set out hereinabove, the submission advanced by learned Standing Counsel does not commend acceptance as reassessment notice is jurisdictional and same could not be issued except where jurisdiction to reassess an assessee arose strictly in accordance with the law.
20. Merely because RITC is included in the definition of 'tax' under Section 2(ag) of the Act, makes no difference to valid assumption of jurisdiction to reassess which issue must be decided only on the strength of language of Section 29 of the Act.
21. Sine qua non for assumption of jurisdiction under section 29(7) of the Act is that the assessing officer must have reason to believe that the turnover of purchase or turnover of sale of goods by the assessee has been under assessed and the second eventuality for further proceedings is that if the wrong/lower rate of tax has been applied either to the turnover of purchase or turnover of sale.
22. ITC is not dependent upon the rate of tax applied to turnover. The reversal of ITC is amenable to proceeding under section 14 of the Act, and that too during the course of regular assessment. For redetermination of ITC or RITC, proceedings under section 29 of the Act cannot be resorted to.
23. The assessment proceedings could be presumed in the event of a deduction or exemption from tax wrongly being claimed. It is beyond any doubt that the computation of correct ITC can be looked into by tax authorities, being prescription of the Act.
24. We find no substance in the contention advanced by the state that the reassessment proceedings were within jurisdiction in this particular case, since Section 29 of the Act did not authorize the assessing authority to initiate the assessment proceedings on a general allegation of escapement of "tax" but on a specific allegation of escapement from assessment of any turnover of a dealer etc. based on a "reason to believe" (as discussed above).
25. In view of the foregoing discussion, this Court is of the considered view that there was a fundamental and complete lack of jurisdiction to reevaluate the petitioner only to RITC. Thus, the reassessment order was issued in flagrant defiance of natural justice principles.
26. In view of the above factual matrix and keeping in mind the proposition of law set out in the case of Mentha and Allied Products Ltd (supra) this batch of all five writ petitions succeeds and are hereby allowed. The impugned orders dated 04.08.2022, 14.09.2022, 07.12.2023 and 30.12.2024 are quashed. No order as to cost.
(Indrajeet Shukla,J.) (Saumitra Dayal Singh,J.)
November 10, 2025
S.P.