M/S Moser Baer India Limited vs State Of U.P. And Others
2014 Latest Caselaw 1437 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 


 

 
Reserved.
 

 
Court No. - 33
 

 
Case :- WRIT TAX No. - 1730 of 2011
 

 
Petitioner :- M/S Moser Baer India Limited
 
Respondent :- State Of U.P. And Others
 
Counsel for Petitioner :- Nikhil Agrawal,Dhruv Agrawal
 
Counsel for Respondent :- C.S.C.
 
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Hon'ble Rajes Kumar,J.

Hon'ble Shashi Kant,J.

(Delivered by Hon'ble Rajes Kumar, J.)

By means of the present writ petition, the petitioner is challenging the order dated 8.11.2011 passed by the Additional Commissioner, Commercial Tax, Gautam Budh Nagar Zone, Gautam Budh Nagar-respondent no. 3, by which he has accorded permission, under Section 21 (2) of the U.P. Trade Tax Act (hereinafter referred to as the ("Act"), for the assessment year 2006-07, both under the U.P. Trade Tax Act and under the Central Sales Tax Act and the notice dated 17.11.2011 issued by the Joint Commissioner, Corporate Circle, Commercial Tax, Noida-respondent no.4.

Heard Sri Bharat Ji Agarwal, learned Senior Counsel, assisted by Sri Nikhil Agarwal, learned counsel for the petitioner and Sri C.B. Tripathi, Special Counsel for the State of U.P.

The brief facts of the case are that the petitioner is a Public Limited Company, incorporated under the Companies Act, 1956 having its registered office at 43-A, Okhla Industries Estate, Phase-III, New Delhi and having its Works at A-164, Sector-80, Noida, 66 Udyog Vihar, Greater Noida, 66 SEZ Division Greater Noida, A-119, Sector-80 Noida and having its branch offices in different States. In the State of U.P. its branch office is situated at Plot C-46, Transport Nagar, Kanpur Road, Lucknow. The petitioner was registered under the provisions of the U.P. Trade Tax Act, 1948 and is now registered under the provisions of the U.P. VAT Act, 2008. The petitioner is also registered under the provisions of the Central Sales Tax Act, 1956. The petitioner is, inter alia, engaged in the manufacturing and sale of Optical Media Recorders (CDR), Floppy Disc, C.D., DVD, including recorded CD and DVD, Audio Cassettes, Video Tapes and Jewel Boxes. The unit situated at A-164, Sector-80, Noida has been granted Eligibility Certificate No. 677/111 dated 30.7.2001 under Section 4-A of the Act for exemption for a period of 15 years with effect from 31.3.2000 to 30.3.2015 from payment of tax upto Rs. 1,34,20,91,788/- on the sale of Optical Media Recorder (CDR) only.

In the present writ petition, the dispute is centered on the goods manufactured by Unit No. A-164, Sector-80, Noida. In the year under consideration, the petitioner has disclosed turnover under the heading CDR, both under the U.P. Trade Tax Act and under the Central Sales Tax Act and claimed exemption. The assessing authority passed the assessment order dated 31.3.2009 and allowed the benefit of exemption on the disclosed turnover of CDR.

On proposal being sent by the assessing authority to reopen the case under Section 21 of the Act, both, under the U.P. Trade Tax Act and under the Central Sales Tax Act, the Additional Commissioner, Commercial Tax, Gautam Budh Nagar Zone, Gautam Budh Nagar issued notice dated 13.9.2011 mainly on the ground that during the year under consideration, the petitioner had sold recorded CD and claimed exemption while the exemption on the recorded CD was not available under the eligibility certificate.

The petitioner filed reply dated 14.10.2011. In para-2.d, the turnover disclosed during the period under consideration was disclosed and has admitted that the said sales are inclusive of recorded CD. The petitioner has, however, submitted that exemption has been granted under the eligibility certificate on Optical Media Recorder (CDR). The full form of the CDR is Compact Disc Recorder. The CDR on which exemption has been granted includes, both, recorded and unrecorded CD and, therefore, exemption under Section 4-A of the Act was eligible both on the turnover of recorded and unrecorded CD. It was submitted that on the basis of eligibility certificate, the exemption has been granted, both, on the recorded and unrecorded CD, therefore, the initiation of the proceeding to disallow the exemption on the turnover of recorded CD, on account of change of opinion, is not permissible. Various documents have been submitted to substantiate the claim that Optical Media Recorder (CDR) includes, both, recorded and unrecorded CD.

The Additional Commissioner, Commercial Tax, Gautam Budh Nagar Zone, Gautam Budh Nagar by a detailed order dated 8.11.2011 accorded permission for reopening of the case under Section 21 of the Act, which is being challenged in the present writ petition.

In the impugned order, it is stated that while making the assessment for the year 2007-08, it was found that the petitioner had sold substantial quantity of recorded CD, which had not been disclosed in the return and at the time of assessment. M/s Kunal Sons Consignment Agent of Lucknow only sells recorded CD and DVD. It was also found that during the year under consideration, the petitioner had sold substantial quantity of recorded CD but such sales have neither been disclosed in the return nor have been disclosed during the course of assessment proceeding. It has been observed that under the eligibility certificate, exemption has been granted only CDR (Compact Disc Recorder) and not on the recorded CD. It has been observed that exemption on the recorded CD has been wrongly allowed resulting escaped assessment.

Learned counsel for the petitioner submitted that under the eligibility certificate, exemption has been granted on Optical Media Recorder (CDR). The full form of CDR is Compact Disc Recorder, it includes, both, unrecorded and recorded CD. He submitted that there is no dispute that the Unit No. A-164, Sector-80, Noida manufactured and sold, both, recorded and unrecorded CD and the turnover of both, had been disclosed under the head, CDR, both, under the U.P. Trade Tax Act as well as under the Central Sales Tax Act and the turnover of both have not been separately shown, as the petitioner was of the view that both, recorded and unrecorded CD (Blank) were covered under "Compact Disc Recorder" (CDR) for which exemption has been granted under the eligibility certificate. He submitted that the entire books of account have been produced before the assessing authority at the time of assessment proceeding and the assessing authority, after application of mind, has granted exemption on the turnover of CDR manufactured by Unit, A-164, Sector-80 Noida, therefore, the reopening of the proceeding under Section 21 of the Act on the ground that the exemption was available only on unrecorded CD and not on recorded CD and the exemption has been wrongly allowed on the recorded CD is not justified and is not permissible inasmuch as it is on account of change of opinion. Reliance has been placed on the Division Bench decision of this Court in the case of M/s. Aryaverth Chawal Udyog and others vs. State of U.P. and others, reported in 2008 UPTC 881. He submitted that assessing authority cannot re-read the words mentioned in the eligibility certificate and cannot question the eligibility certificate. Reliance is placed on the Division Bench decisions of this Court in the case of M/s. Kumar Fuels, Pucca Bagh, Puranaganj vs. Stae of U.P. and another, reported in 1986 UPTC 357 and M/s. Kamal Plastics and Rubber Industries, Kotdwar vs. State of U.P and others, reported in 1991 UPTC 907.

Sri C.B. Tripathi, learned counsel for the respondent submitted that while examining the case for the assessment year 2007-08, it was found that the petitioner had sold, both, recorded and unrecorded CD while the turnover of recorded CD had not been disclosed in the return. In reply to the show cause notice, the petitioner admitted sale of recorded CD. Though the petitioner had sold, both, recorded and unrecorded CD, but in the return, the turnover of recorded CD had not been disclosed. The turnover of recorded CD had not been disclosed even during the course of assessment proceeding. The petitioner had disclosed turnover under the head of CDR, both, under the U.P. Trade Tax Act and under the Central Sales Tax Act. The assessing authority has allowed the exemption on the turnover of CDR in view of the eligibility certificate. The assessing authority could not have an occasion to examine that whether the recorded CD is covered under the eligibility certificate or not inasmuch as turnover of recorded CD has not been disclosed either in the return or during the course of assessment proceeding. He submitted that in the eligibility certificate, the manufactured goods are mentioned as Optical Media Recorder (CDR) only. The full form of the CDR is Compact Disc Recorder. This is a device on which something is to be recorded not already recorded. The word "recorder" in the eligibility certificate is very significant and connotes a device which is recordable, on which something is to be recorded or can be recorded. In the product, mentioned in the eligibility certificate, nothing can be added and nothing can be abstracted and is to be read as such. If the intention would have been to include the recorded CD also, the word "recorder" would not have been used and mentioning of CD would be sufficient. He submitted that at this stage, it is to be examined that whether there was any material on which a belief could be formed that there was a escaped assessment and whether it is a case of change of opinion. He submitted that there is sufficient material on which the belief has been formed that there was a escaped assessment. The petitioner was found selling recorded CD, but turnover had not been shown in the return and even during the course of assessment proceeding. There is sufficient material to initiate the proceeding under Section 21 of the Act. He submitted that it is not a case where in the assessment, the assessing authority applied its mind on the subject, namely, whether the goods mentioned in the eligibility certificate include, both, recorded and unrecorded CD. Such question has not been examined and, therefore, it is not a case of change of opinion. Reliance is placed on the decision of this Court in the case of M/s Pernod Ricard India (P) Ltd. vs. State of U.P. and others, reported 2010 (43) N.T.N., 294 paras-14 & 16, M/s Shree Bhawani Paper Mills Ltd. vs. state of U.P. and others, reported in 2012 N.T.N. (Vol.48)-99, M/s. Microtek International Pvt. Ltd. vs. State of U.P. and others, reported in 2010 N.T.N. (44) 59, Commissioner of Sales Tax, U.P. vs. Bhagwan Industries (P) Ltd., reported in 31 STC 293, judgment dated 25.11.2013 in Writ Petition No. 502 of 2008, M/s Tara Chand Nand Lal & others vs. State of U.P. and others, Assistant Commissioner of Income-Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd., reported in [2007] 291 ITR 500 and Raymond Woolen Mills Limited vs. Income Tax Officer, Centre Circle XI, Range Bombay and others, reported in (2008) 14 SCC 218.

Having heard learned counsel for the parties and perused the record.

Section 21 of the U.P. Trade Tax Act reads as follows:

Section 21. Assessment of tax on the turnover not assessed during the year. (1) If the assessing authority has reason to believe that the whole or any part of the turnover of the dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions 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 reassess the dealer or 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 purposes of this section and of section 22, "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.

(2) Except as otherwise provided in this section, no order of assessment or re-assessment under any provision of this Act for any assessment year shall be made after the expiration of two years from the end of such year or March 31, 1998, whichever is later;

Provided that if the Commissioner on his own or on the basis of reasons recorded by the assessing authority, is satisfied that it is just and expedient so to do authorizes the assessing authority in that behalf, such assessment or re-assessment may be made after the expiration of the period aforesaid but not after the expiration of six years from the end of such year or March 31, 2002, whichever is later notwithstanding that such assessment or re-assessment may involve a change of opinion.

Provided further that the assessment or re-assessment for the assessment year 1987-88 may be made by March 31, 1993.

Provided also that the eligibility certificate granted under section 4-A has been amended or cancelled by the Commissioner under sub-section (3) of section 4-A, the order of assessment or re-assessment may be made within one year from the date of receipt by the assessing authority of the copy of the order amending or cancelling the aforesaid certificate or by March 31, 1995, whichever is later.

Provided also that the assessment or re-assessment for the assessment year 1989-90 may be made by March 31, 1995.

It is not in dispute that the petitioner's Unit, A-164, Sector-80 Noida was manufacturing, both, recorded and unrecorded CD (Compact Disk). The turnover of recorded and unrecorded CD has not been disclosed separately in the return as well as during the course of assessment proceeding. From perusal of the assessment order, it is apparent that the petitioner has disclosed the turnover under the head CDR and on the basis of such disclosure, in the absence of otherwise material, the assessing authority has granted exemption on the basis of eligibility certificate. In the eligibility certificate, the goods mentioned were Optical Media Recorder (CDR) only. CDR means Compact Disc Recorder. During the course of assessment proceeding for the assessment year 2007-08, it was found that the petitioner was manufacturing and selling recorded CD also and the turnover of such recorded CD had not been disclosed in the return and during the course of assessment proceeding. On the basis of such material, a belief has been formed that the petitioner, though, manufactured recorded CD, but has not disclosed the turnover in the return or during the course of assessment proceeding. It has been viewed that the exemption was available only on the turnover of Compact Disc Recorder under the eligibility certificate and not on the recorded CD. A notice has been given to the petitioner. The petitioner admitted that the turnover disclosed under the heading CDR includes, both, recorded and unrecorded CD.

On the facts and circumstances, we are of the view that there was sufficient material on the basis of which an opinion has been formed that there was an escaped assessment. Since turnover of the recorded CD had not been disclosed separately, the assessing authority had no occasion to examine whether such recorded CD would be eligible for exemption under the eligibility certificate. This aspect of the matter has neither been examined nor any opinion has been formed. Therefore, it cannot be said that it is a case of change of opinion. Whether the disclosed turnover includes the turnover of recorded CD or not and whether recorded CD is also exempted under the eligibility certificate is a matter of investigation and adjudication which will be examined in the re-assessment proceeding. In writ jurisdiction, the Writ Court can only examine that whether there was any material on which belief of escape assessment can be formed or not. Sufficiency of material cannot be examined. On the facts stated above, we are of a considered opinion that there was material to form opinion that there was an escaped assessment and accordingly approval granted by the Additional Commissioner under Section 21(2) and notice under Section 21 are wholly justified and no interference is called for.

In the case of M/s Pernod Ricard India (P) Ltd. vs. State of U.P. and others, reported in 2010 NTN (43), the Division Bench of this Court 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."

The Division Bench of this Court in the case of Kalpana Kala Kendra Vs. Sales Tax Officer, reported in 1989 UPTC 59 has held as follows:

"Section 21 of the Act is based upon the theory that the taxes observed must be collected by the statutory machinery. The escapement from assessment whether it results on account of a concealment practiced or fraud played by the assessee or as a result of negligence or ignorance of the Assessing Authority, in our opinion, is of no consequence., provided the action to reopen the assessment is otherwise justified and the Assessing Officer is not acting arbitrarily or in a capricious manner. The escapement of assessment contemplated under that Section may be due to various reasons. The term 'turnover has escaped assessment to tax' which includes under assessment, may as well be a result of lack of care on the part of the Assessing Officer or by reason of inadvertence on his part. Section 21 does not prohibit obtaining of information from investigation material on the record of the original assessment. The scope of that section is not circumscribed by a rider like the one that exists in Section 147 (a) of the Income Tax Act, 1961, namely, that the Income Tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year, income chargeable to tax has escaped assessment for that year. The escapement envisaged by Section 21 of the Act for the purpose of reassessment need not necessary spring from a source, extraneous to the original record."

In the case of M/s Ema India Ltd Vs. Asstt. Commissioner of Income Tax, Central Circle-I, reported in 2010 UPTC, 246 on a consideration of the decisions of the Apex Court in the case of Kalyanji Mavji & Co. Vs. Commissioner of Income-Tax, West Bengal II, reported in 102 ITR, 287, Indian Eastern Newspaper Society Vs. Commissioner of Income-Tax, New Delhi, reported in 119 ITR, 996 and in the case of A.L.A. Firm Vs. Commissioner of Income Tax, reported in 189 ITR, 285, the Division Bench of this Court held as follows:

"On a combined reading of the judgment of the Apex Court in Kalyanji Mavji (Supra), Indian Eastern Newspaper Society and A.L.A. Firm (Supra), would make it clear that the proposition No.4 viz., where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from enquiry or research into facts or law." still holds goods and the facts of the present case clearly indicates that certain items of income though chargeable to tax had escaped the notice of the assessing officer and no discussion of chargeability of the tax on the said items of income was made by the Assessing Officer in the order. Therefore, in the light of the judgment of the Apex Court in A.L.A. Firm (Supra) the initiation of proceedings under Section 147 of the Act is in accordance with law and no fault can be found with the approach adopted by the Assessing Officer."

The expression 'reason to believe' has been construed by the Supreme Court while interpreting the provisions of Section 21 of the U.P. Sales Tax Act, 1948 Commissioner of Sales Tax, U.P. vs. Bhagwan Industries (P) Ltd. (supra). The observations of the Supreme Court are as follows:-

"............ 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. ..........."

In the case of M/s Shree Bhawani Paper Mills Ltd. vs. state of U.P. and others (Supra), the Division Bench of this Court has held as follows:

"We do not find that Section 21 (1) necessarily refers to any new material, which may be discovered or which may have been brought to the notice of the competent authority, as a pre-condition for initiating proceeding for re-assessment. Even if the material has been disclosed at the time of assessment, if the assessing authority has reason to believe that such material having connection with assessment, was not considered, as a result of which the whole or any part of the turn over has escaped assessment to tax, or has been under-assessed or has been assessed to tax at a lower rate or any deductions or exemptions have been wrongly allowed, the proceeding for re-assessment may be initiated. There has to be a rational and intelligible nexus between the reasons and the belief. Such material should not be vague and indefinite, distant, remote or fat-fetched, which would in such case not warrant the formation of the belief relating to escapement of assessment of turn over.

In this case, though the entire material was before the assessing authority, he did not apply his mind to it, and or has failed to consider it, on account of which the whole or any part of the turn over may have escaped assessment or has been underassessed. There can be no denial that the consumption of raw material is relevant for the purposes of determination of turn over. The assessing authority made assessment without giving any weight to it for ascertaining the turn over. The assessing authority is in such case justified in making re-assessment under Section 21 (1) of the Act.

We agree with learned counsel for the petitioner, that Section 21 (1) does not permit reassessment of turnover, which after due consideration has been subjected to assessment for tax, merely because the assessing authority subsequently comes to take a different view of the matter vide Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan AIR 1980 SC 1552. Further where an opinion has been formed in the assessment order, that the turnover of sale was exempted from sales tax, the assessing authority should not issue notice under Section 21 for re-assessment vide M/s Palco Lining Co. v. State of UP 1983 U.P.T.C. 116. The assessing authority may also not be allowed to have a second thought about the applicability or effect of the survey vide Commissioner of Sales Tax v. Gopalji 1974 U.P.T.C. 277, and that where primary facts necessary for assessment or fully and truly disclosed to the Income Tax Officer at the stage of original assessment proceedings, he is not entitled on a change of opinion to commence proceedings vide Commissioner of Income Tax v. Bhanji Lavji (1971) 79 I.T.R. 582 (SC) and Commissioner of Income Tax v. Dinesh Chandra H. Shah (1971) 82 I.T.R. 367, but where the assessing authority did not apply its mind at all and completely omitted consideration of the purchase of raw material in bulk quantity, even if it was in relation to both manufacture and ancillary activities, the reason to believe for reassessment may not be doubted. There has to be application of mind by the assessing authority and the consideration of the material having co-relation with manufacture, turnover or sale, before it can be said that there is any change of opinion or re-assessment on the turnover, which has already been assessed."

In the case of Assistant Commissioner of Income-Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd. (supra), the Apex Court has held as follows:

"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]."

In the case of Raymond Woolen Mills Limited vs. Income Tax Officer, Centre Circle XI, Range Bombay and others (supra), the assessing authority in the subsequent years noticed that the assessee in the previous years, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. On the basis of said material the proceeding has been initiated. The Apex Court held that there was a material on the basis of which proceeding could be reopened.

The Division Bench's decision cited by the learned counsel for the petitioner in the case of M/s. Aryaverth Chawal Udyog and others vs. State of U.P. and others (supra) has no application to the present case. The said decision is in a different context. The reliance placed by the petitioner on the Division Bench's decision of this Court in the case of M/s. Kumar Fuels, Pucca Bagh, Puranaganj vs. Stae of U.P. and another (supra) has no relevance to the issue involved. It is not a case where the authority intended to re-read the commodity mentioned in the eligibility certificate nor there is any case where the authority was disputing the validity of the eligibility certificate.

In view of the above discussions, we do not find any merit in the writ petition, which requires interference. The petitioner is directed to participate in the assessment proceeding and take all the pleas available to him on merit.

The writ petition stands dismissed.

Dated: 2nd May, 2014

OP