M/S Rajiv Metals vs The Addl. Commissioner, Trade Tax ...
2015 Latest Caselaw 1988 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
Reserved
 

 
Civil Misc. Writ Petition (Tax) No.539 of 2007
 

 
M/s Rajiv Metals				      .....    Petitioner
 
Vs.
 

 
Addl. Commissioner Trade Tax
 
Aligarh Zone and another			       ..... Respondents
 

 
With
 

 
Civil Misc. Writ Petition (Tax) No.391 of 2008
 

 
M/s Rajiv Metal Works			      .....    Petitioner
 
Vs.
 

 
State of U.P. and Others 			       ..... Respondents
 

 

 

 
******************
 
Hon'ble Tarun Agarwala, J.

Hon'ble Surya Prakash Kesarwani, J.

(Per: Tarun Agarwala, J.)

(Delivered on 26th August, 2015)

Since the controversy involved in both the writ petitions are same, the same is being decided together. For facility, the facts of Writ Tax No.539 of 2007 is being taken into consideration.

The petitioner is engaged in the business of purchase and sale of non-pheros metals and is also engaged in the business of manufacturing brass ingots. For the aforesaid purpose of manufacturing brass ingots, the petitioner was importing brass scraps after paying customs duty for the assessment year 2000-01 under U.P. Trade Tax Act. The books of accounts were duly audited and produced before the assessing authority wherein the sales and purchases were checked, vouched and verified and the books of accounts as well as the production and sales of brass ingots and brass slag were accepted.

Thereafter, the Assessing Officer, namely, the Assistant Commissioner (Assessment), Trade Tax sent a proposal to the Additional Commissioner under the proviso to Section 21(2) of the U.P. Trade Tax Act seeking permission to make a reassessment under Section 21(2) of the Act for the assessment year 2000-01. The proposal for reassessment was based on a reason to believe on the basis of a report received from SIB authorities after the assessment order was passed. In the proposal letter, it was indicated that the SIB authorities had indicated that the production of brass ingots disclosed by the petitioner was less then the production of other manufacturers, and that, as per the general norms, the production should be 94% from the brass scrap. The proposal indicated that less production was shown by the petitioner to the tune of 54% and, therefore, there was a huge melting loss which indicated, escapement of tax.

On the basis of this proposal, the Additional Commissioner issued a notice to the petitioner to show cause why permission should not be granted and, after considering the reply, the Additional Commissioner granted permission to the Assessing Officer to make reassessment for the assessment year 2000-01. Based on this permission, notice was issued by the Assessing Officer under Section 21(2) of the Act directing the petitioner to appear for reassessment. The petitioner, being aggrieved by the order of the Additional Commissioner granting permission as well as the consequential notice issued by the Assessing Officer, has filed the present writ petition for its quashing.

We have heard Sri N.R. Kumar, the learned counsel along with Sri Vishwajit, the learned counsel for the petitioner and Sri C.B. Tripathi, the learned Special Counsel for the State.

The learned counsel for the petitioner submitted that the foundational requirement for initiating reassessment proceedings was missing in the instant case and, therefore, the entire action on the part of the respondents was per se illegal and was liable to be quashed. The learned counsel contended that reassessment proceedings is based on a confidential note issued by the SIB authorities indicating that as per norms production of the finished product should be 94% which norms is not supported by any documentary evidence and merely on such hearsay, assessment proceedings could not be opened. The learned counsel, in the alternative submitted that, in any case, the production of brass ingots and brass slag was more than 94% and that the assessing authority had misread the production figures and the figures of melting loss from the books of accounts or from the audited balance sheet to come to a conclusion that the production figures were less than 94%. It was further contended that the objections of the petitioner was not considered wherein the petitioner had explained that the production depends on several factors, namely, quality of the raw material and the process of manufacturing. The petitioner contended that the brass scrap purchased was of a inferior quality, which contained several impurities and, consequently, less quantity of brass ingots were manufactured and the remaining metal, which contained impurities was sold as brass slag, which was also shown as a finished product. The learned counsel contended that during the course of original assessment proceedings complete details of the raw materials and books of accounts were furnished, which were duly verified and that the assessing authority had passed the assessment order after examining the books of accounts. The learned counsel submitted that there was no material on record to suggest that there was escaped assessment and, therefore, the approval granted by the Additional Commissioner to reinitiate assessment proceedings was wholly unjustified and was liable to be quashed since such reassessment proceedings amounts to a change of opinion.

On the other hand, Sri C.B. Tripathi, the learned counsel for the department stated that under Section 12(2) of the Act, the assessee was required to maintain the books of accounts at every stage of production, which apparently in the instant case was not done or not examined and, therefore, it was essential for the assessing authority to examine the production registers. The learned counsel submitted that on this basis reassessment proceedings were justified.

Having heard the learned counsel for the parties, the principle of law for reinitiating proceedings under Section 21 of the Act is well settled. Reassessment proceedings can be initiated only on the basis of the material on which a belief can be formed that some turnover has escaped assessment.

The question, whether the assessing officer had reasons to believe is a question of jurisdiction, which can be considered and investigated by a Court under Article 226 of the Constitution of India. The words "has reasons to believe" must not be arbitrary or irrational but must be based on reasons which are relevant and germane to the issue. The expression "reasons to believe" is not a subjective satisfaction on the part of the assessing officer. The belief has to be in good faith and must have a rational connection with the issue involved and should not be based on extraneous or irrelevant consideration. The formation of the required opinion and belief by the assessing officer is a condition precedent. Without such formation, the assessing officer will have no jurisdiction to initiate proceedings under Section 21 of the Act. The aforesaid view was also held by a Division Bench of this Court after considering various judgements of the Supreme Court in M/s S. K. Traders, Modi Nagar, Ghaziabad vs. Additional Commissioner, Grade-I, Trade Tax, Zone Ghaziabad and another, 2008 UPTC 392.

Similar view was reiterated by another Division Bench in Anand Prakash Agarwal vs. Commissioner of Income Tax (Central) and others, Writ Petition No.1367 of 2005 and other companion cases, decided on 29.5.2014. The Division Bench after considering the case in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITC 500 (SC), held that at the stage of issuance of notice the only question to be considered was whether there was relevant material on which a reasonable person could have formed the requisite belief.

In M/s Rubber Chem Sadabad Gate Hathras vs. The Additional Commissioner Grade-I, Commercial Tax , Aligarh Zone, Aligarh and another, decided on 15.3.2014, in Writ Petition No.1045 of 2009, the Division Bench of this Court, after analysing various decisions of the Supreme Court, held-

"On a plain and simple reading of Section 21, it is crystal clear that where a dealer has been assessed to tax at lower, then, it is a case of escape assessment. Rider is that such Assessing Authority should have reason to believe that whole or part of turnover has escaped assessment. The condition precedent, namely, the formation of opinion on the part of Assessing Authority that there is reason to believe that the case in which the action is contemplated falls within the ambit of at least one of the several contingencies mentioned under Section 21. The reason to believe must have rational connection or life linked between the material coming in possession of Assessing Authority and the escapement of turnover of the assessee from assessment in a particular year. To put it differently, the Assessing Authority must form opinion objectionably on reasonable ground that the turnover has escaped assessment."

In Commissioner of Sales Tax vs. Bhagwan Industries (P) Ltd. (1973)31 STC 293 (SC), it has been held as follows:

"The words "reason to believe" in s. 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 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. 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."

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 part 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.

In the light of the aforesaid proposition of law and upon perusal of the reasons to believe, which is depicted in the proposal letter of the Assessing Officer. We have no hesitation in stating that the assessing authority has misdirected itself in misinterpreting the figures indicated in the assessment order and/or audit balance sheet. We are of the opinion that there was no cogent material available with the assessing authority to form a belief that some turnover of the assessee had escaped assessment warranting initiation of proceedings under Section 21 of the Act.

The sole ground for forming a reason to believe is that as per settled norms production should be 94%, whereas the petitioner has indicated lesser production. According to the assessing authority, production of brass ingots was around 54%. The formation of belief was based on the fact that total purchase of raw material i.e., brass scrap was 1,22,252 kgs. and that only 65,989 kgs. of brass ingots were manufactured and that there was a melting loss of 58,363 kgs. of scrap. Such high percentage of melting loss indicates lesser production leading to believe that some turnover had escaped assessment.

This belief of the assessing authority is patently perverse and against the figures shown in the assessment order and/or the balance sheet. As per the balance sheet, the total raw material purchased was 1,22,252 kgs. and the total finished goods produced was 1,17,701 kgs. Only 4550.40 kgs. was shown as melting loss. Consequently, the figures shown by the assessing authority in its proposal that there was a melting loss of 58,363 kgs. of brass scrap is erroneous and against the material evidence on the record. We are of the opinion that the assessing authority has wrongly arrived at the figure of 58,363 kgs., and has wrongly included the production of brass slag, steel and iron brass mix as melting loss. These are not melting loss but are finished goods shown by the petitioner and which has been considered in the assessment proceedings, inasmuch as these goods known as brass slag, steel and iron brass mix have been sold and such sale has been assessed in the assessment order. The balance sheet also indicates that out of 1,22,252 kgs. of brass scrap, finished goods to the tune of 1,17,701 kgs. has been produced and that there was only a melting loss of 4550.40 kgs., which comes to approximately 4% that is to say, there was a production of 96%. Consequently, even if we go by the standards indicated in the confidential report of SIB authorities that there should be a production figure of 94%, we are of the opinion that as per the figures indicated by the petitioner in its balance sheet, the production figures is more than 94%.

Consequently, we are of the opinion that the very basis for making a ground for a reassessment and for having a reason to believe that some turnover had escaped assessment is lacking and is not existing in the instant case.

Further, we find from the assessment order that all the books of accounts and excise registers were placed, which were duly considered and verified by the assessing authority and only thereafter, an assessment order was passed upon the examination of the books of accounts. In the light of the aforesaid, we are of the opinion that the foundational requirement for initiating proceedings under Section 21 of the Act was missing.

Consequently, the impugned notice issued by the assessing authority under Section 21(2) of the Act for initiating reassessment proceedings for the assessment year 2000-01 and the permission so granted by the Additional Commissioner are wholly without jurisdiction and are quashed. The writ petitions are allowed.

 
Date:26.8.2015
 
Bhaskar
 

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