Allahabad High Court
United Chemicals Industries vs State Of U.P. And Others on 4 September, 2015
Bench: Tarun Agarwala, Surya Prakash Kesarwani
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
(Judgment reserved on 13.08.2015)
(Judgment delivered on 04.09.2015)
Court No. - 37
Case :- WRIT TAX No. - 464 of 2010
Petitioner :- United Chemicals Industries
Respondent :- State Of U.P. And Others
Counsel for Petitioner :- Kunwar Saksena
Counsel for Respondent :- C.S.C.
WITH
Case :- WRIT TAX No. - 478 of 2011
Petitioner :- United Chemicals Industries
Respondent :- State Of U.P. & Others
Counsel for Petitioner :- Kunwar Saksena
Counsel for Respondent :- C.S.C.
WITH
Case :- WRIT TAX No. - 387 of 2012
Petitioner :- United Chemicals Industries
Respondent :- State Of U.P. And Others
Counsel for Petitioner :- Kunwar Saksena
Counsel for Respondent :- C.S.C.
WITH
Case :- WRIT TAX No. - 520 of 2010
Petitioner :- M/S Jaikaila Devi Pigment & Chemical (P) Ltd.
Respondent :- State Of U.P. And Others
Counsel for Petitioner :- Piyush Agrawal
Counsel for Respondent :- C.S.C.
WITH
Case :- WRIT TAX No. - 1537 of 2010
Petitioner :- M/S Jaikaila Devi Pigment And Chemicals Private Limited
Respondent :- State Of U.P. & Others
Counsel for Petitioner :- Kunwar Saksena
Counsel for Respondent :- C.S.C.
Hon'ble Tarun Agarwala,J.
Hon'ble Surya Prakash Kesarwani,J.
(Per: S.P. Kesarwani, J.)
1. Heard Sri Krishna Agrawal and Sri Piyush Agrawal, learned counsel for the petitioners and Sri C.B. Tripathi, learned special counsel for the respondents.
2. In all these writ petitions, common facts and questions are involved and as such, they are being heard and decided together with the consent of the learned counsel for the parties.
3. Writ Tax No.464 of 2010 relates to Assessment Year 2003-04 (U.P. and Central). Writ Tax No.478 of 2011 relates to Assessment Year 2004-05 (U.P. and Central). Writ Tax No.387 of 2012 relates to Assessment Year 2005-06 (U.P. and Central). Writ Tax No.520 of 2010 relates to Assessment Year 2003-04 (U.P. and Central). Writ Tax No.1537 of 2010 relates to Assessment Year 2005-06 and Assessment Year 2006-07 (U.P.). In the afore-noted first three writ petitions, the petitioner is the manufacturer of zinc oxide. It used zinc ingots, zinc dross and zinc scrap as raw material to manufacture zinc oxide. Its assessment was completed, in which, Assessing Authority accepted the production figures. Subsequently, the Assessing Authority sent a proposal to the Additional Commissioner Grade-I, Commercial Tax, Etawah Zone, Etawah for grant of authorisation under the proviso to Section 21(2) of the U.P. Trade Tax Act, 1948 (hereinafter referred to as 'the Act') on the ground that as per scientific formula 2Zn + O2 = 2ZnO, 65 atomic weight unit of zinc and 16 atomic weight of oxygen would produce 81 atomic weight unit zinc oxide and consequently, the petitioner would have produced zinc oxide in the above ratio, but, lesser production has been shown and thus, some quantity of zinc oxide has escaped assessment to tax.
4. The petitioner of writ petitions mentioned above at serial No.4 & 5 is engaged in manufacture and sale of Red Lead and Lead Ingot, from lead and oxygen as raw material. The original assessment orders were passed, in which, the production as disclosed by the petitioner was accepted by the Assessing Authority. Subsequently, Assessing Authority sent a proposal to the Additional Commissioner, Grade-I, Commercial Tax, Etawah Zone, Etawah for authorisation under the proviso to Section 21(2) of the Act on the ground that the manufacture of red lead is determinable as per scientific formula 3Pb + 2O2 = Pb3O4, as per which proportion between the raw material "lead" and the final product "red lead" is 621 : 685, but, the production shown by the petitioner is lower and, therefore, some turnover of red lead and lead ingot produced from lead scrap has escaped assessment to tax.
5. In both the two sets of petitions, the authorisation under provision of 21(2) of the Act was granted by the Additional Commissioner, and thereafter the Assessing Authority issued notices under Section 21 of the Act. Aggrieved with the said orders of the authorisation and the notices under Section 21 of the Act, the petitioners have filed the present petitions praying to quash the same.
6. Learned counsel for the petitioners submits that petitioner of the first three writ petitions has used scrap to manufacture zinc oxide, which contained impurities resulting in manufacturing losses and this fact was accepted by the department. Under the circumstances, without there being any material on record for reason to believe that any turnover of the petitioners has escaped assessment to tax, the proceedings initiated by the respondents merely on the basis of a chemical formula, was wholly without jurisdiction, and, therefore, the order of authorisation as well as notices under Section 21 of the Act deserve to be quashed. Learned counsel has also referred to the orders passed by the Assessing Authority, the Appellate Authority in the previous and subsequent assessment years to support his submissions. He submits that there is no dispute with regard to the formula referred by the respondents but that cannot be theoretically applied without considering the quality of raw material purchased by the petitioners to manufacture the final product.
7. Learned special counsel for the respondents submits that the chemical formula which has been referred and relied in the order of authorisation, was neither discussed nor noticed by the Assessing Authority, while passing the assessment orders for the relevant Assessment Years and, thus, the assessment orders were passed without application of mind and in ignorance of the said formula, which establishes a definite proportion between the raw material and the final product of the petitioners. He, therefore, submits that reassessment proceedings initiated by the Assessing Authority is based on reasons to believe supported by relevant materials for formation of the belief. He submits that if the materials are relevant giving rise to prima facie inference that some part of turnover of the petitioners has escaped assessment to tax, then jurisdiction of the Assessing Authority to initiate reassessment proceedings cannot be questioned in a writ jurisdiction under Article 226 of the Constitution of India. The question as to whether the material is sufficient for making assessment or reassessment under Section 21 of the Act would be gone into after the notice is issued to the dealer and he has been heard in the matter. The existence of reason to believe can be challenged, but, not the sufficiency of material for reason to believe. In support of his submissions, he relied upon the judgments in the cases of Commissioner of Sales Tax, U.P. Vs. Bhagwan Industries (P) Ltd., Lucknow, AIR 1973 SC 370 (paras 10 & 11), M/s A.L.A. Firm Vs. Commissioner of Income Tax, Madras, 1991 U.P.T.C.-918 (paras 12 & 19), M/s Shree Bhawani Paper Mills Ltd. Vs. State of U.P. and others, 2012 NTN (Vol.48)-99, (para-20), Kalpana Kala Kendra, Kanpur Vs. Sales Tax Officer, Circle 20, Kanpur, 1989 U.P.T.C.-597 (All.) (para-12), Moser Baer India Limited Vs. State of U.P. and others, 2014 NTN (Vol.55)-26 (All.) (para-35).
8. We have carefully considered the submissions for the learned counsel for the parties and perused the records.
9. We find that in the first three writ petitions filed by M/s United Chemical Industries, reassessment proceedings have been initiated by the Assessing Authority for the Assessment Year 2003-04 (U.P. and Central), Assessment Year 2004-05 (U.P. and Central) and Assessment Year 2005-06 (U.P. and Central) respectively.
10. During the course of assessment proceedings for these assessment years, the petitioners produced before the Assessing Authority their entire books of accounts, namely, cash book, Journal book, sales register, purchase register, stock register of raw material, finished goods, trade goods and purchase vouchers and sale invoices, and also submitted complete details of their manufacturing and trading results. The Assessing Authority thoroughly examined the books of accounts. He also examined the monthly details of manufacture and stock particulars submitted by the petitioners. After examination, he recorded a finding that no adverse material has been found and the petitioners have maintained sufficient account of raw material and finished goods; and their entire purchase and sales are well verifiable. He also mentioned that the petitioner of first three writ petitions had used zinc ingot, zinc dross and zinc scrap as raw material to manufacture zinc oxide.
11. We also find that on the similar set of facts and reasonings as given in the impugned authorisation order, the Assessing Authority sent a proposal to the Additional Commissioner for grant of authorisation under the proviso 21(2) of the Act for the Assessment Year 2002-03, which was refused by the Additional Commissioner, vide order dated 24th March 2009 (R.A.-1 in Writ Tax No.464 of 2010) holding that it was change of opinion. For the Assessment Year 2006-07, the Assessing Authority determined production disbelieving the quantum of production on the same set of reasoning, on the basis of which, reassessment proceedings had been initiated for the assessment years in question. Aggrieved with the assessment order, the petitioner- M/s United Chemical Industries filed Appeal No.573 of 2009, A.Y. 2006-07, which was allowed by the Joint Commissioner (Appeal), Commercial Tax, Etawah and the production figures of the petitioner were accepted, vide order dated 3rd December, 2009. Being aggrieved, the department preferred Second Appeal No.77 of 2010, which was dismissed by the Commercial Tax Tribunal, Bench-1, Agra, vide order dated 27th July 2011. For the Assessment Year 2007-08 (U.P. and Central), the Assessing Authority again disbelieved the production of zinc oxide for the same set of reasonings. Being aggrieved, the petitioner preferred Appeals No.69 of 2011 and 70 of 2011 for A.Y. 2007-08 (U.P. and Central), which were also allowed by the Additional Commissioner, Grade-II (Appeal), Commercial Tax, Manpuri, vide order dated 30th November, 2011. Being aggrieved, the department preferred Second Appeals No.122 of 2012 and 123 of 2012, which were dismissed by the Member, Commercial Tax Tribunal, Bench-I, Agra. For the Assessment Year 2007-08 (VAT period), the Assessing Authority again issued show cause notice on the question of production of zinc oxide based on the chemical formula in question, which was replied by the petitioner and after considering the reply, the Assessing Authority himself recorded a finding of fact that the chemical formula in question with regard to proportionate production would be applicable only if the zinc metal (raw material) is 100% pure. Consequently, he accepted the explanation of the assessee- petitioner as well as the disclosed production for the Assessment Year 2008-09, vide assessment order dated 24th June 2015. Copes of these assessment orders, appellate orders, order of the Tribunal and the order refusing to grant authorisation for the Assessment Year 2002-03 have been filed as Annexure-RA-1, which are not disputed by the respondents.
12. Thus, from the facts as noted above, it is evident that in the earlier and subsequent Assessment Years, after due discussion on the issues, which is foundation of the impugned authorisation order and the notices; the Assessing Authority, the Additional Commissioner and the Tribunal have themselves accepted the explanation of the petitioners and held that the chemical formula in question cannot be applied as a matter of rule, but, production of zinc oxide would depend upon the quality of raw material. In view of these facts, the very foundation for initiation of proceedings under Section 21 of the Act by the Assessing Authority for the Assessment Years in question becomes non-existent.
13. In view of the above discussion, we are of the view that there was no relevant material before the Assessing Authority giving rise to prima facie inference that some turnover of the petitioners has escaped assessment to tax. Consequently, the impugned authorisation orders as well as notices under Section 21 of the Act issued by the Assessing Authority are without jurisdiction and, therefore, deserve to be quashed.
14. In result, all the writ petitions succeed and are hereby allowed. The impugned orders of authorisation granted by the Additional Commissioner as well as notices issued by the Assessing Authority under Section 21 of the Act being wholly without jurisdiction are quashed. However, there shall be no order as to costs.
Order Date :- 04.09.2015
NLY
(Surya Prakash Kesarwani,J.) (Tarun Agarwala,J.)
