2007 (4) TMI 609 - HC - VAT and Sales Tax

Court upholds circular including amortization cost in tax assessment, emphasizes binding nature on assessing authorities.

The court upheld the circular dated June 2003 issued by the Commissioner, Trade Tax, UP., directing the inclusion of the amortization cost in the sale ... Writ jurisdiction - Maintainability of - If an authority purports to take any action which is prima facie shown to be null and void and devoid of any jurisdiction, the show cause notice can also be challenged in writ jurisdiction and proceedings can be quashed even at stage of show cause notice Issues Involved1. Validity of the circular dated June 2003 issued by the Commissioner, Trade Tax, UP.2. Inclusion of amortization cost in the sale price for tax assessment.3. Jurisdiction of the writ court to entertain the petition.4. Binding nature of circulars on assessing authorities.Issue-wise Detailed Analysis1. Validity of the Circular Dated June 2003The petitioner challenged the circular issued by the Commissioner, Trade Tax, UP., which directed the assessing authority to include the amortization cost of moulds and toolings provided by the customer in the sale price for tax purposes. The petitioner argued that this cost should not be included in the turnover as it was neither charged nor paid by the petitioner. The court upheld the circular, stating that it was binding on the assessing authorities and necessary for the fiscal adjustment of diverse elements.2. Inclusion of Amortization Cost in the Sale Price for Tax AssessmentThe petitioner contended that the amortization cost should not be included in the sale price as it was not part of the turnover. The court examined the agreement between the petitioner and the customer, which specified that tools, dyes, and moulds were supplied free of cost for manufacturing parts exclusively for the customer. The court held that the amortization cost, being a part of the manufacturing expenses, should be included in the sale price. The court referred to several precedents, including Hindustan Sugar Mills Ltd v. State of Rajasthan, to support its decision that the amortization cost forms part of the sale consideration.3. Jurisdiction of the Writ Court to Entertain the PetitionThe respondents argued that the writ petition was premature and that the petitioner should first exhaust the statutory remedies of appeal and revision. The court, however, noted that the circular was binding on the assessing authority, making any appeal or revision an empty formality. The court cited several judgments, including State of U.P. v. Brahm Datt Sharma and Siemens Ltd. v. State of Maharashtra, to assert that the writ jurisdiction could be exercised when the authority's decision was predetermined.4. Binding Nature of Circulars on Assessing AuthoritiesThe court emphasized that circulars issued by higher authorities are binding on the assessing authorities. It cited multiple Supreme Court judgments, including Commissioner of Central Excise v. Pandit D.P. Sharma and Collector of Central Excise, Vadodra v. Dhiren Chemical Industries, to reinforce that such circulars provide legitimate aid in the construction of relevant provisions and are necessary for the internal complexity of fiscal adjustments.ConclusionThe court dismissed the writ petition, upholding the validity of the circular issued by the Commissioner, Trade Tax, UP. It affirmed that the amortization cost should be included in the sale price for tax assessment and that the circular was binding on the assessing authorities. The court also justified its jurisdiction to entertain the writ petition, given that the statutory remedies would be futile in this context.