2014 (1) TMI 1380 - HC - VAT and Sales Tax

Court upholds legality of assessment order for 2004-05 under Trade Tax Act, dismisses challenge on tax liability.

The court upheld the legality of the order granting approval for reopening the assessment for the year 2004-05 under the U.P. Trade Tax Act. The ... Reason to believe - reopening assessment under proviso to Section 21(2) of U.P. Trade Tax Act - reassessment and regular assessment notices - burden of proof regarding exemptions under Section 12-A - exemption under Section 3-A and liability of manufacturer/importerReason to believe - reopening assessment under proviso to Section 21(2) of U.P. Trade Tax Act - Validity of the approval dated 24 March 2011 for reopening assessment for Assessment Year 2004-05 under the proviso to Section 21(2) of the Trade Tax Act. - HELD THAT: - The Court held that the requisite 'reason to believe' for reopening was present. The recorded material - namely electronic records seized in a search at M/s. Parmarth Iron Pvt. Ltd. indicating transactions of Rs. 4.31 crores with the petitioner for 2004-05 - contrasted materially with the petitioner's declared turnover for that year and thus provided a rational, relevant basis having nexus with the formation of belief that turnover had escaped assessment. The Court applied the settled principle that 'reason to believe' requires objective grounds germane to escaped assessment (as explained in Bhagwan Industries) and noted that an order granting sanction need not narrate detailed reasons but must show application of mind. The petitioner's contention that tax liability could lie only on a manufacturer/importer raised a substantive defence which is not a pure jurisdictional matter and is to be contested before the assessing authority; it did not vitiate the jurisdiction to reopen.The reopening of assessment for 2004-05 was lawful and the impugned approval is upheld.Reassessment and regular assessment notices - Section 30 application notices - Lawfulness of notices dated 19 October 2013 (Section 30 application) and notices for regular assessment for Assessment Years 2005-06 and 2006-07. - HELD THAT: - Because the Court concluded that the jurisdictional requirement for reopening under Section 21 was satisfied on the material placed before the authority, the subsequent notices for reassessment and for regular assessment for the years 2005-06 and 2006-07 (including notices in connection with an application under Section 30) were held to be in accordance with law. The Court declined to treat interim orders in other writs as a ground to interfere where jurisdictional prerequisites for reassessment were met.The notices impugned for 2005-06 and 2006-07 and the Section 30 notices are lawful.Burden of proof regarding exemptions under Section 12-A - exemption under Section 3-A and liability of manufacturer/importer - Effect of Section 12-A on the petitioner's plea that liability under the exemption notification lies on the manufacturer/importer. - HELD THAT: - The Court observed that Section 12-A places the burden of proving facts that are specially within the knowledge of the assessee - including proof of circumstances bringing the case within exceptions or exemptions such as under Section 3-A - upon the assessee, and that the assessing authority is entitled to presume absence of such circumstances until proved. The Court expressly declined to decide the substantive merits of the petitioner's defence that it was neither a manufacturer nor an importer and therefore not liable to tax; that question remains for determination in assessment proceedings.The substantive defence on exemption/ liability was not decided; the assessee bears the onus to prove applicability of exemptions in reassessment.Final Conclusion: The writ petition under Article 226 is dismissed; the approval to reopen assessment for AY 2004-05 and the subsequent notices for reassessment/regular assessment for AYs 2005-06 and 2006-07 are upheld, while substantive contention on applicability of exemption remains for adjudication in assessment, the assessee bearing the evidential burden. Issues:1. Legality of order granting approval for reopening of assessment for Assessment Year 2004-05.2. Notices issued for regular assessment for Assessment Year 2005-06 and 2006-07.3. Interpretation of the expression 'reason to believe' under Section 21 of the Trade Tax Act.4. Burden of proof on the assessee regarding liability for tax.5. Justification for notice of reassessment and regular assessment.Analysis:1. The petitioner challenged the legality of the order granting approval for reopening the assessment for the year 2004-05 under the proviso to Section 21(2) of the U.P. Trade Tax Act, 1948. The petitioner disputed transactions with a company, arguing no liability for tax. However, the court held that the formation of belief for reassessment was based on tangible grounds, meeting the requirements of Section 21. The notices for regular assessment for subsequent years were also deemed lawful.2. The notices issued for regular assessment for the years 2005-06 and 2006-07 were challenged. The court clarified that the mere fact that a previous case had a stay on assessment proceedings did not justify interference in this case. The jurisdictional requirements for reassessment were met, and there was no reason to interfere with the authorities' actions.3. The interpretation of the expression 'reason to believe' under Section 21 was crucial. The court referenced the Supreme Court's interpretation, emphasizing the need for a rational basis for the authority to believe that turnover had escaped assessment. The court found that the grounds for reassessment were relevant and had a nexus with the formation of belief, meeting the legal standards.4. The petitioner argued that liability for tax should fall on the manufacturer, not on them. However, the court noted that this was not a pure jurisdictional issue for the court to decide in a petition challenging a reassessment notice. The burden of proof regarding liability lies with the assessee, and the court did not conclude on the substantive issues of liability at this stage.5. The court dismissed the writ petition, stating that no case for interference under Article 226 was made out. The authority had a 'reason to believe' for reassessment, and the notices for regular assessment were found to be in accordance with the law. The court emphasized that this was not a case of mere suspicion but of a valid belief for reassessment.