2017 (3) TMI 155 - HC - VAT and Sales Tax

Court quashes reassessment order due to lack of new material, rules it impermissible under Rule 9(3).

The court quashed the reassessment order dated 05.02.2014, ruling it impermissible due to lack of new material and being a re-evaluation of existing ... Reassessment - reason to believe - jurisdictional fact - Rule 9(3) of the U.P. Value Added Tax Rules 2008 - determination of turnover of sale of goods involved in execution of a works contract - books of account not worthy of credence - extended period of limitation - change of opinionReassessment - reason to believe - extended period of limitation - Validity of the sanction to initiate reassessment for Assessment Year 2009-10 (U.P.) on the basis of the recorded 'reason to believe' - HELD THAT: - The Court held that jurisdiction to initiate reassessment arises only after the assessing authority records a bona fide 'reason to believe' that turnover has escaped assessment. Such a belief must be founded on material germane to the formation of that belief and, at the very least, should identify (prima facie) the amount or basis of escapement. In the present case the assessing authority's proposal and the sanction order neither quantified nor compared the deduction actually claimed by the assessee with the deduction which, in the authority's view, was legally allowable; nor did they disclose any material establishing escapement. Mere invocation of a proviso or rule (Rule 9(3)) without recording facts or figures showing escapement does not constitute a reason to believe. Unsubstantiated averments in the department's counter-affidavit, unsupported by documentary material, could not supply the missing jurisdictional foundation. Consequently the sanction to reassess was without jurisdiction and impermissible.Sanction to reassess quashed for want of a recorded bona fide 'reason to believe' supported by material demonstrating escapement.Rule 9(3) of the U.P. Value Added Tax Rules 2008 - books of account not worthy of credence - determination of turnover of sale of goods involved in execution of a works contract - Whether Rule 9(3) could be applied to compute deduction for value of labour and services in reassessment proceedings against the petitioner - HELD THAT: - Rule 9(1) permits deduction of actual amounts representing value of labour and services and profit thereon; Rule 9(3) is an exception applicable only if one of three pre conditions is satisfied: (i) the contractor's accounts do not show the labour/service value separately, or (ii) the accounts are not worthy of credence, or (iii) the dealer has not maintained accounts. The Court found no allegation or material in the assessing authority's reason to believe that any of these pre conditions existed. The original assessment order expressly recorded that the assessee's contract particulars and books of account had been produced and examined. The burden to establish the existence of a jurisdictional fact for application of Rule 9(3) lay on the assessing authority at the stage of forming the reason to believe; that burden was not discharged. Consequently Rule 9(3) could not be invoked as a jurisdictional basis for reassessment in the present case.Application of Rule 9(3) disallowed for want of material establishing any of its pre conditions; reassessment could not be predicated on Rule 9(3).Change of opinion - jurisdictional fact - Whether the reassessment constituted an impermissible change of opinion or a permissible inquiry - HELD THAT: - The Court noted that reassessment cannot be used as a cloak for review or a fishing expedition into matters already considered in the original assessment. Although the department argued that there was no change of opinion because the original order had not addressed the labour value issue, the real vice was absence of any jurisdictional fact to invoke Rule 9(3) or the extended period. Where the reason to believe is nebulous and unsupported by relevant material, reassessment amounts to an impermissible re examination of the same material and a prohibited roving inquiry.Reassessment amounted to an impermissible re examination in absence of jurisdictional fact; it could not be sustained.Final Conclusion: Writ petition allowed; the order dated 05.02.2014 sanctioning reassessment for Assessment Year 2009-10 (U.P.) is quashed because the assessing authority failed to record a bona fide, material based 'reason to believe' and did not establish any pre condition for invoking Rule 9(3), rendering the reassessment without jurisdiction. Issues Involved:1. Validity of the reassessment order dated 05.02.2014.2. Whether the original contracts and account books were produced during the initial assessment.3. Applicability of Rule 9(3) of the U.P. Value Added Tax Rules, 2008.4. Jurisdictional fact and reason to believe for reassessment.5. Alleged change of opinion in reassessment.Detailed Analysis:1. Validity of the reassessment order dated 05.02.2014:The petitioner challenged the reassessment order dated 05.02.2014, arguing that it was based on a mere change of opinion and re-examination of the same material available during the original assessment. The court found that the reassessment was impermissible as it was not based on new material but rather on a re-evaluation of existing documents.2. Whether the original contracts and account books were produced during the initial assessment:The petitioner contended that the original contracts and account books were produced during the initial assessment for the year 2009-10. The court examined the original assessment order and found that the petitioner had indeed furnished details of the work contracts and that the Assessing Authority had discussed the billing and payments, verifying the purchase of steel and cement. Thus, the court concluded that the books of account and contract documents were produced and examined during the original assessment.3. Applicability of Rule 9(3) of the U.P. Value Added Tax Rules, 2008:The reassessment was proposed based on the belief that the petitioner was wrongly allowed deductions in excess of 10% for labor charges under Rule 9(3). However, the court noted that Rule 9(3) applies only if the accounts do not show separately the value of labor and services or are not worthy of credence. The court found no evidence or material to suggest that the petitioner’s accounts were unworthy of credence or that they did not show the value of labor and services separately. Therefore, the court held that Rule 9(3) was inapplicable.4. Jurisdictional fact and reason to believe for reassessment:The court emphasized that the jurisdiction to initiate reassessment arises only after the Assessing Authority records a reason to believe that any turnover has escaped assessment. The court found that the Assessing Authority did not provide any specific figures or details to support the belief of escapement. The belief was based on presumptions without factual basis or reasonable grounds. The court held that the Assessing Authority failed to establish the jurisdictional fact necessary for reassessment.5. Alleged change of opinion in reassessment:The petitioner argued that the reassessment was merely a change of opinion. The court acknowledged that there was no change of opinion by the Assessing Authority in the original assessment regarding the value of labor and services charges. However, the court concluded that the reassessment proceedings were impermissible due to the lack of jurisdictional facts and reasons to believe in escapement.Conclusion:The writ petition was allowed, and the reassessment order dated 05.02.2014 was quashed. The court held that the reassessment proceedings were initiated without proper jurisdiction and were based on presumptions rather than concrete evidence. The Assessing Authority failed to establish the necessary preconditions for applying Rule 9(3) and did not provide a valid reason to believe in the escapement of turnover.