2019 (2) TMI 1016 - HC - VAT and Sales Tax

Court deems proceedings time-barred under U.P. Trade Tax Act, 1948. Delay of 13 years violates reasonable time principle.

The court held that the proceedings initiated under Section 4A(3) of the U.P. Trade Tax Act, 1948, were time-barred. The delay of 13 years from the ... Time limitation - cancellation of eligibility certificate dated 26.10.2002 which was valid from 30.03.2000 to 29.03.2008 - Section 4-A(3) of erstwhile U.P. Trade Tax Act, 1948 - Held that:- Undisputedly, the survey giving rise to the proceedings was conducted on 28.01.2004 whereas the proceedings were drawn up for the first time on 10.04.2017, i.e. 13 years after the revenue allegedly came into possession of information and material that the assessee may have committed breach of the terms and conditions of the eligibility certificate - No explanation was offered for the delay of 13 years. Merely because certain assessment proceedings may have remained pending, it could never be cited as a reason to justify the delay. Assuming, the delay of 11 years in the conclusion of assessment proceedings for A.Y. 2003-04 was attributable solely to the conduct of the assessee yet, it was wholly irrelevant for the purpose of initiation of proceedings under Section 4A(3) of the Act. While the assessment order was to be made by the assessing authority, the proceedings under Section 4A(3) of the Act were to be initiated by the Commissioner, Trade Tax. No legal or factual impediment has been shown to exist as may have prevented the Commissioner from initiating those proceedings. Scope and conduct of the two proceedings being completely independent of each other, mere pendency of the assessment proceedings could never be relevant for the purpose of initiation of proceedings under Section 4A(3) of the Act. The period of limitation prescribed under Section 21 of the Act is relevant. Though the initiation, conduct and scope of the two proceedings is independent of the other, the cancellation of eligibility certificate would directly impact the assessment proceedings and consequently on the penalty proceedings as well though the opposite may not be true. Normally, the assessing authority could not have made an assessment beyond a period of six years from the close of the assessment year in which the exemption came to an end. Therefore, normally, cancellation of the exemption certificate beyond that period would be a futile exercise. Thus, the proceedings under section 4A(3) of the Act were initiated outside reasonable period of time - even if the allegation of breach of terms and conditions of exemption made against the assessee were to be treated at par with fraud, in view of the law discussed above, the principle of limitation would still apply - The proceedings having been initiated belatedly, after the expiry of reasonable time, again as discussed above, the same were barred by limitation. The question of law is answered in the affirmative and against the revenue - revision allowed. Issues Involved:1. Whether the order dated 2.8.2017, passed under Section 4-A(3) of the U.P. Trade Tax Act, 1948, cancelling the eligibility certificate dated 26.10.2002, is barred by limitation.Issue-wise Detailed Analysis:1. Background and Context:The applicant-assessee established a new unit under Section 4A of the U.P. Trade Tax Act, 1948, to manufacture Industrial Composite Solvent and was granted an eligibility certificate on 26.10.2002, valid from 30.03.2000 to 29.03.2008. A survey conducted on 28.01.2004 by the Special Investigation Branch (SIB) of the Trade Tax Department led to findings that the assessee was not engaged in manufacturing activities but was merely trading raw materials. Consequently, the Commissioner of Trade Tax canceled the eligibility certificate on 02.08.2017, citing discrepancies in manufacturing claims and consumption of electricity.2. Tribunal's Observations:The Tribunal noted that the assessment proceedings for the A.Y. 2003-04 were finalized on 20.03.2006 and were remanded for fresh decision, remaining pending for 11 years. It concluded that the assessee's conduct caused the delay and upheld the Commissioner's order, stating no period of limitation was prescribed under Section 4A(3) of the Act.3. Assessee's Arguments:The assessee argued that even though no limitation period was prescribed under Section 4A(3), the power must be exercised within a reasonable time. Citing Supreme Court decisions, it was contended that delayed exercise of power introduces uncertainty in human affairs and must be within a reasonable period from the discovery of fraud. The reasonable time should be akin to the period of limitation for assessment, i.e., two years (normal) and six years (extended). The proceedings initiated on 10.04.2017 were thus time-barred as they were beyond the reasonable period.4. Revenue's Arguments:The revenue argued that in cases involving breach of terms and conditions, no limitation period should apply as the assessee's misconduct is a relevant factor. It was submitted that the Limitation Act does not apply unless specifically incorporated in the provision. The revenue relied on a Division Bench decision and the Supreme Court's ruling in L.S. Synthetics Ltd., which stated that limitation does not apply to acts a court must perform.5. Court's Analysis:The court noted that the fact giving rise to the proceedings came to the knowledge of the revenue on 28.01.2004. The proceedings were initiated on 10.04.2017, 13 years later, without any explanation for the delay. The court emphasized that reasonable time must be read into such proceedings, especially when factual adjudication is required. The delay deprived the assessee of a fair opportunity to defend.6. Reasonable Time and Limitation:The court held that the principle of reasonable time applies to proceedings under Section 4A(3). The period of limitation prescribed under Section 21 of the Act (six years) was relevant. The proceedings should have been initiated within six years from the end of A.Y. 2007-08, i.e., by 31 March 2010. Initiating proceedings in 2017 was beyond the reasonable period.7. Conclusion:The court concluded that the proceedings initiated after the expiry of a reasonable time were barred by limitation. The discretionary power exercised by the Commissioner was legally unsustainable due to the delay. The question of law was answered in the affirmative and against the revenue. The revision was allowed, and the order of cancellation of the eligibility certificate was set aside.Final Order:The present revision is allowed. No order as to costs.