2022 (7) TMI 453 - HC - VAT and Sales Tax

High Court upholds tax on purchases from unregistered dealers but revises decision on cotton thread

The High Court upheld the tax imposition on purchases of leather and cotton thread from unregistered dealers under Section 22 of the U.P. Trade Tax Act, ... Levy of tax on turnover - purchase of cotton thread, cotton and leather from unregistered dealers - Whether in view of the facts and circumstances of the case the order passed under Section 22 which requires long drawn argument, the imposition of tax under section 22 of the Act is justified? HELD THAT:- There was no explanation for the turn over of purchase of leather from unregistered dealers that remained from being taxed. The provisions of Section 3(AAAA) apply at their own force to each case where purchase is made from an unregistered dealer. Once the assessee disclosed the same in its books of accounts that were examined during the course of assessment and which therefore, became part of the assessment record, the mistake is purely on account of an oversight. To that extent the reasoning given by the revenue authorities and the Tribunal cannot be faulted. Similar is the case with cotton thread. It is not the case of the assessee that it had disclosed manufacture of cotton thread in its books of accounts. In fact, the assessee set out a case that it had wrongly shown cotton thread in its trading account by way of purchase from other dealers. In absence of any invoice etc. to establish the purchase made by the assessee, and in face of his own disclosure that it had purchased the same, again the authorities or Tribunal have not erred in treating the same to have been purchased from unregistered dealer. There was also no debate or doubt as to that. However, that process of reasoning may never apply to the additions made on account of purchase of cotton. It is so because in the course of proceedings under Section 22, the assessee furnished a specific explanation that though, that cotton had been purchased by him from unregistered dealer, it was tax paid inasmuch as the unregistered dealer had purchased the same from a registered dealer M/s Sanjay Kumar of Agra. Once that explanation came to be furnished and the same was not found to be patently false or bogus, the issue became debatable. Unless evidence were led, the assessing officer could not have brushed aside the explanation furnished by the assessee. The question of law raised by the assessee is answered accordingly. The revision succeeds in part. Issues:1. Interpretation of Section 22 of the U.P. Trade Tax Act, 1948 for the Assessment Year 1999-2000.2. Justification of tax imposition under Section 22 based on purchases from unregistered dealers.3. Application of the principle of rectification of mistakes apparent on record.Issue 1: Interpretation of Section 22 of the U.P. Trade Tax Act, 1948 for the Assessment Year 1999-2000The case involves a revisionist-assessee challenging the order of the Commercial Tax Tribunal under Section 22 of the Act for the Assessment Year 1999-2000. The assessing officer initially subjected the assessee to tax on the sale of specific items. However, a notice was issued under Section 22 to rectify a supposed mistake in the assessment order. The Tribunal confirmed the tax imposition, leading to the revisionist questioning the justification of the tax under Section 22 based on the facts and circumstances of the case. The High Court analyzed the assessment details, including the turnover, purchases, and sales of the assessee, to determine the correctness of the tax imposition under Section 22.Issue 2: Justification of tax imposition under Section 22 based on purchases from unregistered dealersThe assessing officer imposed tax on the turnover of purchases of cotton thread, cotton, and leather from unregistered dealers under Section 22. The assessee contested this tax imposition, arguing that certain purchases were made from registered dealers indirectly. The High Court examined the assessee's explanations and the evidence presented regarding the purchases. It was found that while the tax imposition on leather and cotton thread was justified due to oversight and lack of evidence proving purchases from registered dealers, the tax imposition on cotton was debatable. The Court held that the assessing officer erred in not considering the explanation provided by the assessee regarding the cotton purchase from an unregistered dealer who had bought it from a registered dealer. This aspect of the tax imposition was deemed debatable and not suitable for rectification under Section 22.Issue 3: Application of the principle of rectification of mistakes apparent on recordThe High Court applied the principle that the powers under Section 22 should be limited to rectifying mistakes that are apparent on the record. It emphasized that debatable issues or matters requiring detailed deliberation should not be addressed under rectification proceedings. While the tax imposition on leather and cotton thread was upheld due to clear oversight and lack of evidence, the tax imposition on cotton was considered debatable as the assessee provided a plausible explanation that was not proven false. The Court referred to a previous judgment to support the assessee's position in this regard. Consequently, the revision was partially allowed, and the question of law raised by the assessee was answered in their favor regarding the tax imposition on cotton.This detailed analysis of the judgment from the Allahabad High Court highlights the interpretation of Section 22 of the U.P. Trade Tax Act, 1948, the justification of tax imposition based on purchases from unregistered dealers, and the application of the principle of rectification of mistakes apparent on record in the assessment for the Assessment Year 1999-2000.