2006 (4) TMI 477 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the order dated September 30, 1996, closing the reassessment proceedings under section 19A was erroneous and prejudicial to the interest of Revenue.
2. Whether the reassessment proceedings initiated under section 19A were barred by limitation.
3. Whether the initiation of revisional proceedings under section 39(2) was within the statutory period of limitation.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Order:
The petitioners challenged the order dated November 13, 1998, passed under section 39(2) of the M.P. General Sales Tax Act, 1958, which revised the reassessment proceedings closed on September 30, 1996, and imposed a tax of 12% on the sale of coal ash. The learned counsel for the petitioner argued that for invoking section 39, it is mandatory that the order sought to be revised is both erroneous and prejudicial to the interest of Revenue. The authorities failed to record a finding that the order dated September 30, 1996, was erroneous. The Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [2000] 243 ITR 83 held that the Commissioner must be satisfied of the twin conditions: the order is erroneous and prejudicial to the interests of the Revenue. The court found that the order closing the proceedings under section 19A was passed in compliance with the Commissioner's directions under section 42B and was not erroneous. Therefore, the initiation of proceedings under section 39(2) was quashed.

2. Limitation for Reassessment Proceedings:
The petitioner argued that the law regarding the taxability of coal ash was laid down by the court in Hukumchand Mills Ltd. v. Commissioner of Sales Tax [1988] 71 STC 101 [FB] on August 4, 1987. The reassessment proceedings initiated on July 14, 1994, were beyond the three-year limitation period from the date the law was declared. The court referred to Dharamchand Sikharchand v. Assistant Commissioner of Sales Tax, Sagar [1997] 30 VKN 171, which held that the limitation period starts from the date the law is initially declared. Therefore, the reassessment proceedings initiated under section 19A were barred by limitation as they were beyond three years from August 4, 1987.

3. Limitation for Revisional Proceedings:
The petitioner contended that revisional proceedings under section 39(2) could only be initiated within three years from the date of the original order of assessment, i.e., February 10, 1993. The revisional proceedings initiated on May 23, 1998, were beyond this period. The court agreed, stating that the respondents sought to reassess and levy tax on the sale of coal ash, which was not imposed by the initial order of assessment. Allowing the revisional proceedings would effectively permit revision of the original assessment order, barred by limitation. The court emphasized that the statutory limitation periods under sections 19A and 39(2) must be upheld to avoid rendering them redundant.

Conclusion:
The court decided all three issues in favor of the petitioner. It quashed the impugned order dated November 13, 1998, and allowed the petition, stating that there would be no order as to costs.