2010 (4) TMI 978 - HC - VAT and Sales Tax

Whether there was any material relevant to form the belief of escaped income? Held that - It is the case of change of opinion of the assessing officer on the same material which was in existence and considered at the time of original assessments. The proposals do not reveal any fresh material on the basis of which belief was formed that the claims had been wrongly allowed and the same are liable to tax. The orders under section 21(2) of the Act also do not reveal that there was any fresh material on the basis of which belief has been formed. In the facts and circumstances we are of the view that the orders passed under section 21(2) of the Act are not sustainable and are liable to be set aside inasmuch the notices under section 21 of the Act have been issued merely on account of change of opinion without there being any fresh material of escaped assessment. In the result the writ petition is allowed. The notices dated March 22 2006 issued by the Deputy Commissioner (Assessment) Trade Tax Rampur under section 21 of the Act for the assessment years 1999-2000 and 2000-01 both under the U.P. Trade Tax Act and under the Central Sales Tax Act and consequential proceedings in pursuance thereof are quashed.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 21 of the U.P. Trade Tax Act for the assessment years 1999-2000 and 2000-01.
2. Inclusion of outward freight, advertisement charges, and sale promotion amount in the turnover.
3. Application of the decision in Modi Industries Limited v. Commissioner of Trade Tax [2000] UPTC 149.
4. Requirement of fresh material for initiating reassessment proceedings.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The petitioner sought relief against reassessment proceedings initiated under Section 21 of the U.P. Trade Tax Act for the assessment years 1999-2000 and 2000-01. The court examined whether the reassessment was based on a change of opinion without any fresh material. The petitioner argued that the original assessment orders had already considered the taxability of waste polyfilm, broken glass, and other items at 5%, and the reassessment attempt to tax these items at 10% as unclassified items was merely a change of opinion.

2. Inclusion of Outward Freight, Advertisement Charges, and Sale Promotion Amount in Turnover:
The assessing authority initially excluded outward freight from the turnover, noting it was charged separately in the bills. The reassessment notices claimed that outward freight, advertisement charges, and sale promotion amounts should be included in the turnover based on the decision in Modi Industries Limited v. Commissioner of Trade Tax. The petitioner contended that no fresh material indicated these charges should be included and that the original assessments had correctly excluded them.

3. Application of Modi Industries Limited v. Commissioner of Trade Tax [2000] UPTC 149:
The court considered whether the decision in Modi Industries Limited was applicable. The petitioner argued that the decision related to cement prices fixed under the Cement Control Order, which was not analogous to their case. The court noted that the original assessment had already considered the separation of freight charges in the bills and found no evidence that sales were f.o.r. destination, making the Modi Industries decision inapplicable.

4. Requirement of Fresh Material for Initiating Reassessment Proceedings:
The court emphasized that reassessment under Section 21 requires fresh material indicating escaped assessment. The petitioner argued that the reassessment notices were based on the same material already considered in the original assessments. The court found no new material or information received after the original assessments that justified the reassessment. The belief of escaped assessment must be based on relevant and new material, not merely a change of opinion.

Conclusion:
The court concluded that the reassessment proceedings were initiated merely on a change of opinion without any fresh material. The initiation of proceedings under Section 21 of the Act was deemed patently illegal, and the reassessment notices and consequential proceedings were quashed. The court reiterated that reassessment cannot be based solely on a change of opinion once an issue has been considered and decided in original assessments.