2010 (3) TMI 1012 - HC - VAT and Sales Tax

Whether the petitioner is engaged in the sale of anhydrous ammonia in liquid form which is a chemical and therefore it was rightly assessed to tax at the rate of 10 per cent? Held that - neither the notification dated January 29 2001 is a fresh material nor it had escaped consideration at the time of assessment. The assessment was made on proper application of mind and therefore notice of reassessment is nothing but an abuse of the process based on change of opinion which is not legally permissible. The impugned sanction granted under section 21(2) of the Act is therefore apparently not for the reason that the assessing authority has reason to believe that the turnover of the petitioner was wrongly assessed at a lower rate. Accordingly the impugned order as well as the notice for reassessment cannot be sustained in law. We therefore direct for issuing a writ of certiorari quashing the sanction order dated August 4 2006 (annexure 10 to the writ petition) and the notice dated August 17 2006 (annexure 11 to the writ petition).

Summary

Issues:
Challenge to order of sanction for reassessment under U.P. Trade Tax Act, 1948 based on whether ammonia is a chemical or gas and if the reassessment is due to a change of opinion or a genuine reason to believe incorrect assessment.

Analysis:
The petition challenged the order of sanction for reassessment under the U.P. Trade Tax Act, 1948, based on the Additional Commissioner's sanction and the Deputy Commissioner's notice for reassessment. The petitioner, a registered dealer in ammonia, was initially assessed at a 10% tax rate for the assessment year 2000-01. The reassessment was sought based on the impugned sanction, raising questions on whether ammonia should be classified as a chemical or gas for taxation purposes.

The petitioner argued that ammonia should be considered a chemical due to its nature as anhydrous ammonia in liquid form, correctly assessed at 10%. The respondents, however, pointed to a specific entry in a notification levying 12% tax on gases, excluding certain types. The key issues for determination were whether ammonia is a chemical or gas and whether the reassessment was due to a change of opinion or a genuine reason to believe incorrect assessment.

The court noted that the petitioner dealt with anhydrous ammonia, accepted as an inorganic chemical and gas by the respondents. Despite the existence of notifications specifying tax rates for chemicals and gases, the assessing authority chose to tax ammonia at 10%, indicating a conscious decision. The court relied on dictionary definitions and precedents to conclude that ammonia should be considered a chemical for taxation purposes.

Regarding the reassessment process, the court emphasized the requirement of a genuine "reason to believe" for initiating reassessment proceedings. Citing legal precedents, the court clarified that the belief must be based on relevant material with a nexus to the escaped turnover. In this case, the court found that the reassessment was based on a change of opinion rather than new material, rendering it impermissible.

The court further emphasized that if two entries exist for taxing an article, the one beneficial to the assessee should be preferred. As the initial assessment was made with due application of mind, the court deemed the reassessment notice an abuse of process based on a change of opinion, quashing the sanction order and reassessment notice.

In conclusion, the court allowed the writ petition, directing the quashing of the sanction order and reassessment notice, highlighting that the reassessment was not justified based on a genuine reason to believe incorrect assessment.