1993 (11) TMI 226 - HC - VAT / Sales Tax

Summary

The core legal question considered by the Court is whether proceedings for assessment of escaped turnover under the U.P. Sales Tax Act, 1948 can be initiated under section 10-B or whether such proceedings must be initiated under section 21 of the Act. The issue arises from the issuance of a notice under section 10-B for reassessment of allegedly escaped turnover relating to the assessment year 1981-82.

The Court's analysis centers on the interpretation and application of sections 10-B and 21 of the U.P. Sales Tax Act, 1948, and the analogous provision under the Income-tax Act, 1961, namely section 263, to determine the scope and limits of the revisional power conferred under section 10-B.

Regarding section 10-B, the Court notes that it confers revisional jurisdiction on the Commissioner of Sales Tax or an authorized officer to call for and examine records relating to any order passed by a subordinate officer to satisfy itself as to the legality or propriety of such order and to pass such order as deemed fit. The language of section 10-B clearly limits the power to revision of existing orders, focusing on legality and propriety.

In the present case, the impugned notice under section 10-B was issued not to examine the legality or propriety of the earlier assessment order but to initiate proceedings for levying tax on turnover alleged to have escaped assessment. The Court finds that this use of section 10-B is inconsistent with the statutory scheme and the language of the provision.

Turning to section 21, the Court highlights that this provision specifically deals with assessment or reassessment where turnover has escaped assessment, been under-assessed, or wrongly allowed deductions or exemptions. Section 21 empowers the assessing authority to issue notice, make inquiries, and reassess the dealer accordingly. The Court underscores that section 21 is the exclusive and appropriate provision for initiating proceedings for escaped turnover assessment.

The Court further examines the analogy with section 263 of the Income-tax Act, 1961, which confers revisional powers on the Commissioner of Income Tax to examine any order passed by an assessing officer for errors prejudicial to revenue interests. The Court refers to the precedent in Ganga Properties v. Income-tax Officer, where it was held that revisional powers under section 263 are confined to the material on record and cannot be used to initiate reassessment or rectification proceedings based on new material or subsequent information.

Applying this reasoning, the Court concludes that section 10-B of the U.P. Sales Tax Act, being in pari materia with section 263 of the Income-tax Act, similarly restricts the revisional authority to reviewing the legality or propriety of existing orders and does not empower it to initiate reassessment proceedings on escaped turnover. The Court emphasizes that the revisional power cannot be used as a substitute for the reassessment mechanism provided under section 21.

The Court notes that the Revenue did not allege any illegality or impropriety in the original assessment order but relied solely on the claim of escaped turnover discovered after the assessment. Therefore, the proper course was to invoke section 21 for reassessment, not section 10-B.

In conclusion, the Court quashes the notice issued under section 10-B and restrains the Revenue from proceeding under that notice. It holds that reassessment proceedings for escaped turnover must be initiated under section 21, and the use of section 10-B for such purpose is illegal, void, and without jurisdiction.

Significant holdings include the following verbatim legal reasoning:

"From a perusal of the language used by the Legislature in section 10-B of the Act, it is abundantly clear that the power under section 10-B has been conferred on the authority mentioned therein to call for and examine the record relating to any order passed by any officer subordinate to him for the purpose of satisfying himself as to the legality or propriety of such order and pass such order with respect thereto as he thinks fit."

"We find ourselves in full agreement with the view taken [in Ganga Properties] that revisional jurisdiction is confined to the materials on record and will empower the authorities under the Act only to satisfy itself about the correctness, propriety and legality of the order and will not empower the authorities for initiating the proceedings for rectification or reassessment."

"In the instant case, the turnover of the assessee for the assessment year in question was fully examined and after full scrutiny, the same was subjected to tax by the Sales Tax Officer, and subsequently if it was found on the basis of material not already on record that a part of the turnover of the assessee had escaped assessment then the only course available to the authorities under the Act was to issue notice under section 21 of the Act for assessment but the impugned notice issued under section 10-B of the Act could not have been issued as there appears to be no illegality or impropriety in the assessment order passed by the Sales Tax Officer."

The core principle established is that revisional powers under section 10-B are limited to examining the legality or propriety of existing orders based on the record before the assessing officer and cannot be used to initiate reassessment proceedings for escaped turnover, which must be done exclusively under section 21.

Final determinations are that the notice issued under section 10-B for reassessment of escaped turnover is illegal and void, and the reassessment proceedings must be initiated under section 21 alone. The Court accordingly quashes the impugned notice and restrains further proceedings thereunder.