1. Heard Sri Nishant Mishra, learned counsel for the applicant and Sri B.K. Pandey, learned Standing Counsel for the revenue.
2. The present revision has been filed against the order of the Commercial Tax Tribunal, Bench-1, Noida in Second Appeal no.217/13 for A.Y. 2007-08 (UP) dated 31.12.2016. By that order, the Tribunal has partly allowed the assessee's appeal. While, it has upheld the initiation of reassessment proceeding for the A.Y. 2007-08 (UP), it has modified the rate of tax on Multi Function Digital (MFD in short), from 10% (as unclassified commodity) to 8% (as other electronic goods), under Notification No.K.A.N.I.-2-5746/XI-9(236)/96-U.P. Act-15-48-Order-(30)-2002 dated 13.12.2002.
3. The revision has been pressed on the following question of law:
"A- Whether the Tribunal erred in law in upholding the validity of initiation of reassessment proceedings, when the same was based on belief which was totally irrelevant and also amounts to change of opinion?"
4. Briefly, during the A.Y. 2007-08, the assessee was engaged in trading in computer items. Amongst others, the assessee derived sale turnover from sale of MFD value at Rs.02,99,07,019/-. It offered the same to tax @ 4% under the U.P. Trade Tax Act, 1948 (hereinafter referred to as the ''Act'). Without making any enquiry or discussion, the Assessing Officer concluded the assessment proceeding vide order dated 17.03.2010 and assessed the assessee on MFD as per return @ 4%.
5. It is also a fact that with effect from 01.01.2008 the provisions of Uttar Pradesh Value Added Tax Act, 2008 (hereinafter referred to as the ' VAT Act') were enforced. Consequently, for the remaining part of the assessment year A.Y. 2007-08 (01.01.2008 to 31.03.2008), the assessee was assessed to tax under the provisions of VAT Act. In those proceedings also, the assessee was initially assessed to tax on MFD @ 4%. Later, it was subjected to reassessment under Section 29 of VAT Act for the A.Y. 2007-08 (01.01.2008 to 31.03.2008) with respect to sale turnover of MFD. There, the assessee claimed that the commodity MFD was a computer peripheral - as notified under the VAT Act by virtue of Entry No.22, Part-B, Schedule-II. However, the assessee was subjected to tax on MFD treating it to be an unclassified commodity under the VAT Act, in view of the order passed by the Commissioner, Commercial Tax under Section 59 of the VAT Act. Thereby, the Commissioner Commercial Tax had taken a view that MFD was not a computer peripheral.
6. It is further undisputed that upon appeal, the Tribunal accepted the assessee's claim and vide its order dated 09.12.2015, subjected it to tax on MFD @ 4% treating the same to be computer peripheral for the purposes of VAT Act. It has also been submitted that the order passed by the Commissioner under Section 59 of the VAT Act taking a contrary view was also subsequently set aside. That order having been passed in the case of another assessee.
7. In the aforesaid background, at the relevant time, the Assessing Officer formed a "reason to believe", that the commodity MFD was liable to tax as an unclassified commodity under the 'Act', for A.Y. 2007-08 (1.4.2007 to 31.12.2007). It is on record, acting on the "reason to believe" as recorded in the notice dated 15.05.2012, permission of the Additional Commissioner was sought to initiate reassessment proceedings for the A.Y. 2007-08 (01.04.2008 to 31.12.2007). Rejecting the explanation furnished by the assessee, it was subjected to tax on MFD vide reassessment order dated 10.07.2012 as an unclassified commodity @ 10%. The appeal therefrom was dismissed by the Additional Commissioner, vide his order dated 10.04.2013. Further, appeal filed by the assessee has been partly allowed treating the commodity to be covered under the notification entry - ''other electronic goods' @ 8%.
8. Having heard learned counsel for the parties and having perused the record, in the first place, the principle that has to ever remain clear is - the assessee may be subjected to reassessment proceeding only when the jurisdictional fact is first found to exist. That fact is the existence of a valid "reason to believe" that any turnover has "escaped assessment to tax". On that principle, in The Commissioner of Sales Tax, U.P. Vs M/S. Bhagwan Industries (P) Ltd., Lucknow (1973) 3 SCC 265, it was observed as under:-
"11. ............Question in the circumstances arises as to what is the import of the words ""reason to believe"", as used in the section. In our opinion, these words convey that there must be some rational basis for the assessing authority to form the belief that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. If such a basis exists, the assessing authority can proceed in the manner laid down in the section. To put it differently, if there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of the turnover of a dealer has escaped assessment, it can take action under the section. Reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment. If the grounds are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or not is not a matter which would be gone into by the High Court or this Court; for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. What can be challenged is the existence of the belief but not the sufficiency of reasons for the belief. At the same time, it is necessary to observe that the belief must be held in good faith and should not be a mere pretence."
9. As to the material that may give rise to a "reason to believe" that any part of the turnover of an assessee escaped assessment to tax, the Supreme Court in the case of State of Uttar Pradesh And Others Vs. Aryaverth Chawal Udyog & Others (2015) 17 SCC 324 has observed in paragraph nos.28 and 30, thus:
"28. This Court has consistently held that such material on which the assessing authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the assessing authority in pursuance of such belief. In case of absence of such material, this Court in clear terms has held the action taken by the assessing authority on such ""reason to believe"" as arbitrary and bad in law. In case of the same material being present before the assessing authority during both, the assessment proceedings and the issuance of notice for reassessment proceedings, it cannot be said by the assessing authority that ""reason to believe"" for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan [Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71 : 1980 SCC (Tax) 348] .
30. In case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the "change of opinion" and the material present before the assessing authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to reinitiate proceedings under Section 21(1) of the Act on the basis of change in subjective opinion (CIT v. Dinesh Chandra H. Shah [CIT v. Dinesh Chandra H. Shah, (1972) 3 SCC 231] ; CIT v. Nawab Mir Barkat Ali Khan Bahadur [CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC 360 : 1975 SCC (Tax) 316] )."
10. In the facts of the present case, the submission advanced by Sri Mishra as to change of opinion cannot be accepted since the original assessment order dated 17.03.2010 is completely silent as to the reason why the assessing authority chose to tax on MFD @ 4%. No basis or other reason was recorded by the Assessing Officer to tax the commodity MFD @ 4%. In absence of any opinion being formed and expressed at that stage, no change of opinion may arise or be alleged when at a subsequent stage, the assessing authority forms any opinion.
11. At the same time, merely because no opinion had been formed by the Assessing Officer at the stage of original assessment, it would not automatically lead to the conclusion, either that any turnover had escaped assessment or that the Assessing Officer had absolute discretion to initiate reassessment proceedings as has been suggested by the learned Standing Counsel relying on a decision of the Division Bench of this Court in M/s. Kalpana Kala Kendra Vs. The Sales Tax Officer Circle-20, Kanpur 1989 ATJ 301. In that case also, the original assessment order was silent as to the enquiry, if any, to accept the returned turnover. However, at the stage of the initiation of the reassessment proceedings under Section 21 of the Uttar Pradesh Sales Tax Act, 1948, three factual basis existed on the record that gave rise to the "reason to believe" that tax had escaped assessment. These were (i) wide discrepancy noted with respect to value of purchases of the assessee, (ii) escapement of tax on the closing stock and (iii) also non-verification of the information received on assessment record.
12. Clearly, in the instant case, there is no recital in the "reason to believe" of any factual basis or of any information received or of material existing on record on the assessment file of the assessee as may have given rise to any "reason to believe". The notice issued by the Additional Commissioner dated 15.05.2012, which is stated to contain the "reason to believe" only refers to the fact that MFD had been subjected to tax @ 4% in the original assessment order treating the same to be computer peripherals whereas that commodity was not computer peripheral and, therefore, liable to be taxed as an unclassified commodity. In the first place, the "reason to believe" suffers from a factual fallacy. There was no entry available under the Act to tax "computer peripherals". That entry first appeared only by virtue of Entry no.22 of Part B of Schedule II of the VAT Act. Therefore, there was no question of introducing that entry in the assessment proceedings under the Act or to examine that entry for the purpose of either making an assessment under the Act or to re-open any assessment under that Act. That fact was plainly or completely extraneous to the assessment made under the Act. Then, it is otherwise equally wrong to assume, as a fact, that the commodity MFD had been taxed @ 4% treating it to be the computer peripheral, since, the original assessment order did not make any reference of any taxing entry of "computer peripheral".
13. Besides the factual fallacy and therefore the non-existence of any material based on which a "reason to believe" may have been recorded, it is also apparent from the reading of the notice dated 15.5.2012 that solely on account of the aforesaid error, the goods MFD were believed to be unclassified commodity. No reason was recorded for the same. The assessing authority did not look into the relevant taxing entry that existed under the Act, at the relevant time and he did not refer to any law that may have been existing and he also did not advert to any material to entertain the belief that the commodity MFD was an unclassified item. Here, it may be noted that Notification No.K.A.N.I.-2-5746/XI-9(236)/96-U.P. Act-15-48-Order-(30)-2002, amended entry no. 74 in the pre-existing taxing notification issued under the Act w.e.f. 20.12.2002. The amended entry reads as below:
S.No.
Description of goods Point of tax Rate of tax percentage 1 2 3 4 75(i)(a) Television, video cassette recorders, video cassette player, Satellite receiver, wireless set, video cassette, video games and electronic toys;
M or I 12%
(b) Telephones including cordless phones with cords, cellular phones and parts, accessories and components thereof.
M or I 4%
(ii) Computer hardware, software and parts thereof, and electronic components that is to say all types of passive components, resisters, capacitors, diodes and other active components, transistors, integrated circuits, large scale integration, very large scale integration chips, black white picture tubes, colour picture tubes, power semi conductors, audio tapes and video tapes, printed circuit boards, connectors, relay, auto electronic components, precision electronic components, magnetic media, micro wave tube, television components, television glass shells, electronic transducers, actuators, display devices that is light emitting diodes, liquid crystal diodes, micro motors, crystals, tape deck mechanism, etched and framed foils, electronic tuners, deflection yokes, line output transformers, electrodeposited copper foils printed circuit board laminate, populated printed circuit boards, power supply devices, cabinet and plastic components.
M or I 4%
(iii) Microwave oven and all other electronic goods not specified anywhere else in the schedule or any other notification.
M or I 8%
14. It is the assessee's case that the commodity MFD was liable to be taxed @ 4% under the Act being computer hardware. It was therefore offered to tax @ 4% and was also accepted in the assessment proceedings. Correctness or otherwise of the conclusions reached at the assessment proceedings apart, and on which no finding is necessary to be reached in these proceedings and none is being recorded, it is to be examined whether any "reason to believe" had been recorded that any tax had escaped assessment.
15. Consequently, while it may have been open to the assessing officer to record adequate "reason to believe", at the relevant time that MFD was not covered under the taxing entry - computer hardware and, therefore, liable to tax under any other entry or as unclassified goods, however, the reassessment proceedings being based on occurrence of the jurisdictional fact being recording of the "reason to believe" based on material and evidence on record, it cannot be assumed or implied that such a "reason to believe" was necessarily existing or was inherent in the proceedings.
16. The existence of a valid reason to believe must be established as a fact, by the revenue, before a valid reassessment proceeding may arise. Recording of a "reason to believe" is a conscious act by the assessing authority. It is the result of an application of mind made by the assessing officer to all relevant material before him. Unless he first initiates this exercise and consequently records his "reason to believe" that any part of turnover of an assessee has escaped assessment to tax, the consequential exercise of reassessment would remain without jurisdiction. The material and reasons arising therefrom create the objective skeleton on which the subjective flesh of belief may stand.
17. Thus, even if the conclusion ultimately drawn by the Tribunal, may appear to be correct in the given facts that the commodity was taxable not as computer hardware but as other electronic goods, that reasoning would not validate and otherwise invalid reassessment proceeding. Such is the case here.
18. The further submission advanced by learned Standing Counsel that there was an admission of the assessee that led to the "reason to believe" to be recorded also cannot be accepted as the admission being claimed is the conduct of the assessee in the subsequent proceedings for the subsequent period of A.Y. 2007-08 i.e. from 1.1.2008 to 31.3.2008, not under the provisions of the Act, but under visibly different law, namely, the VAT Act. Thus, for all legal purposes, those proceedings formed part of a different assessment year arising in a different legal background in the context of the scheduled entries existing under the VAT Act. They do not correspond to the taxing entries under the Act. For the purposes of clarity, it may be recorded that there was no parallel entry to tax "computer peripherals", as a notified commodity under the Act.
19. In view of the above, it is found that neither there exists any material nor any valid "reason to believe" was recorded by the assessing officer as to any part of the turnover of MFD having escaped assessment from tax. Consequently, there was a jurisdictional error on part of the assessing officer in initiating the assessment proceeding.
20. Accordingly, the question of law is answered in the negative i.e. in favour of the assessee and against the revenue.
21. Revision allowed. No order as to costs.
Order Date :- 3.2.2021 S.Chaurasia