Hon'ble Dinesh Gupta, J.
(Per: Tarun Agarwala,J.) The petitioner is a Public Limited Company incorporated under the Indian Companies Act and is engaged in the business of selling of different kinds of batteries.
For the assessment year 2001-02 under the U.P. Trade Tax Act (hereinafter referred to as the "Act") the assessing authority passed an assessment order dated 17.9.2004 subjecting trade tax on the sale of automotive batteries @ 12% and for the sale of tractor batteries @ 5% and for stationery batteries/inverters etc. @ 10%.
In the present case, we are concerned with the imposition of Trade Tax on tractor batteries. This imposition of 5% was based on Entry No.46(2) of the notification dated 15.1.2000 issued under Section 3-A of the Act. For facility, the said Entry No.46 of the notification dated 15.1.2000 is extracted hereunder:
Sl.
No.
Description of goods Points of tax Rate of tax percentage
46. (i) Tractors and Harvester combines M or I 5.00%
(ii) Parts and accessories and attachments of tractors and Harvesters of all kinds other than tyre, tube, spark plug and Tractor Trollies.
M - stands for sale by the manufacturer in Uttar Pradesh.
I - stand for sale by the importer in Uttar Pradesh.
A perusal of the aforesaid notification indicates that parts and accessories and attachment of tractors of all kinds other than tyre, tube, spark plug and tractor trollies is taxable @ 5%. The assessing officer, on the basis of this notification dated 15.1.2000, treated sale of tractor batteries as part/accessory of a tractor and imposed 5% as tax.
Under Section 3-A of the Tax Act, the State Government issued another notification dated 29.1.2001. Entry No.18 is relevant for deciding this issue, which is extracated hereunder:
Sl.
No.
Description of goods Points of tax Rate of tax percentage 18 (i)(a) Motor vehicles including chassis of motor vehicles, but excluding light commercial vehicles mentioned in sub-clause (b) below, two wheelers motor vehicles and tractors and harvester combines.
Sale by dealer to consumer or, in this case of sale through a hire purchase by the consumer.
12.00%
(ii) Components, parts and accessories of vehicles, specified in clauses (i) and (iii) including tyre and tubes, batteries and trailers adapted for use along with said vehicles other than such trailers as are predominantly used along with any other vehicles.
M or I 12.00% M - stands for sale by the manufacturer in Uttar Pradesh.
I - stand for sale by the importer in Uttar Pradesh.
A perusal of this notification indicates that component, parts and accessories of vehicles including tyres and tubes, batteries and trailers other than light commercial vehicles, two wheelers, tractors and harvesters combines is taxable @ 12%. This notification was amended by notification dated 19.5.2003 modifying it slightly. For facility, the said Entry No.18(i) as modified by notification dated 19.5.2003 is extracted hereunder:
Sl.
No.
Description of goods Points of tax Rate of tax percentage 18(i)(a) Motor vehicles including chassis of motor vehicles, but excluding light commercial vehicles mentioned in sub-clause (b) below, two wheelers motor vehicles and tractors and harvester combines.
Sale by dealer to consumer or, in this case of sale through a hire purchase company financing this purchase by the consumer.
12.00%
(ii)(a)
(b) Components, parts and accessories of vehicles, specified in clauses (i) and (iii) including batteries and trailers adapted for use along with said vehicles other than such trailers as are predominantly used along with any other vehicles.
Tyres and tubes of vehicles specified in clause (i) & (iii).
Under this notification components, parts and accessories of vehicles, which includes batteries and trailers for motor vehicles, but excluding light commercials vehicles, two wheelers, tractors and harvester combines would be taxable @ 12%.
Under Entry No.18 of the notification dated 29.1.2001, as amended by notification dated 9.5.2003 the word "battery" has been included in component parts and accessories to be taxable @ 12%, which are used in light motor vehicles other than tractor, whereas under Entry No.46 of the notification dated 15.1.2000, the word "battery" has not been indicated in the notification and it only states that parts and accessories and attachments of tractors of all kinds other than tyre, tube, spark plug and tractor trollies. The notification dated 15.1.2000 is wider since it includes all kinds of parts and accessories and attachment of tractors except specified parts and accessories and attachments which have been specifically excluded whereas in the notification dated 29.1.2001, as amended on 9.5.2003, "battery" has been included as a component, part or accessory for motor vehicles only.
Based on Entry No.18 of the notification dated 9.5.2003, a circular dated 22.5.2007 was issued by the Commissioner of Trade Tax indicating that in view of the inclusion of "battery" in the notification dated 9.5.2003 and non-inclusion of battery in the notification dated 15.1.2000, the tractor battery should be subjected to tax as an unclassified item @ 10%.
Section 22 of the Act provides that if the assessing authority has reasons to believe that the whole or any part of the turnover of a dealer for any assessment year or part thereof has escaped assessment to tax and has been under assessed to tax at a rate lower than that at which it was assessable under the Act, the assessing authority after issuing a notice to the dealer and after making such inquiry re-assess the tax. However, such reassessment has to be made within two years. Proviso to sub-Section (2) of Section 21 of the Act provides that the period for initiating reassessment proceeding can be extended to 6 years where the Commissioner of Trade Tax records reason and is satisfied that it is just and expedient to authorise the assessing authority to initiate re-assessment proceedings after the expiry of the prescribed period.
On the basis of the circular dated 22.5.2007, the assessing authority moved an application seeking permission for reopening the assessment proceedings. The Additional Commissioner, by an order dated 20.3.2008 issued an order under Section 21(2) of the Act granting permission to the assessing authority to reopen the assessment proceedings.
The reasoning adopted by the Additional Commissioner was that since Entry No.46 in the Notification dated 15.1.2000 did not use the word "battery" in comparison to Entry No.18 in the notification dated 9.5.2003, which included the word "battery", as such, there was a reason to believe that battery had to be taxed as an unclassified item @ 10% whereas it was assessed @ 5%. The Additional Commissioner was of the opinion that it was a case of under assessment and therefore, justified initiation of proceedings for reassessment.
Based on the aforesaid order, the assessing authority issued a notice dated 26.3.2008 reopening the assessment proceedings. The petitioner, being aggrieved by the order of the Additional Commissioner, Grade-I, Commercial Tax, Ghaziabad, dated 20.3.2008, as well as by the issuance of the notice issued by the assessing authority, dated 26.3.2008, under Section 21 of the Act for the assessment year 2001-02, has filed the present writ petition.
We have heard Sri Bharatji Agarwal, the learned senior counsel assisted by Sri Subham Agarwal the learned counsel for the petitioner and Sri C.B.Tripathi, the learned Special Counsel for the State of U.P.
The learned senior counsel contended that there is no ambiguity in the interpretation of the notification dated 15.1.2000 and that a perusal of Entry No.46 of the notification dated 15.1.2000 clearly indicates that all kinds of parts and accessories and attachments of tractors are exigible to tax @ 5%. The learned Senior Counsel submitted that battery is a part of a tractor, if not an accessory. Further, the words "of all kinds" will include everything which the tractor requires even if the said part may not be an integral part of a tractor. The learned senior counsel submitted that the words "other than" used in Entry 46 gives a specific exclusion to certain parts and accessories and attachments which will not be taxed @ 5% and such exclusion does not include the word "battery". Consequently, the word "battery" would be included as a part, if not, as an accessory to a tractor, which would be taxable @ 5%.
The learned senior counsel further contended that the notification dated 29.1.2001 as amended by 9.5.2003 is not applicable as it is only relates to motor vehicles other than tractors. The inclusion of the word "battery" as component parts or accessory of a motor vehicle is only illustrative and is not exhaustive, whereas the exclusion of specified articles under the notification dated 15.1.2000 is specific and exhaustive. If the legislature had the intention of excluding "battery" in the notification dated 15.1.2000, it would have specifically excluded in that notification. By not doing so, battery would be included as a part or as an accessory of a tractor.
On the other hand, Sri C.B.Tripathi, the learned counsel for the State of U.P. submitted that the notification dated 15.1.2000 is required to be interpreted in the light of the Entry given in the notification dated 29.1.2001 as amended by notification dated 9.5.2003 and since there was no discussion to this effect in the assessment order and since there was a reasonable belief that the tractor battery has been under taxed @ 5% instead of 10% as an unclassified item, the Additional Commissioner, in the light of the circular dated 22.5.2007, was justified in granting permission in reopening the assessment proceedings. The learned counsel submitted that no prejudice has been caused to the petitioner in reopening the proceedings and that the interpretation of the notification dated 15.1.2000 would be considered and appropriate assessment order would be passed. In support of his contention, the learned counsel has placed various decisions on the issue of "reasons to believe for reopening the proceedings" and on the question of "interpretation of an entry", which would be referred hereinafter.
The question, whether the assessing officer had reasons to believe is a question of jurisdiction, which can be considered and investigated by a Court under Article 226 of the Constitution of India. The words "has reasons to believe" must not be arbitrary or irrational but must be based on reasons which are relevant and germane to the issue. The expression "reasons to believe" is not a subjective satisfaction on the part of the assessing officer. The belief has to be in good faith and must have a rational connection with the issue involved and should not be based on extraneous or irrelevant consideration. The formation of the required opinion and belief by the assessing officer is a condition precedent. Without such formation, the assessing officer will have no jurisdiction to initiate proceedings under Section 21 of the Act. The aforesaid view was also held by this by a Division Bench of this Court after considering various judgements of the Supreme Court in M/s S. K. Traders, Modi Nagar, Ghaziabad vs. Additional Commissioner, Grade-I, Trade Tax, Zone Ghaziabad and another, 2008 UPTC 392.
Similar view was reiterated by another Division Bench in Anand Prakash Agarwal vs. Commissioner of Income Tax (Central) and others, Writ Petition No.1367 of 2005 and other companion cases, decided on 29.5.2014. The Division Bench after considering the case in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITC 500 (SC), held that at the stage of issuance of notice the only question to be considered was whether there was relevant material on which a reasonable person could have formed the requisite belief.
In M/s Rubber Chem Sadabad Gate Hathras vs. The Additional Commissioner Grade-I, Commercial Tax , Aligarh Zone, Aligarh and another, decided on 15.3.2014, in Writ Petition No.1045 of 2009, the Division Bench of this Court, after analysing various decisions of the Supreme Court, held-
"On a plain and simple reading of Section 21, it is crystal clear that where a dealer has been assessed to tax at lower, then, it is a case of escape assessment. Rider is that such Assessing Authority should have reason to believe that whole or part of turnover has escaped assessment. The condition precedent, namely, the formation of opinion on the part of Assessing Authority that there is reason to believe that the case in which the action is contemplated falls within the ambit of at least one of the several contingencies mentioned under Section 21. The reason to believe must have rational connection or life linked between the material coming in possession of Assessing Authority and the escapement of turnover of the assessee from assessment in a particular year. To put it differently, the Assessing Authority must form opinion objectionably on reasonable ground that the turnover has escaped assessment."
In Commissioner of Sales Tax vs. Bhagwan Industries (P) Ltd. (1973)31 STC 293 (SC), it has been held as follows:
"The words "reason to believe" in s. 21 of the U.P. Sales Tax Act convey that there must be some rational basis for the assessing authority to form the believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. 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 ground 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 ground are adequate or not is not a matter which would be gone into by the High Court or the Supreme 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 or reasons for the belief. At the same time, the belief must be held in good faith and should not be a mere pretence."
From a perusal of the aforesaid, it is apparently clear that the words "reason to believe" in Section 21 of the U.P. Trade Tax Act conveys that there must be some rational basis for the assessing authority to form a belief that the whole or any part of the turnover of a dealer has for any reasons escaped assessment. Such reason or reasonable ground to believe that the whole or any part of the turnover had escaped assessment must be germane to the formation of the believe regarding escaped assessment. Such reasons or grounds must have a nexus with the formation of the belief. The approach has to be practical and not pedantic.
In the light of the aforesaid, in the instant case, we find that the assessing officer as well as the Additional Commissioner, while granting permission, was of a belief that tractor battery is liable to be taxed as an unclassified item @ 10%. Such belief was based on comparison of the notification dated 9.5.2003 wherein batteries were included as a component, parts and accessories of a vehicle, which excluded tractor and consequently had a reasonable belief and formed an opinion that non-exclusion of battery in the notification dated 15.1.2000, which related to parts and accessories and attachments of tractor would mean that tractor battery cannot be included in the notification dated 15.1.2000 and, therefore, has to be treated as an unclassified item. Further, the belief was formed also on the basis of the circular dated 22.5.2007 issued by the Commissioner, which is binding upon the subordinate authorities. The Court is of the opinion, that such belief forming an opinion that whole or any part of the turnover of a dealer had escaped assessment of tax is not based on any rational basis nor the belief is germane to the issued involved nor such reasons have a nexus with the issue involved.
In Commissioner of Commissioner of Sales Tax vs. Banaras Battery Works, 1981 UPTC 974, a learned single Judge of this Court held, that battery is a component part rather an integral part of a vehicle without which the vehicle cannot operate. The Court held:-
"The question then is whether battery is accessory or part or spare part of component part of vehicles. An accessory has been held to be an article which is used for convenient and smooth functioning. A battery cannot therefore be considered to be accessory. It is not spare parts as held in 1979 UPTC 804. An article is a component of another when it is essential for completing it. In Commissioner of Sales Tax v. Pritam Singh, 22 STC 414 it was held by a Division Bench that 'now a component part of an integral part necessary to the constitution of the whole thing. In Vikas Traders vs. State of Gujrat, 37 STC 163 the Gujarat High Court following the decision of this court held that motor battery is component part of vehicle. In Oxford Illustrated Dictionary Volume 1 page 341 component is defined, as 'contributing to the completion of a whole' 'Rangam House Dictionary' describes component as, 'being or serving as element on something larger'. Webster Third International Dictionary defines component as 'serving or helping to constitute'. These definitions and decisions leave no room for doubt that a motor battery is component part of the vehicle. A vehicle is not complete without battery. It cannot operate. Therefore battery is competent part of motor vehicle. Motor battery therefore continued to remain taxable under 1956 notification. It was argued by learned Standing Counsel that as the State Government treated batteries as accessories or parts it could not be treated as component part. The argument does not appeal because if an article is component then it does not become accessory or part only because it is mentioned along with accessory. Then there is very little difference in part or component part. An article may be part but if it is component part then it has to be understood in that sense if the word component is used in the notification. A battery may be electrical equipment or electrical goods but as it is component part of motor vehicle and there being specific entry of it battery sold for motor vehicles cannot be held taxable under Notification 7996 of 1965.
In Thanjavur Leather and Autoliners Industrial Co-operative Society Limited vs. The State of Tamil Nadu, 1983(52)STC 343, a Division Bench of the Madras High Court, while analysing the meaning of the words "spare parts", held that when a person purchase a battery to replace an existing battery, the said battery is a spare part.
In Vikas Traders vs. The State of Gujrat, 1976(37) STC 163, a Division Bench of the Gujrat High Court held, that battery is a component part of the motor vehicle. The Division Bench held, that a battery is an integral part to constitute the whole motor vehicle as without a battery it would be ceased to be a motor vehicle.
From the aforesaid decisions, it is clear, that various Courts have held that battery is a part of a vehicle.
In Mehra Brothers Vs. Joint Commercial Officer, Madras , 1991(1)SCC 514, the Supreme Court analayse the word "accessory" under the Sales Tax Act holding that the term "accessories" is used in the Schedule to describe goods which may have been manufactured for use as an aid or addition. The Supreme Court held that accessory is an object or device that is not essential in itself, but that adds to the beauty, convenience or effectiveness of something else.
Similar view was reiterated by the Supreme Court in Pragati Silicons Pvt. Ltd. Vs. Commissioner of Central Excise, Delhi, 2007(211) ELT 534(S.C.), wherein the Supreme Court held that the word "accessory" means something supplementary or subordinate in nature and need not be essential for the actual functioning of the product.
In M/s J. G. Rubber Manufacturing Company, Modinagar, District Ghaziabad. vs. Commissioner of Sales Tax, U.P., Lucknow., STI 1994 Alld. H.C. 179, the learned Single Judge of this Court held, that battery in a motor vehicle is a necessary accessory for effective use of the vehicle.
In the light of the aforesaid decisions, it is apparently clear, that a battery, which is fitted in a tractor, is an integral part of a tractor if not an accessory. Assuming that battery is supplementary or subordinate in nature and is not essential for actual functioning of the product, even then, battery would be included as a part, if not, accessory of a tractor under the notification dated 15.1.2000 in view of the words "of all kinds". The said words are of wide import and would include battery tractor.
We are of the opinion that a battery is an essential component for the functioning of the tractor and is an integral part of the tractor. Consequently, a battery would be covered under the notification dated 15.1.2000.
Reliance upon the notification dated 9.5.2003 is totally misplaced. The said notification is in relation to a motor vehicle other than tractor. Battery has been included as a part or a component of a motor vehicle. In fact, a reading of this notification is helpful to the case of the petitioner. If a battery can be included as a part or an accessory or as a component of a motor vehicle, there is no reason why it cannot be included as a part or accessory of a tractor. The belief of the authorities that since there is no mention of the word "battery" in the notification dated 15.1.2000 and, consequently, battery has to be taxed as an unclassified item is based on total non-application of mind. While forming an opinion, the authorities have not considered the words "parts and accessories of all kinds" under Entry No.46 of the notification dated 15.1.2000.
Consequently, we are of the opinion, that there was no rational reasoning by the authorities in forming an opinion that the turnover of the petitioner had escaped assessment. The notification dated 15.1.2000 is explicit, which leaves no room for doubt that battery is an essential part of a tractor requiring it to be taxed @ 5%. The Court is of the opinion, that formation of the opinion by the authority was a clear case of total non-application of mind to the relevant issue while granting permission to initiate the reassessment proceedings. The order of the Additional Commissioner granting permission under the proviso to Section 21(2) of the Act was based on non-application of mind and cannot be sustained. The issuance of notice under Section 21 of the Act by the assessing authority based on such reasons was patently illegal.
The circular dated 22.5.2007 is binding on the subordinate authorities. This circular is again based on the same reasoning that battery is not been mentioned in the notification dated 15.1.2000 whereas the notification dated 9.5.2003 includes battery and, consequently, the Commissioner of Trade Tax issued the circular directing the authorities to treat the battery as an unclassified item. This circular is patently illegal and has been issued without any application of mind. Such circular is in gross contravention to the clear and explicit Entry No.46 in the notification dated 15.1.2000 and Entry No.18 of the notification dated 9.5.2003. Such circular of the Commissioner of Trade Tax leads to disastrous results, which cannot be allowed to stand.
In the light of the aforesaid, we are of the opinion, that initiation of re-assessment proceedings under Section 21 of the Act was wholly illegal and without any authority of law. Consequently, the impugned order of the Additional Commissioner of Trade Tax, dated 20.5.2008, granting permission to the assessing authority for reopening the assessment proceedings under Section 21 of the Act as well as notice under Section 21 of the Act, dated 26.3.2008, issued by the Trade Tax Officer and the circular dated 22.5.2007 issued by the Commissioner of Trade Tax are wholly illegal and are quashed.
The writ petition is allowed.
In the circumstances of the case, there shall be no order as to cost.
Dated: 18.7.2014.
AKJ.
(Dinesh Gupta, J.) (Tarun Agarwala, J.)