M/S DEROLION SOLVENT PRODUCTS LTD. V. THE COMMISSIONER OF COMM. TAX

WPT/1681/2009

AI Insights

M/s Derolion Solvent Products Ltd., a company engaged in oil/solvent extraction, faced imposition of purchase tax for the years 1992 to 1997 despite having an exemption from sales tax. The tax was imposed following a reassessment under Section 28 of the Chhattisgarh Commercial Tax Act, 1994, which the company contested. The High Court found that the reassessment was conducted without proper assessment, notice, or opportunity of hearing, leading to the setting aside of the tax orders and remanding the case for a fresh decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 726651 (HC-CHHATTISGARH)
• Appeal Type: Others
• Pronouncement Date: 21-11-2023
• Assessment Year: misc
• Other Referred Cases: Shree B.R. Steels V. Additional Commissioner of Commercial Tax, Raipur & Others
• Laws Referred To: Chhattisgarh Commercial Tax Act, 1994, Sales Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: HAMIDA SIDDIQUI
• Assessee Lawyers: PADMESH MISHRA; S S BAGHEL
• Keywords: Change of opinion; Eligibility Certificate; Purchase tax; Reassessment; Sales Tax
• Section: 6; 28; 10; 7; 9

Judgement Text

"-1- NAFR HIGH COURT OF CHHATTISGARH, BILASPUR WPT No.1681 of 2009 M/s Derolion Solvent Products Ltd. Through Its Managing Director, Registered Office At Village Pendari Tehsil -Takhatpur, Distt. Bilaspur Chhattisgarh. ---- Petitioner Versus 1. The Commissioner Of Comm. Tax Raipur, District : Raipur, Chhattisgarh 2. The Upper Commissioner Commercial Tax, Raipur Division Raipur, District : Raipur, Chhattisgarh 3. The Assistant Commissioner Commercial Tax, Bilaspur Division Bilaspur, District : Bilaspur, Chhattisgarh ---- Respondents WPT No. 1682 of 2009 M/s Derolion Solvent Products Ltd. Through Its Managing Director, Registered Office At Village Pendari Tehsil -Takhatpur, District : Bilaspur, Chhattisgarh ---- Petitioner Versus 1. The Commissioner Of Commercial Tax Raipur, Chhattisgarh. 2. The Upper Commissioner Commercial Tax, Raipur Division, Raipur, Chhattisgarh. 3. The Assistant Commissioner Commercial Tax, Bilaspur Division, Bilaspur, Chhattisgarh. ---- Respondents WPT No. 1684 of 2009 M/s Derolion Solvent Products Ltd. Through Its Managing Director, Registered Office At Village Pendari Tehsil -Takhatpur, Distt. Bilaspur Cg ---- Petitioner Versus 1. The Commissioner Of Commercial Tax Raipur Chhattisgarh. 2. The Upper Commissioner, Commercial Tax, Raipur Division Raipur, Chhattisgarh. -2- 3. The Assistant Commissioner, Commercial Tax, Bilaspur Division Bilaspur, Chhattisgarh. ---- Respondents WPT No. 1685 of 2009 M/s Derolion Solvent Products Ltd. Through Its Managing Director, Registered Office At Village Pendari Tehsil -Takhatpur, District : Bilaspur, Chhattisgarh ---- Petitioner Versus 1. The Commissioner Of Commercial Tax, Raipur, Chhattisgarh. 2. The Upper Commissioner, Commercial Tax, Raipur Division, Raipur, Chhattisgarh. 3. The Assistant Commissioner, Commercial Tax, Bilaspur Division, Bilaspur, Chhattisgarh. --- Respondents (Cause Title taken from Case Information System) For Petitioners : Mr. Padmesh Mishra, Advocate along with Mr. S.S. Baghel, Advocate For State : Ms. Hamida Siddiqui, Dy. A.G. Date of Hearing : 30.10.2023 Date of Order : 21.11.2023 Hon'ble Shri Justice Rakesh Mohan Pandey CAV JUDGMENT Heard. 1) Writ Petition (T) No.1681 of 2009 has been filed by the petitioner with the following prayers:- “(a). That, this Hon’ble Court may kindly be pleased to call for the entire records leading to passing of the impugned orders dated 27.09.2004 (Annexure P/2) and 30.12.2008 (Annexure P/3) for its kind perusal; (b)That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari and quash the orders dated 27.09.2004 passed by the Respondent No.2 in Revision Case No.27/BIL/02/Regional (Annexure P/2) and order dated 30.12.2008 passed by the Chhattisgarh Commercial -3- Tax Tribunal, Raipur in Second Appeal Case No.A/470/27/08 (Annexure P/3). (c). That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari declare that the demand of purchase tax from the petitioner is illegal and bad; and (d).This Hon’ble Court may kindly be pleased to pass any other or further orders deemed fit and necessary in the facts and circumstances in the matter.” 2) Writ Petition (T) No.1682 of 2009 has been filed by the petitioner with the following prayers:- “(a). That, this Hon’ble Court may kindly be pleased to call for the entire records leading to passing of the impugned orders dated 27.09.2004 (Annexure P/2) and 30.12.2008 (Annexure P/3) for its kind perusal; (b) That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiori and quash the orders dated 27.09.2004 passed by the Respondent No.2 in Revision Case No.28/BIL/02/Regional (Annexure P/2) and order dated 30.12.2008 passed by the Chhattisgarh Commercial Tax Tribunal, Raipur in Second Appeal Case No.A/467/28/08 (Annexure P/3). (c). That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari declare that the demand of purchase tax from the petitioner is illegal and bad; and (d).This Hon’ble Court may kindly be pleased to pass any other or further orders deemed fit and necessary in the facts and circumstances in the matter.” 3) Writ Petition (T) No.1684 of 2009 has been filed by the petitioner with the following prayers:- “(a). That, this Hon’ble Court may kindly be pleased to call for the entire records leading to passing of the impugned orders dated 27.09.2004 (Annexure P/2) and 30.12.2008 (Annexure P/3) for its kind perusal; (b) That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari and quash the orders dated 27.09.2004 passed by the Respondent No.2 in Revision Case No.30/BIL/02/Regional (Annexure P/2) and order dated 30.12.2008 passed by the Chhattisgarh Commercial Tax Tribunal, Raipur in Second Appeal Case No.A/469/30/08 (Annexure P/3). (c). That this Hon’ble Court may kindly be pleased to -4- pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari declare that the demand of purchase tax from the petitioner is illegal and bad; and (d).This Hon’ble Court may kindly be pleased to pass any other or further orders deemed fit and necessary in the facts and circumstances in the matter.” 4) Writ Petition (T) No.1685 of 2009 has been filed by the petitioner with the following prayers:- “(a). That, this Hon’ble Court may kindly be pleased to call for the entire records leading to passing of the impugned orders dated 27.09.2004 (Annexure P/2) and 30.12.2008 (Annexure P/3) for its kind perusal; b) That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari and quash the orders dated 27.09.2004 passed by the Respondent No.2 in Revision Case No.31/BIL/02/Regional (Annexure P/2) and order dated 30.12.2008 passed by the Chhattisgarh Commercial Tax Tribunal, Raipur in Second Appeal Case No.A/468/31/08 (Annexure P/3). (c). That this Hon’ble Court may kindly be pleased to pass an order, issue a direction or necessary command by way of writ of mandamus/certiorari declare that the demand of purchase tax from the petitioner is illegal and bad; and (d).This Hon’ble Court may kindly be pleased to pass any other or further orders deemed fit and necessary in the facts and circumstances in the matter.” 5) The facts of the present case are that the petitioner is a Company incorporated under the Companies Act, 1956 having its registered office at Village- Pendari, Tehsil-Takhatpur, District- Bilaspur (C.G.) and it was engaged in the business of oil/solvent extraction from Soyabean and rice husk. The Petitioner Company established its industrial unit and started commercial production in the year 1992 and continued till the year 1999. Exemption from payment of sales tax for the period from 14.02.1992 to 13.02.1997 was granted to -5- the petitioner company vide Notification dated 23.04.1998 issued by the Department of Commerce, State of Madhya Pradesh. The petitioner company used to purchase Soyabean from registered as well as unregistered dealers. The petitioner company filed its return and the same was duly accepted and assessed by the Revenue. In the year 1999, on account of the policy decision of the State Government and poor market conditions, the petitioner company suffered huge losses and its industrial unit was closed. In the same year, the case of the petitioner was reopened under Section 28 of the Sales Tax Act for imposition of sales tax and purchase tax with retrospective effect. The eligibility certificate issued to the petitioner Company was cancelled vide order dated 28.07.2000 with retrospective effect. The petitioner company appeared before the Assistant Commissioner, Commercial Tax, Bilaspur and requested to revoke the eligibility certificate as the same was canceled without affording any opportunity of hearing. It was also stated that no demand notice was raised for payment of purchase tax. The Assistant Commissioner vide order dated 24.09.2001 set aside the order dated 28.07.2000 and restored the eligibility certificate to its original but at the same time imposed purchase tax under Section 7 of the Sales Tax Act on the petitioner Company at the rate of 1.5%. The chart showing the imposition of purchase tax from the year 1992 to 1997 is given below:- WPT No. Assessment Purchase Tax -6- Year imposed 1682 of 2009 1992-1993 10,36,753/- 1683 of 2009 1993-1994 12,89,753/- 1684 of 2009 1994-1995 11,82,880/- 1681 of 2009 1995-1996 7,47,594/- 1685 of 2009 1996-1997 11,25,125/- 6) The Assistant Commissioner held that under the exemption Notification, the petitioner company was only exempted from the payment of sales tax under Section 6 of the Sales Tax Act and not the purchase tax. The order dated 24.09.2001 was challenged before the Additional Commissioner, Commercial Tax, Chhattisgarh by filing a revision according to the provisions of Section 62(1) of the Commercial Tax Act, 1994 and vide order dated 27.09.2004, the same was dismissed. The petitioner Company preferred an appeal under Section 62(4) of the Chhattisgarh Commercial Tax Act before the Board of Revenue, Bilaspur (C.G.) and the same was transferred to the Chhattisgarh Commercial Tax Tribunal after its constitution and vide order dated 30.12.2008, the learned Tribunal dismissed all second appeals as not maintainable. 7) Learned counsel appearing for the petitioner would submit that the -7- Revenue has not produced any material to indicate what amount of income has escaped assessment between 1992 to 1997 and notices were not issued. He would further submit that the entire basis for the reassessment is based on Form A-20, which was issued in respect of registered dealers only. It is further argued that the Form A-20 can only be issued to a registered dealer. The petitioner company purchased Soyabean from registered as well as unregistered dealers for the purposes of manufacturing oil but the Revenue without application of mind decided to re-assess the entire transaction. He would also submit that the re-assessment proceedings cannot be initiated after a long lapse of time unless for reasons to be recorded in writing. He would further argue that the provisions of Section 28 of the Chhattisgarh Commercial Tax Act, 1994 (for short ‘ the Act of 1994’) which deals with the assessment of turnover escaping assessment have not been complied with. He would also contend that the Revenue was duty-bound to issue requisite notices to the petitioner and to supply the relevant documents and there must be a prior assessment as per provisions of Section 28 of the Act of 1994. In support of his argument, he has placed reliance upon the matter of Shree B.R. Steels V. Additional Commissioner of Commercial Tax, Raipur & Others reported in 2014 SCC Online Chh.128 where this Court in para 14 to 19 held as under:- \"14. However, later on, the assessing authority changed its opinion, which is reflected from the impugned orders of reassessment in -8- three cases. In the reassessment orders, it is clearly reflected that the assessing authority now changed his opinion and held that M.S. steel scrap are different products and qualified as local goods manufactured by BALCO. On this change of opinion, the assessing authority in the reassessment proceedings proceeded to levy entry tax as also penalty on the petitioner. Reassessment was also affirmed by the revisional authority. 15. Once on facts, it is held that the basis for reassessment is change of opinion, it has to be held that such reassessment is impermissible under the law, in view of the well-settled legal position laid down in the case of Sales fax Officer; Ganjam Vs. Uttareswari Rice Mills, [1972) 30 STC 567,while examining ambit and scope of reassessment under section 12(8) of the Orissa Sales tax Act, which is par materia provisions contained in section 28(1) of the Act of 1994. It was held that existence of a reason that the turnover of dealer escaped assessment or has been under- assessed is a condition precedent to issuance of notice of reassessment under section 12(8) of the Act and the existence of such reason is sine qua non for the issuance of notice. 16. In the case of Ritu Investments P. Ltd. v. Deputy Commissioner of Income-tax, [2012] 345 ITR 214 (Delhi), dealing with the power of reassessment of assessing authority under section 147 of the Income-tax Act, it has been held that change of opinion cannot clothe the assessing officer with the jurisdiction to initiate the proceeding under section 147 of the Act. It has been further held that an error of judgment does not confer such a jurisdiction on the assessing officer. Dealing with the provisions contained in section 19 of the Madhya Pradesh General Sales Tax Act, 1958, which is in pari materia of section 28(1) of Act of 1994 involved in the present case. Having application in the present case, the High Court of the Madhya Pradesh in the case of Eicher Motors Ltd. and another Vs. State of Madhya Pradesh and others, (2005] 142 STC 509 (MP); [2005] 1 M.P.L.J. 408, has held that change of opinion cannot be made a basis to carry out reassessment in the garb that the turnover has escaped assessment.The Orissa High Court in the case of Naba Bharat Ferro Alloys' Lid. v. State of Orissa, [2010]31 VST 319 (Orissa); (2610] 1 OLR 976, has also held that change of opinion could not be made a basis to make reassessment. 17. The Hon’ble Supreme Court in the case of Commissioner of Income-tax v. Keivinator of India Lid., [2010] 320 ITR 561 (SC) examining ambit and scope of power of reassessment under section 147 in respect of income escaping assessment beld thus (page 564 in 320 ITR): \"On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987; reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in section 147 of the Act (with-effect from April 1, 1989), they are given a go-by and only one condition has remained, viz, that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. -9- Therefore, post-April 1; 1989; power to re-open is much wider. However, one needs to give a schematic interpretation to the words ‘reason to believe’ failing which, we are afraid, section 147 would give arbitrary powers to the assessing officer to re-open assessments on the basis of 'mere change of opinion, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess: The assessing oficer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the assessing officer….” 18. In the facts of present case, reassessment proceedings have been drawn by the assessing authority on the ground that the purchase has escaped assessment, is clearly illegal and unsustainable in law in view of the authoritative pronouncement of the Supreme Court in the case of Commissioner of Income-tax v. Kelinator of India Ltd., (2010] 20 ITR 561 (SC). 19. Upon scrutiny of order passed by the assessing authority at the time of assessment and reassessment in the facts and circumstances of the present case and having held in discussions hereinabove that the main operative reason for reassessment was change of opinion, rather than purchase of M.S. steel scrap by the petitioner from the BALCO having escaped assessment, applying well settled legal position laid down in plethora of decisions cited above, I am of the considered opinion that the reassessment carried out by the assessing authority was, impermissible under; section 28(1) of the Act of 1994.” He would also submit that the records of the Department were summoned but vide an affidavit dated 01.08.2023, the department has admitted the fact that records of the relevant period i.e. 1992-1997 are not available with the Department. He would next submit that in the return filed by the Revenue, vide order dated 24.09.2011, the Assistant Commissioner has admitted that the Department has committed a mistake. He would further submit that the case was agitated by the petitioner company to restore the eligibility certificate whereas the Assistant -10- Commissioner imposed purchase tax therefore, the entire proceedings were vitiated. He would pray to quash the impugned orders. 8) On the other hand, learned counsel for the State would submit that the purchase tax is altogether a different tax and it can be levied according to the provisions of Section 10 of the Act of 1994 at the rate provided under Section 9 of the Act of 1994. It is further argued that from a perusal of Section 10 of the Act of 1994, it is quite vivid that a dealer who purchases any goods in the course of business is liable to pay the purchase price on such goods when the goods are used in manufacturing or processing of other goods. It is also argued that Section 6 of the Act of 1994 simply says that the tax payable under Section 6 would be exempted and it does not mean that the dealer will be exempted from payment of purchase tax. She would further contend that proper opportunity was afforded to the petitioner company according to the provisions of Section 28 of the Act of 1994 and the same is evident from the order dated 24.06.2009. It is argued that the petitioner company evaded purchase tax which is distinct from sales tax whereas the exemption certificate was issued exclusively for sales tax and therefore, the authorities rightly imposed purchase tax on the petitioner. Thus, it is stated that the petition deserves to be dismissed. 9) Heard learned counsel for the parties, considered their rival -11- submissions made herein above and carefully perused the documents present on record. 10) From the perusal of the documents, it is quite clear that earlier exemption was granted from payment of sales tax and later on, the same was canceled. The petitioner approached the Assistant Commissioner and it was restored vide order dated 24.09.2001 but at the same time, purchase tax as detailed in the chart was imposed. 11) Section 28 of the Act of 1994 deals with assessment of turnover escaping assessment which reads as under:- “28. Assessment of Turnover Escaping Assessment- (1) Where an assessment has been made under this Act or the Act repealed by this Act and if for any reason any sale or purchase of goods chargeable to tax under this Act or the Act repealed by this Act during any period, has been under assessed or has escaped assessment or assessed at a lower rate or any deduction has been wrongly made therefrom or a set off has been wrongly allowed, the Commissioner may, at any time within five calendar years from the date of order of assessment after giving the dealer a reasonable opportunity of being heard and after making such enquiry as he considers necessary, proceed in such manner as may be prescribed to reassess within a period of two calendar years from the commencement of such proceedings the tax payable by such dealer and the Commissioner may, where the omission leading to such reassessment is attributable to the dealer, direct that the dealer shall pay by way of penalty in addition to the amount of tax so assessed, a sum not exceeding that amount. (2) The reassessment made under sub-section (I) shall be at the rate at which it would have been made had there been no under assessment or escapement or wrong deduction. (3) If for any reason the licence fee, registration fee or exemption fee has escaped levy or has been charged at a lower rate in any year, the Commissioner may at any time within a period of three calendar years next succeeding that to which such fee relates, levy the correct amount of the fee payable in respect of that year after issuing a notice to the dealer and after making such enquiry as he considers necessary and the Commissioner may direct that the dealer shall pay by way of penalty in addition to the amount of fee so levied a sum equal to that amount.” -12- This Section clearly envisages that where an assessment has been made under this Act for any sale or purchase of goods chargeable to tax under this Act which has escaped assessment or assessed at a lower rate, the Commissioner may within five calendar years from the date of order of assessment after giving the dealer a reasonable opportunity of being heard and after making such inquiry as he considers necessary, may impose tax. According to this Section, there must be an assessment prior to taking any action and second, the dealer must be afforded a reasonable opportunity of hearing being heard and an inquiry should be conducted. 12) In the present case, it is quite vivid from the orders impugned that the petitioner company approached the Assistant Commissioner for restoration of the eligibility certificate by which exemption was granted to the petitioner company from payment of sales tax, the Assistant Commissioner vide order dated 24.09.2001 restored the eligibility certificate but at the same time imposed purchase tax for five years from the period 1992 to 1997 as described in the chart. 13) From the perusal of the orders impugned issued by the Assistant Commissioner, the Additional Commissioner and the Tribunal, it is apparent that no assessment was made before imposing tax, no notice was issued and no opportunity of hearing was afforded to the petitioner before imposing purchase tax. 14) In the matter of Shree B.R. Steels (supra), this Court held that on -13- account of change of opinion, the assessing authority cannot levy entry tax and penalty. In the present case, no inquiry was conducted, no notice was issued to impose purchase tax and in a proceeding, which was initiated for restoration of eligibility certificate, the order for imposition of purchase tax was passed. 15) Taking into consideration the facts and law discussed above, in the opinion of this Court, the authorities have committed an error of law in imposing purchase tax without complying with the provisions of Section 28 of the Act of 1994, therefore, the orders issued by the Assistant Commissioner and affirmed by the Additional Commissioner and the Tribunal are hereby set aside. The matters are remitted back to the Assistant Commissioner to pass order/orders afresh after affording due opportunity of hearing to the petitioner company strictly in accordance with Section 28 of the Act of 1994. 16) With the aforesaid observation(s) and direction(s), these petitions are hereby disposed of. Sd/- (Rakesh Mohan Pandey) Judge Rekha "