MONO SYNTH EXTRUSIONS v. STATE OF U P — 1996 DIGILAW 790 (ALL)

A. P. MISRA, J. Since common questions are raised and similar argument has been advanced, the present petitions are being disposed of by a common judgment. 2. Writ Petition Nos. 1118 of 1994 and 601 of 1995 challenge the proceedings under section 21 of the U. P. Sales (Trade) Tax Act and Writ Petition No. 106 of 1995 challenges the proceedings under section 10b of the said Act. In all these cases the assessing authority has taxed the commodity "nylon mono filament" under the entry : " Yarn of all kinds except those covered by any other notification". at the rate of 2 per cent. But issuance of notice under the aforesaid provision is founded on the basis of the decision of the learned single Judge in the case of Ganga Devi Agencies v. Commissioner of Sales Tax STI 1994 All. 212 wherein the commodity was held taxable as unclassified item. 3. For the petitioners contention is, the said decision cannot be an authority to treat the said commodity as unclassified as the said decision was arrived in the absence of any evidence adduced by the dealer, viz. , mono filament is of the technical specifications mentioned in the instructions of the Central Board of Customs and Central Excise, assessed to excise duty and in the absence of even argument that the mono filament in question is capable of use as yarn for manufacturing fabric or it being used for that purpose. Further no material to prove that the commodity in question is only treated as yarn was brought to the notice, before any of the authorities including the High Court. Relevant portion is quoted hereunder : " 5. In the present case the commodity in question is known as mono filament Admittedly the dealers customers are using it for the manufacture of shaving brushes. No evidence has been adduced during the proceedings that this mono filament is of the technical specifications mentioned in the instructions of the Central Board of Customs and Central Excise or it was being assessed to excise duty in the hands of the manufacturer as yarn. It was not even argued that the mono filament in question is capable of being used as yarn for manufacturing of fabrics or it is actually being used for that purpose anywhere else. . . . . . . . . It was not even argued that the mono filament in question is capable of being used as yarn for manufacturing of fabrics or it is actually being used for that purpose anywhere else. . . . . . . . . No material to prove this was brought to my notice and does not seem to have been produced before any of the authorities below. " 4. Repelling this preliminary objection of the respondents is to go before the authorities and show cause, it is contended the decision of the learned single Judge (Ganga Devi Agencies v. Commissioner of Sales Tax STI 1994 All. 21), declaring the said commodity, though in the absence of material placed by the dealer by upholding the decision of the Tribunal as taxable as an unclassified item, unless this is clarified by this Court the authorities will be bound. 5. From the aforesaid quoted passage in the case of Ganga Devi Agencies STI 1994 All 212, it is clear that the said decision was arrived at in the absence of material placed by the dealer not only before this Court but even before any of the statutory authority under the Act. This Court in that decision further recorded, while concluding : ". . . . . . . . . . In my view therefore, in the absence of any material to show that the article in question is either capable of being used as yarn or is known as such in the trade or commercial circles, it is not possible to accept the same as yarn simply because it has a similar appearance. " 6. The said decision is a decision applicable to that case to that dealer but would not be applicable, if other dealers come forward and show that the said commodity is spun strand and primarily used in weaving, knitting or rope-making by placing relevant evidence to substantiate. Hence, we have no hesitation to make it clear that this decision will not come in the way of the various authorities created under the aforesaid Act to come to a conclusion different from what it was held in the case, in case any dealer puts forward the relevant material as aforesaid. 7. Hence, we have no hesitation to make it clear that this decision will not come in the way of the various authorities created under the aforesaid Act to come to a conclusion different from what it was held in the case, in case any dealer puts forward the relevant material as aforesaid. 7. Next question raised for the petitioners is, in all these petitions the only cause of these impugned various notices under the aforesaid two provisions, for the various assessment years in question, is the decision of Ganga Devi Agencies STI 1994 All. 212. The contention is, in all these cases assessing authority has thoroughly scrutinised in detail the case of the petitioners and come to the conclusion that the commodity in question falls under the entry yarn of all kinds as aforesaid. Learned Standing Counsel submits, once notice is issued validly to be within jurisdiction, it is open to the authorities to scrutinise and conclude on the basis of material on record. Further notice need not disclose any reason. The power under section 10-B is wide enough and even under restricted powers under section 21, the power is merely "reason to believe". Reliance is placed on Commissioner of Sales Tax v. Bhagwan Industries (P.) Ltd. (1973) 31 STC 293 SC); AIR 1973 SC 370 : ". . . . . . . . . . . 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. 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. " 8. This case holds "reason to believe" must be based on some rational basis based on some relevant ground and material that it is germane to the formation of belief regarding escaped assessment and such has a nexus with the formation of belief. Thus, the existence of relevant material and formation of the opinion of the assessing authority based on reasons to believe would give him jurisdiction to issue notice. Not an arbitrary exercise of discretion. 9. A. L. A. Firm v. Commissioner of Income-tax [1991] 189 ITR 285 (SC); 1991 UPTC 918 (SC) : This was a case under section 147 (b) of the Income-tax Act, 1961 : ". . . . . . . . . . . . . . This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on information in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of. . . . . . . . . . on further research into law, he finds that there was a direct section holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147 (b ). . . . . . . . " 10. . . . . . . . . . on further research into law, he finds that there was a direct section holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147 (b ). . . . . . . . " 10. Kalpana Kala Kendra v. Sales Tax Officer [1989] 75 STC 198 (All.); 1989 UPTC All. 597 : " Section 21, U. P. Sales Tax Act, 1948 - Notice under - Condition precedent for - Reason to believe - Opinion to be formed objectively - Constitution of India, 1950, Article 226. " 11. Sales Tax Officer v. Uttareswari Rice Mills [1972] 30 STC 567 (SC) : This was strongly relied on by the State Counsel. This is a case under section 12 (8) of the Orissa Sales Tax Act. It held : " There is nothing in the language of section 12 (8) of the Orissa Sales Tax Act, 1947, which either expressly or by necessary implication postulates the recording of reasons for initiating reassessment proceedings in the notice which is issued to the dealer under that section. A notice issued under section 12 (8) is not invalid because the reasons which led to the issue of the notice are not mentioned in it. " 12. The language under section 1 (8) of the Orissa Act is "if for any reason" and not "if the sales tax authority has reason to believe" as in the U. P. Sales Tax Act. 13. However, the present case is not of no-disclosure of reasons but reason specifically disclosed. The power of assessing authority to reopen assessment under section 21 should be based on some material which must be having some nexus with the reason to believe. Even if reasons are not recorded in the notice the respondent-authority can issue on the basis of such material which would constitute a ground for reasons to believe of escaped assessment either on facts or law. But where reason to believe is disclosed, as in the present case, then jurisdiction to issue notice is tested on such disclosure. To sustain this material should be such which has direct nexus with the reason to believe and rationale of escaped assessment. In the resent case only reasons to believe disclosed is the case of Ganga Devi Agencies STI 1994 All. 212. To sustain this material should be such which has direct nexus with the reason to believe and rationale of escaped assessment. In the resent case only reasons to believe disclosed is the case of Ganga Devi Agencies STI 1994 All. 212. As we have observed and clarified, the said decision was based since the dealer did not place any material before the authorities. This decision would not be of any binding effect on the various statutory authorities under the Act while dealing with cases of dealers, who place materials to substantiate their claim of the commodity falling within the entry "yarn of all Kinds". It is significant, this Court in that decision merely upheld the decision of the Sales Tax Tribunal, as it found dealer did not substantiate his claim by adducing any material. 14. It is admitted that the present case is not one as of Ganga Devi Agencies STI 1994 All. 212, as no material was placed to substantiate dealers claim. On the contrary it has been positively asserted for the dealer that specific evidence in details was led to show it to be a commodity of spun strand and used in weaving, knitting or rope-making with specific reference to the Supreme court decision in CST v. Sarin Textiles Mills [1971] 27 STC 228 (All.); 1975 UPTC 429, on which strong reliance is placed by the State. Hence notice could not be enlarged to this part as then it would constitute to be a case of change of opinion also making the impugned notice under section 21 without jurisdiction. 15. Exercise of wider power of the authorities either under section 10-B (Revisional) or appellate under sections 9 and 10 or restricted power under section 21 of the Act each has to stand to the scrutiny of its validity. Scrutiny may be either by the higher authorities under the statute or by this Court under article 226. In given case this Court may quash mere show cause notice, where it lacks the jurisdiction to issue or may not interfere with it as dealer by showing cause satisfy the authorities to withdraw its notice. Scrutiny may be either by the higher authorities under the statute or by this Court under article 226. In given case this Court may quash mere show cause notice, where it lacks the jurisdiction to issue or may not interfere with it as dealer by showing cause satisfy the authorities to withdraw its notice. There may be a case, on account of any decision of this Court, the authorities being bound by it, have to reassess and revise an order, and in such cases showing cause may be mere empty formality unless this Court explains, clarifies or sets aside its earlier decision. In such cases which would be very rare class, notwithstanding show cause not having jurisdictional error or otherwise valid notice as in cases of section 10-B, this Court will not hesitate to interfere, in case its earlier decision is to be corrected or explained being inevitable. 16. The present case falls under this last category. Both notices under section 21 or 10-B are based solely on the earlier decision of this Court. Showing cause in such cases and it result is known. The authorities will be well within their bounds to revise or reassess a dealer according to the law as laid done which escaped assessment. But in a case, as in the present case, where a case is made out requiring earlier decision to be explained or corrected it would be futility to send a dealer to go to show cause. Showing cause is a normal rule, not to shown cause an exception. This case an exception is carved out. Showing cause is a mere formality, and since earlier decision requires explanation/clarification which we did, we have not directed the petitioners to go and show cause. 17. It is urged by learned Standing Counsel though notices were issued with reference to the case of Ganga Devi Agencies STI 1994 All. 212, but once it was issued may be on one material may reassess on some other material, and could not be limited to the specific reason disclosed therein. Even to test this, this Court directed respondents as assessment orders were passed to place the assessment order passed before this Court, to check whether while reassessing the assessing authority has found something more than the case of Ganga Devi Agencies STI 1994 All. 212. Even to test this, this Court directed respondents as assessment orders were passed to place the assessment order passed before this Court, to check whether while reassessing the assessing authority has found something more than the case of Ganga Devi Agencies STI 1994 All. 212. From the perusal of the assessment orders we find they merely followed the decision of Ganga Devi Agencies STI 1994 All. 212 to tax the commodity as the unclassified and not more than. This reinforces the fact that notices were issued and orders are passed solely on the basis of decision of this Court earlier. Thus the last contention on behalf of respondents has no merits. 18. In such cases it would be futile to send a dealer either before the appellate or revisional authorities under the Act. 19. Accordingly, all the petitions are allowed. Orders passed in proceedings as a consequence of the impugned notices under section 21/10b of the Act are hereby quashed. Where the notice or proceedings are still pending and no order is yet passed, such impugned notices under section 21/10b of the Act are quashed. This is without prejudice to the right of the respondents if any, to proceed against the petitioners in accordance with law. Petitions allowed. .