UPVAT | Computation Of Correct ITC Be Examined By Assessing Authority Not Later Than Stage Of Making Regular Assessment Order: Allahabad High Court

The Allahabad High Court has held that computation of correct input tax credit can only be done till the passing of the regular assessment order by the Assessing Authority and not at a later stage. The Court held that reverse input tax credit is neither a 'rate of tax' nor a 'turnover' which can be subjected to reassessment under Section 29 of the Uttar Pradesh Value Added Tax Act, 2008.Section 29 of the UPVAT Act empowers the Assessing Authority to initiate reassessment proceedings against an assesee if there is “reason to believe” that whole or part of the turnover has escaped assessment or has been assessed to tax at a lower rate than prescribed or if deductions and exemptions have been wrongly allowed. The bench comprising of Justice Saumitra Dayal Singh and Justice Donadi Ramesh held that “ITC did not arise as a "rate" applied to "turnover". It was an "allowance" created/arising upon fulfillment of statutory conditions. If those conditions were not fulfilled, RITC could be done, under Section 14 of the Act and also in the course of regular assessment - for reason of that power specifically vested by the legislature. No such power/jurisdiction has been vested under Section 29(1) of the Act to assume jurisdiction to initiate reassessment proceedings to redetermine ITC or to RITC.”Factual BackgroundPetitioner is a manufacturer of 'Mentha Oil' and made purchases of various raw materials to manufacture 'Mentha Oil'. Petitioner had claimed input tax credit on the purchases made which were examined by the Assessing Authority. Vide the assessment order, the Assessing Officer disallowed ITC claim to the extent of Rs. 3,24,456/- on grounds of purchases being made from unregistered dealers. ITC claim of Rs. 6,64,75,453/- was allowed. After the assessment order had finality, petitioner was issued a notice under Section 29(7) of the UPVAT Act proposing to grant permission to reassess the petitioner for assessment year 2014-15 by extending the period of limitation. Rejecting the objections filed by the petitioner, permission was granted on 18.3.2023. Notice for reassessment was issued on 22.3.2023 and thereafter, assessment order was passed on 28.3.2023.Counsel for petitioner argued that since ITC was claimed under Section 13 of the UPVAT Act, any measure to reverse ITC claimed ought to have been taken under Section 14 of the Act. It was argued the jurisdiction to reverse the claim of Rs. 6,64,75,453/- was only during the relevant tax period which ended on 31.03.2015 and no proceedings could be initiated 8 years after expiry of limitation. Further, it was argued that reassessment under Section 29 of the UPVAT Act only relates to escapement of turnover and ITC does not pertain to determination of turnover on sale or purchase. Since the petitioner was not liable to tax on 'turnover of purchase', it was argued that the proceedings were without jurisdiction. It was also argued that the proceedings were concluded in great haste by the Assessing Officer without giving any real opportunity to the petitioner. Counsel for revenue argued that ITC was a tax and thus proceedings for reassessment were valid for wrongfully availing ITC. High Court VerdictThe Court observed that the proceedings were being conducted in great haste with only 2 days' time being given to the petitioner for replying to the reassessment proceedings which was inadequate. The Court observed that while the Assessing Authority took three days' time to form the issues in the notice for reassessment, however, only 2 days' time was given to the petitioner to reply and the reassessment proceedings were closed on the first day of hearing itself with the assessment order being passed the following day. “Such a procedure adopted by the assessing authority dilutes the trust that a tax-payer/citizen may place in the rule of law being observed by the statutory authorities. Even if it were a case of a tax evader, the rule of law would, by its very stature and basic requirement, commend to all quasi-judicial authorities including the assessing authority, to conduct their proceedings in a manner that may be fair and therefore inspire confidence in the noticee, irrespective of a his status - whether an honest tax-payer or a tax evader.”The Court held that ITC is not part of determination of turnover or tax liability but an allowance that arises to certain dealers in the prescribed manner, upon fulfillment of specified circumstances under the Act. The Court observed that ITC is different from tax as ITC claimed can be corrected at the instance of the assessee as well as the assessing officer and once the amount is crystallized, any allowance which has been created can be adjusted against the gross tax liabilities of the assesee. The Court held that legislative intent was not to include ITC as 'turnover of sale' or 'turnover of purchase' of goods as the computation of ITC crystalizes during the regular assessment proceedings. The Court observed that Sections 25, 26, 27...

UPVAT | Computation Of Correct ITC Be Examined By Assessing Authority Not Later Than Stage Of Making Regular Assessment Order: Allahabad High Court

Upasna Agrawal

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