THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE N. RAVI SHANKAR W.P. No. 14940 of 2009 Dated. 24-08-2011 Between: M/s. Banyan Enterprises, 8-2-293/82/A/41-A, Road No.5, Jubilee Hills, Hyderabad, Rep., by its Proprietor Mr. Tejaswy Nandury. …Petitioner Vs. The Commercial Tax Officer, Somajiguda Circle, Hyderabad and another. …Respondents THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE N. RAVI SHANKAR W.P.No.14940 of 2009 Dated: 24-08-2011 ORAL ORDER: (Per: GR,J) The petitioner is a registered dealer under the provisions of the Andhra Pradesh Value Added Tax Act, 2005 (for short ‘2005 Act’) and the Central Sales Tax Act, 1956 (for short ‘1956 Act’) and assessed on the file of the 1st respondent. The petitioner is in the business of leasing of movable assets to ICFAI, both within the State as well as in the course of inter-state trade. The petitioner filed its returns for March, 2009 in form VAT 200. After a notice in Form 305A dated 03-04-2008, the 1st respondent passed an order of assessment dated 19-04- 2008 determining the liability of the petitioner both under the provisions of 2005 Act and 1956 Act. Again by the notice dated 08-05-2009, the 1st respondent proposed to re-assess the petitioner’s returns stating that on re-examination of the records furnished by the assessee during the earlier occasion for audit up to December, 2007 and on examination of the records with reference to copies of agreements entered into with the lessee, misclassification of transactions under the provisions of the 2005 Act and purchase of material neither leased nor sold are detected; proposed to assess the under declared tax and called upon the petitioner to show cause. The petitioner lodged its objections on 18- 05-2009 and eventually the 1st respondent passed the impugned order dated 07-07-2009 determining a total liability of Rs.75,31,536-00 including under-declaration of input tax of Rs.42,68,497-00 and under-declaration of output tax of Rs.32,63,039-00. The order impugned of the 1st respondent clearly shows that there was no fresh material on the basis of which re-assessment process was pursued and the order clearly states that on re-examination of the records furnished by the assessee during the earlier occasion of audit up to December, 2007 and with reference to copies of agreements entered into with the lessee, the under- declaration of out put tax and misclassification of transactions under the provisions of 2005 Act, during the year 2006-07, were discerned. The petitioner assails the order of re-assessment purportedly passed under the provisions of Section 21(6) of the 2005 Act on several grounds. For the purpose of adjudicating whether the petitioner is entitled to the relief claimed, i.e., of invalidation of the order of re-assessment, suffice it to consider one contention viz., that the order is vitiated as it is based on ‘no other or fresh material’ apart from the material already on record before the 1st respondent, on the basis of which the initial assessment order dated 19-04-2008, was passed. Section 20 of the 2005 Act sets out provisions relating to ‘Returns and self-assessments’. Under sub- section (1) every registered dealer is required to submit return or returns, along with proof of payment of tax in such manner, within the time, and to such authority as may be prescribed. Sub-section (2) enacts that if a return is filed within the prescribed time and the return so filed is found to be in order, it should be accepted as self- assessment subject to adjustment of any arithmetical error apparent on the face of the said return. Sub-section (3) enables, without prejudice to the powers of the authority prescribed, under sub-section (3) of Section 21, scrutiny of every return, to verify the correctness of calculation, application of correct rate of tax and input tax credit claimed therein and full payment of tax payable for such tax period i.e, verification and scrutiny of the return; clause (b) of sub-section (3) empowers the authority prescribed to issue a notice of demand in the prescribed form for any short payment of tax or for recovery of any excess input tax credit claimed, if any mistake is detected as a result of such scrutiny made under sub-section (3) (a); and sub- section (4) provides that every dealer shall be deemed to have been assessed to tax based on the return filed by him, if no assessment is made within a period of four years from the date of filing of the return. The provisions of Section 20 of the 2005 Act thus enumerate the process of filing of returns; acceptance of returns filed on self- assessment basis; powers of scrutiny of returns filed; and power to issue notice to recover any short payment of tax or for recovery of any excess input tax credit claimed, being powers of the assessing officer. Several sub-sections of Section 21 of the 2005 Act also provide further powers of ‘assessments’ and re- assessment and other house keeping provisions as well. Sub-section (4) of Section 21 of the 2005 Act, which is relevant for our purposes, enables the authority prescribed, based on any information available or on any other basis, to conduct a detailed scrutiny of the accounts of any VAT dealer or TOT dealer and where any assessment as a result of such scrutiny becomes necessary, such assessment to be made within a period of four years from the end of the period for which the assessment is to be made. Sub-section (6) of Section 21 of the 2005 Act, which is the other relevant provision, enables the authority prescribed to re-assess, where an assessment was already made under sub-sections (1) to (5) and such assessment understates the correct tax liability of the dealer, within a period of four years from the date of such assessment. Section 32 inheres the power to revise, modify or set aside any order passed or proceedings recorded by any authority, officer or person subordinate to the Commissioner, Additional Commissioner, Joint Commissioner, Deputy Commissioner or Assistant Commissioner, where such order or proceeding is seen to be prejudicial to the interests of revenue. There are other provisions in Section 32 enjoining a reasonable opportunity to be provided to the assessee where any proposal to revise or modify an order or proceeding. Sub- section (3) of Section 32 enjoins that in relation to an order of assessment to be passed under sub-sections (1) and (2), such power should be exercised only within a period of four years from the date on which the order was served on the dealer/assessee. The order of assessment dated 19-04-2008 passed by the 1st respondent is clearly one referable to exercise of power under Section 21 (4) of the 2005 Act and is susceptible to re-assessment under the provisions of sub- section (6). Such order is also susceptible to exercise of the power to review or modify under Section 32 and by the revisional authority (s) specified in the said provision. On a true and plain construction of the phraseology of Section 21 (6) there appears no inhibition for the authority prescribed i.e, the assessing authority in this case, to reassess the order dated 19-04-2008 which was purportedly passed in exercise of powers under Section 21 (4), in view of the fact that the assessment order dated 19-04-2008 understated the correct tax liability of the petitioner and since the impugned order dated 07-07- 2009 was passed within four years from the earlier order dated 19-04-2008. It is however contended by Sri Bhaskar Reddy Vemireddy, the learned counsel for the petitioner that a substantially similar provision providing for the power of re-assessment, in Section 14 (4) of the Andhra Pradesh General Sales Tax Act, 1957 (for short ‘the 1957 Act’) was interpreted in several decisions of this Court including State of Andhra Pradesh v. Ratna Sree Box Makers[1]; Girdharlal & Company v. State of A.P. (A.P)[2] ; Western India Gunnies Private Ltd., v. State of A.P. (A.P)[3]; Kanakadurga Manure Works v. State of A.P. (A.P)[4] and the power of re-assessment under Section 14 (4) of the 1957 Act was held to be unavailable unless there was a fresh material de hors the material available at the time of the first assessment. I n Western India Gunnies Private Ltd., (3 supra), the following is the ratio underlying the restrictive interpretation of the powers of re- assessment in the context of Section 14 (4) (cc) of the 1957 Act. …Lack of diligence on the part of the assessing authority while passing order of assessment earlier, is no ground to reopen the assessment. What is to be shown is that there was lack of material at the time of first assessment and that is supplemented subsequently which necessitated invoking the jurisdiction under Section 14 (4)(cc). To the same effect of the observations of the learned Division Bench of this Court in Giridharlal & Company (2supra). This Court observed: …The criterion to judge whether there has been a reasonable exercise of power under the said provision is not whether there was lack of diligence but whether there was lack of material at the time of assessment that necessitated exercise of the power. If necessary material was available on record but the assessing authorities had not adverted to relevant aspect due to lack of diligence, it would not afford a ground to the assessing authority or his successor to exercise power under section 14 (4), but if the record did not contain the relevant material which comes to the notice of the authority from other sources after the assessment then it would afford a justifiable ground to exercise power under that section. In other words, for the exercise of power under section 14 (4), reliance should be made not on the material on record but on the material de hors the record which came to the notice of the assessing authority subsequent to the assessment. In short, non-application of mind by the assessing authority to the material on record at the time of assessment, is not a justifiable ground to invoke power under section 14 (4) of the Act. It requires to be noticed that a similar view was taken in an earlier decision in State of Andhra Pradesh v. Kedia Vanaspati (P) Ltd.,[5]. In I.T.Officer, Hyderabad v. Barkat Ali[6], the Supreme Court considering the power to reopen an assessment under Section 147 of the Income Tax Act, 1961 (for short ‘the 1961 Act’) upheld the order of the High Court observing that the Income Tax Officer has no jurisdiction to reopen the assessment since having second thoughts on the same material does not warrant initiation of proceedings under the provisions of the 1961 Act. The provisions of Section 21 (6) of the 2005 Act though not ipsissima verba the provisions of Section 14 (4) of 1957 Act, the powers of re-assessment is conferred in the circumstances in pari materia. In view of the unvarying line of authority and the ratio spelt out by the several decisions of this Court referred to supra, it follows that the power of re-assessment under the provisions of Section 21 (6) of the 2005 Act, cannot be exercised unless material de hors the record on the basis of which an earlier order of assessment was already made in exercise of power under Section 21 (4), is available. Lack of diligence on the part of the assessing authority in passing the initial order of assessment in exercise of powers conferred under Section 21 (4), is no justification for a re-assessment under Section 21 (6). In any event, no serious prejudice is caused to the Revenue on account of the absence of diligence in passing the first order of assessment, since the power to revise or modify is available under Section 32 of the 2005 Act. On the aforesaid analysis, the impugned order of re-assessment dated 07-07-2009 passed by the 1st respondent for the tax period 2006-07; 2007-08 and 2008- 09, passed on no new or fresh material de hors, the record already available while passing the initial order of assessment dated 19-04-2008, is unsustainable and is accordingly quashed. The writ petition is allowed, but in the circumstances without costs. __________________________ JUSTICE GODA RAGHURAM ____________________________ JUSTICE N. RAVI SHANKAR Dated: 24-08-2011 Pvks/* [1] (1989) 75 STC 82 (AP) [2] (1995) 97 STC 442 [3] (2003) 133 STC 14 [4] (2003) 133 STC 147 [5] (1994) 95 STC 208 (A.P.) [6] AIR 1975 SC 703