M/S Bundelkhand Health Care Thru Its Prop. B. Porwal vs. State Of U.P. And 3 Others

Facts

The petitioner, M/s Bundelkhand Health Care, challenged reassessment proceedings initiated by the respondent-3, which reopened the assessment for the year 2009-10 under the UPVAT Act. The petitioner, a distributor of products including Harpic and Mortein coil, had paid tax at 4-5% on these items, classifying them as pesticides under Schedule-II, Part A, Entry 20 of the UPVAT Act. The reassessment sought to tax these goods at 12.5% under Schedule V, treating them as not specifically mentioned in other schedules. The impugned order dated 24.11.2017 granted permission to extend the period of limitation for these reassessment proceedings.

Held

The Court allowed the writ petition, quashing the impugned order dated 24.11.2017. The Court held that the reassessment proceedings initiated under Section 29(7) of the UPVAT Act were not sustainable as they were based on a mere change of opinion by the assessing authority, without any new material being brought on record. The Court relied on the Supreme Court's judgments in State of U.P. Vs. Arayaverth Chawal Udyog Limited and this Court's decision in Varun Beverages Ltd. Vs. State of U.P. & Others, which clearly state that reassessment is not permissible on a change of opinion or if the original assessment involved a conscious application of mind to the available material. Regarding the classification of goods, the Court found no new material presented by the respondents to justify classifying Harpic and Mortein Coil under Schedule-V at a higher tax rate. On the contrary, based on the principles laid down by the Supreme Court, other High Courts, and this Court, the goods in question were squarely covered under Entry 20, Part-A of Schedule-II of the UPVAT Act. Therefore, the reassessment proceedings were deemed invalid.

Key Issues

1. Whether the reassessment proceedings initiated under Section 29(7) of the UPVAT Act are valid when based on a mere change of opinion by the assessing authority, without new material, thereby violating the principles laid down in State of U.P. Vs. Arayaverth Chawal Udyog Limited and Varun Beverages Ltd. Vs. State of U.P. & Others? 2. Whether Harpic and Mortein coil are correctly classifiable under Schedule-II, Part A, Entry 20 of the UPVAT Act at a tax rate of 4-5%, or should they be taxed at 12.5% under Schedule V as contended by the revenue? Petitioner's Arguments: The petitioner argued that reassessment proceedings are impermissible on a mere change of opinion, citing the Supreme Court's decision in State of U.P. Vs. Arayaverth Chawal Udyog Limited, which held that discovery of an inadvertent mistake or non-application of mind is not a justifiable ground for re-initiating proceedings. They further contended that Harpic and Mortein coil are disinfectants and pesticides, correctly classified under Schedule-II, Part A, Entry 20 of the UPVAT Act, supported by expert reports from the Indian Institute of Chemical Technology and their classification as 'drugs' under the Drugs and Cosmetics Act, 1940. They relied on the Ponds India Ltd. case for the importance of expert reports. Respondent's Arguments: The respondent argued that the original assessment order was passed without application of mind and that the goods in question were not specifically mentioned in the taxing schedules, thus necessitating taxation at 12.5% under Schedule V. They contended that the assessing authority had incorrectly allowed the claim at 4%, leading to under-assessment.