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Commercial Motors Ltd. v. Commissioner of Trade Tax U.P., Lucknow & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 622-623 of 2015)Decided 11 Sept 2015
Civil Appeal Nos. 622-623 of 2015
Justice Dipak Misra · Justice Prafulla C. Pant

Background

Commercial Motors Ltd., a registered dealer under the U.P. Trade Tax Act dealing in Bajaj scooters, had been granted a tax exemption on certain two-wheeler sales to government employees for the 1990-91 assessment year based on sale certificates it produced. Years later the tax department claimed it had discovered the sales figure was overstated and issued a show-cause notice in 2002 proposing to reopen the assessment under Section 21(2) of the Act. The dealer argued the reopening was time-barred, since it came nearly six years after the end of the assessment year; the High Court disagreed and upheld the department's power to reopen, prompting this appeal.

Decision Breakdown

The Supreme Court held that the amendment extending the limitation period for reassessment (to six years from the end of the assessment year, or 31 March 2002, whichever is later) was only partly retrospective: it was meant to protect the revenue's existing powers within the old eight-year window, not to revive assessments for which the clock had already fully run out before the amendment came into force. Applying this, the Court found the notice issued to the appellant in 2002 fell outside any permissible window and was barred by limitation. It disagreed with the High Court's reliance on the precedent it had followed and held that reading the provision otherwise would make the legislature's own limitation safeguard meaningless. The appeals were allowed, the High Court's judgment was set aside, and the reassessment proceeding itself was quashed as time-barred.

Lesson Learnt

Tax authorities cannot indefinitely reopen old, settled assessments: statutory limitation periods for reassessment exist to protect taxpayers' finality, and an amendment extending such a period generally cannot be read to revive a right to reassess that had already completely lapsed before the amendment took effect.

Official source (sci.gov.in)View Judgment (PDF)

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