Res-Judicata Does Not Apply In Tax Matters, But Doctrine Of Finality Applies Unless There Is Marked Change: Allahabad High Court

The Allahabad High Court has held that the principle of res-judicata does not apply from one assessment year to another. However, the Court held that the Department cannot be allowed to change its stance for the same assesee for different assessment years, unless there is a marked change from one year to another.

Relying on the decision of the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India, Justice Shekhar B. Saraf held that

“One may of course keep in mind that in taxation matters, the principles of res-judicata do not apply squarely for one assessment year to the other. However, keeping in mind the doctrine of finality, unless there is a marked change from one assessment year to the other, the department cannot be allowed to take a different stand.“

Factual Background

Assesee is a company registered under the UPVAT Act and UP Tax on Entry of Goods Act, 2007. The assesee purchases absorbent craft paper from outside the local area both from within and outside the state of UP and uses it in manufacturing of coated abrasive sheet only.

Section 4 of the UP Tax on Entry of Goods Act is a charging section which provides for the levy of entry tax on the entry of goods specified in the schedule, into a local area, for consumption, use or sale therein.

For assessment year 2011-12, assesee purchased craft paper of Rs. 3,81,31,268/- and Rs. 2,17,29,214/- from within and outside the state of UP respectively. By notification No.104 dated 15.1.09, entry tax has been levied on the craft paper meant for writing, printing and packing at the rate of 2%. However, no entry tax was leviable on the paper which is not used for writing printing or packing within the local area.

The assessing authority-imposed levy of entry tax upon the assesee on craft paper purchased by it of ₹5,98,60,482/- from outside the local area and has imposed the entry tax of Rs. 7,62,625/- and Rs. 4,34,584/- upon the craft paper purchased from within and outside the state of UP respectively, totalling to rupees 11,97,209/-. Assesee argued that this assessment order for 2011-12 was contrary to the view of the Tribunal in case of the assesee for assessment year 2010-11.

The first appellate authority dismissed the appeal filed by the assesee. While dismissing the appeal of the assesee, the Commercial Tax Tribunal held that entry tax is leviable on mere entry of goods and its subsequent usage is immaterial. It has been further held that the applicant has itself deposited entry tax with the dealers/sellers outside the local area [within UP] of Rs. 7,32,206/-, on the purchase of Kraft paper. It was held that assesee cannot dispute it's liability of entry tax on purchase of Kraft paper made from outside the state of UP.

Counsel for assesee-revisionist argued that on identical facts for the preceding assessment year 2010-11, the Tribunal held in favour of the assesee. The said order of the Tribunal was challenged by the department before the High Court in revision which was dismissed. It was held that no entry tax would be payable on the Kraft paper purchased by the applicant from outside the local area which has been used for the purpose of manufacturing abrasive and not being used for the purposes of writing, printing or packing.

High Court Verdict

The Court held that ordinarily principles of res-judicata does not apply in tax matters from one assessment year to another. The Court held that keeping in mind the doctrine of finality the Department cannot change its stance from one assessment year to another unless there is a marked change.

The Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India held that

“The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why court have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether qushi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision in per-incuriam. However, these are fetters only on a co- ordinate bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter a Bench of superior strength or in some cases to a Bench of superior jurisdiction.”

The Court observed that the same issue had been decided in favour of the assesee for assessment year 2010-11 and was upheld by the High Court. It was observed that this decision in favour of the assesee was never challenged by the Department.

The Court held that since no new questions of fact had emerged, the question of law was to be decided in favour of the assesee. Accordingly, the revision filed by the assesee was allowed.

Case Title: M/S John Oakey And Mohan Limited vs. The Commissioner Commercial Taxes U.P. Lucknow 2024 LiveLaw (AB) 91 [ SALES/TRADE TAX REVISION No. - 206 of 2022]

Case Citation: 2024 LiveLaw (AB) 91

Counsel for Revisionist: Shubham Agrawal

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