Allahabad High Court: Res Judicata Does not Apply To Tax Matters, Doctrine of Finality Prevails Unless There Is A There Is Marked Change

Allahabad High Court: Res Judicata Does not Apply To Tax Matters, Doctrine of Finality Prevails Unless There Is A There Is Marked Change

The Allahabad High Court ruled that the principle of res judicata does not extend across assessment years. The Court highlighted that the tax department cannot alter its position concerning the same assessee for different assessment years unless a significant change is evident from one year to the next.

Based on the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. v. Union of India , Justice Shekhar B. Saraf highlighted that while the principles of res judicata may not directly apply to taxation matters across different assessment years, the doctrine of finality is crucial. He emphasized that unless there is a significant change from one assessment year to another, the department should maintain consistency and refrain from adopting a different position.

The assessee, is a company registered under the Uttar Pradesh Value Added Tax Act 2008 (UPVAT) and the UP Tax on Entry of Goods Act 2007, procures absorbent craft paper from sources both within and outside the state of Uttar Pradesh. This paper is utilized in the manufacturing process of coated abrasive sheets.

Section 4 of the UP Tax on Entry of Goods Act serves as a charging section, outlining the imposition of entry tax on goods listed in the schedule upon their entry into a local area, intended for consumption, use, or sale within that area.

For the assessment year 2011–12, the assessee procured craft paper amounting to Rs. 3,81,31,268/- from within the state of Uttar Pradesh and Rs. 2,17,29,214/- from outside the state. Notification No. 104 dated 15.01.09 stipulates the imposition of entry tax at a rate of 2% on craft paper intended for writing, printing, and packing. However, no entry tax is applicable to paper not utilized for writing, printing, or packing within the local area.

The assessing authority imposed an entry tax on the assessee for craft paper purchases totaling ₹5,98,60,482/- from outside the local area. The entry tax levied amounted to Rs. 7,62,625/- and Rs. 4,34,584/- for craft paper purchased from within and outside the state of Uttar Pradesh, respectively, totaling Rs. 11,97,209/-. The assessee contended that this assessment order for the year 2011–12 contradicted the decision of the Tribunal in the assessee's case for the assessment year 2010–11.

The first appellate authority dismissed the appeal filed by the assessee. The Commercial Tax Tribunal, in rejecting the appeal, asserted that entry tax is applicable solely based on the entry of goods and that subsequent utilization is irrelevant. The tribunal emphasized that the assessee had already remitted entry tax to the dealers and sellers outside the local area (within UP) amounting to Rs. 7,32,206/- for the purchase of Kraft paper. The tribunal concluded that the assessee cannot contest its liability for entry tax on the acquisition of Kraft paper from outside the state of Uttar Pradesh.

The counsel representing the revisionist argued that, on identical facts for the preceding assessment year 2010–11, the Tribunal ruled in favor of the applicant. 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, as it was used for the purpose of manufacturing abrasive and not for writing, printing, or packing purposes.

The Court affirmed that the principles of res judicata typically do not apply in tax matters between different assessment years. It emphasized that, in accordance with the doctrine of finality, the department is generally precluded from altering its position between assessment years unless there is a significant change in circumstances.

The High Court cited the case of Bharat Sanchar Nigam Ltd. v. Union of India, where the Supreme Court held that in tax matters, courts generally follow earlier decisions as precedent, unless there are new grounds or significant changes in facts. This adherence to precedent is not based on the principle of res judicata but on the theory of precedent itself. When the facts and laws remain unchanged in subsequent assessment years, no authority, whether quasi-judicial or judicial, should depart from the earlier decision. However, exceptions exist, such as when the earlier decision can be distinguished or when it was made per incuriam. These exceptions typically apply to a coordinate bench, which may refer the matter to a bench of superior strength or jurisdiction if it is unable to apply these exceptions.

The Court noted that the same issue had been decided in favour of the assessee for the assessment year 2010–11, and this decision was upheld by the High Court. It was further observed that the decision in favour of the assessee was never contested or challenged by the department.

The Court held that since no new facts have emerged in the present case and considering the previous decision in favour of the assessee for the assessment year 2010–11, the question of law is to be decided in favour of the assessee in the current case as well. As a result, the revision petition filed by the assessee was allowed. The court also directed any amount deposited by the assessee to be returned to the assessee within a period of six weeks from the date of the order.

Case Title: M/S John Oakey And Mohan Limited v. The Commissioner Commercial Taxes U.P.Lucknow