Res judicata not to apply in tax cases – HC

The Allahabad High Court ruled that the principle of res judicata does not apply across different assessment years in tax matters. However, it held that the tax department cannot change its stance for the same assessee across different assessment years without a marked change in circumstances. Justice Shekhar B. Saraf, relying on the Supreme Court’s decision in Bharat Sanchar Nigam Ltd. v. Union of India, stated that while taxation matters do not strictly adhere to the principles of res judicata between assessment years, the department cannot alter its position unless there is a significant change.

Factual Background:

The assessee, a company registered under the UPVAT Act and UP Tax on Entry of Goods Act, 2007, purchased absorbent craft paper from both within and outside the state of UP for manufacturing coated abrasive sheets. The UP Tax on Entry of Goods Act imposes entry tax on specified goods entering a local area for consumption, use, or sale. In the assessment year 2011-12, the assessee purchased craft paper from within and outside UP, and the assessing authority imposed entry tax on the purchases from outside the local area. The assessee contended that this assessment contradicted the Tribunal’s decision for the previous assessment year.

High Court Verdict:

The High Court held that while res judicata principles don’t strictly apply between assessment years in tax matters, the tax department cannot change its stance without a marked change in circumstances. Referring to the Supreme Court’s decision, the Court emphasized the importance of consistency in taxation matters unless new grounds or a material change in facts emerge. Since the issue had been decided in favor of the assessee for the preceding assessment year and was upheld by the High Court without challenge, the Court ruled in favor of the assessee and allowed the revision filed by them.