1. Both these References under section 34(1) of the Bombay Sales Tax Act, 1953, arise out of order of reassessment made against the Respondents who were registered as dealer under the said Act. The period in respect of which the reassessment in question was made was September 19, 1959 to March 31, 1957.
2. It appears that the Respondents maintained their books of account according to Samvat Year, and according to that calendar the period of reassessment would include apart of S.Y. 2012 and also of S.Y. 2013, the year corresponding to S.Y. 2012 according to the Gregorian Calendar being November 15, 1955 to November 2, 1956 and corresponding to S.Y. 2013 being November 3, 1956 to October 23, 1957. In respect of the period in question the Respondents had filed their returns and in pursuance thereof had been assessed to tax under section 14(3) of the said Act. Against this order of assessment the Respondents filed an appeal. While this appeal was pending, the Enforcement Branch raided the place of business of the Respondents and seized certain books of account for S. Ys. 2018, which books had not been produced by the Respondents in their assessment for the said period of S. Ys. 2014 to 2018. The books produced by them in their assessment proceedings for the said years being a different set, the figures appearing in them did not tally with the figures appearing in the books seized by the Enforcement Branch.
3. Thereupon on March 1, Enforcement, Bombay City Division, issued to the Respondents a notice under Form XIV to the Bombay Sales Tax (Procedure) Rules, 1954, stating that he was satisfied that the sales of the valued of Rs. 2,28,273 and purchases of the value of Rs. 2,14,912 for the period September 19, 1956 to March 31, 1957 had escaped assessment. By the said notice he directed the Respondents to attend in person or by a legal practitioner or an agent authorized in writing to attend at his office at the time and place specified in the said notice and to show cause as to why the amount of tax payable by the Respondents in respect of the said sales and purchases should not be assessed. By the said notice the Respondents were also directed to produce or cause to be produced all their books of account, registers, documents, etc. for S.Y. 2013 as also any other evidence for determining the correct amount of tax payable by them for the said period. Along with the said notice the Assistant Commissioner forwarded to the Respondents his letter dated March 11, 1964 setting out the reasons for arriving at his satisfaction that sales and purchases of the value set out in the said notice had escaped assessment. The Respondents submitted a written reply to the said notice and the said letter as also appeared through advocate at the hearing before the Assistant Commissioner. The Assistant Commissioner rejected all the contentions advanced by the Respondents, and by his order dated June 23, 1966 he reassessed the dealer holding that the sales and purchases of the value set out in the said notice had escaped assessment. Against this order of the Assistant Commissioner the Respondents filed a revision application which was dismissed by the Deputy Commissioner of Sales Tax by his order dated October 7, 1966. Thereupon the Respondents approached the Sales Tax Tribunal in further revision. After the matter was argued for some time before the Regular Bench of the Tribunal, in view of the conflict of decisions given by the Tribunal earlier on the two points urged before it, the Tribunal directed the matter to be placed before a Special Bench, and referred to such Special Bench two questions, namely :-
'(1) Whether the Assistant Commissioner while dealing with the turnover escaping assessment under section 15 of the Bombay Sales Tax Act, 1953 was competent to make a best judgment assessment of the escaped turnover
(2) Where the turnover of sales is estimated according to a best judgment assessment, whether the purchases so estimated or any part thereof could be treated as purchases from registered dealers ?'
4. The Special Bench of the tribunal answered both these questions in the negative. With respect to the first question it held that the authority making an assessment or reassessment of turnover escaping assessment under section 15 of the said Act was entitled to consider only such turnover which had been established on the fresh material before the authority as having escaped assessment and that such authority was not competent to make an estimate of the escaped turnover according to its best judgment. The Special Bench arrived at its decision that the reassessing authority was not competent to make a best judgment assessment on a comparison of the provisions of section 14 and 15 of the said Act and relying upon the judgment of the Andhra Pradesh High Court in State of Andhra Pradesh vs. Ravuri Narsingh, (1965 16 S.T.C. 45, and a judgment of the Full Bench of the Madras High Court in P. S. Subramaniam Chettiar & Sons vs. Joint Commercial Tax Officer III, Dindigul, (1966 18 S.T.C. 357. With respect to the second question, the Tribunal held that it could not be presumed that the purchases were made from registered dealers and that any such claim by the dealer being reassessed had to be proved by him like any other fact. After the papers were sent back to the Regular Bench with the answers given by the Special Bench, following the judgment of the Special Bench that the reassessing authority had no jurisdiction to make a best judgment assessment the Regular Bench by its judgment and order dated August 22, 1966 allowed the Respondent's revision application against it passed by the Deputy Commissioner. Sales Tax Reference No. 47 of 1972 arises out of the judgment and order of the Special Bench of the Tribunal delivered on April 28, 1969 and Sales tax Reference No. 48 of 1972 arises out of the judgment and order of the Special Bench of the Tribunal delivered on August 22, 1969. In both these References the same question has been referred to us. That question is as follows :
'Whether on the facts and in the circumstances of the case, the Assistant Commissioner of Sales Tax or the authority making assessment or reassessment had the power of best judgment assessment while assessing the escaped turnover of the Respondent under Section 15 of the Bombay Sales Tax Act, 1953 ?'
5. Section 14 of the said Act provides for assessment of taxes. Section 15 provides for assessment of turnover which has escaped assessment. For a proper understanding of the question it is necessary to set out the relevant provision of sections 14 and 15 of the said Act. They are as follows :
14. Assessment of taxes. (1) The amount of the tax due from a registered dealer shall be assessed separately for each year during which he is liable to pay the tax :
Provided that when dealer has failed to furnish any return relating to any period in a year by the prescribed date, the Collector may, if he thinks fit, assess the tax due from such dealer separately for different parts of such year :
(2) If the Collector is satisfied without requiring the presence of a dealer or the production by him of any evidence that the returns furnished in respect of any period are correct and complete, he shall assess the amount of the tax due from the dealer on the basis of such returns.
(3)(a) If the Collector is not satisfied without requiring the presence of a dealer who has furnished his return or the production of evidence that the returns furnished in respect of any period are correct and complete, he shall serve on such dealer a notice in the prescribed manner requiring him, on a date and at a place specified therein either to attend in person or to produce or to cause to be produced any evidence on which such dealer may rely in support of such returns or such other evidence a may be specified in such notice.
(b) On the date specified in the notice or as soon afterwards as may be, the Collector shall after considering such evidence as the dealer may produce and such other evidence as the Collector may require on specified points, assess the amount of the tax due from the dealer.
(4) If a dealer having furnished returns in respect of a period fails to comply with the terms of the notice issued under sub-section (3) the Collector shall assess to the best of his judgment the amount of the tax due from the dealer.
(5) If a dealer does not furnish returns in respect of any period by the prescribed date, the Collector shall, after giving the dealer a reasonable opportunity of being heard, assess to the best of his judgment the amount of the tax, if any due from the dealer.
(6) If upon information which has come into his possession the Collector is satisfied that any dealer has been liable to pay the tax in respect of any period but has failed to apply for registration, Collector shall, after giving the dealer a reasonable opportunity of being heard, assess to the best of his judgment the amount of the tax, if any due from the dealer in respect of such period and all subsequent periods.
(7) In cases where the Collector, while making an assessment under sub-section (6), is satisfied that the dealer has wilfully failed to apply for registration, the Collector may direct the dealer to pay by way of penalty, in addition to the amount of the tax assessed under sub-section (6), a sum not exceeding one and half times that amount.
'15. Turnover escaping assessment
(1) If in consequence of any information which has come into his possession the Collector is satisfied that any turnover in respect of sales or purchases of any goods chargeable to tax has escaped assessment in any year or has been under assessed or assessed at a lower rate or any deductions have been wrongly made therefrom, the Collector may in any case where such turnover has escaped assessment or has been under assessed or assessed at a lower rate for the reason that the provision of sub-section (1) of section 2 of the Bombay Sales Tax (Validating Provisions) Act, 1957, were not then enacted at any time, within eight years, and in any case where he has reason to believe that the dealer has concealed the particulars of such sales or purchases or has knowingly furnished incorrect returns, at any time within eight years, and in any other case, at any other time within five years of the end of that year, serve on the dealer liable to pay the tax in respect of such turnover a notice containing all or any of the requirements which may be included in a notice under sub-section (3) of section 14 and may proceed to assess or reassess the amount of the tax due from such dealer and the provisions of this Act shall apply accordingly as if the notice were a notice served under that sub-section.'
It will be noticed that the foundation of jurisdiction to reassess or assess escaped assessment under section 15 of the said Act is the issue of a notice as provided for in section 15(1). The notice which is to be issued under section 15(1) is required by that sub-section to contain 'all or any of the requirements which may be included in a notice under sub-section (3) of section 14'. The requirements set out in section 14 (3) are to require the dealers either to attend in person or to produce or cause to be produced any evidence on which he might rely in support of his returns, or such other evidence as might be specified in the notice. The notice is further to specify the date on which and the place at which the dealer has either to attend or to produce or cause to be produced the evidence specified in the notice, 'The Bombay Sales Tax (Procedure) Rules, 1954, give the forms of a notice to be issued under section 14(3) and a notice to be issued under section 15. The form of a notice under section 14(3) is given in Form appended to the said Rules, while the form of a notice under section 15 is given in For XIV to the said Rules. The notice in Form XIII requires the officer issuing the notice to set out first why the notice is being issued and then to direct the dealer to attend in person or to produce his evidence as also to furnish certain information. Form XIV, which is the form of the notice under section 15, is as follows :
'To..........................................of .......................................Registration No. .........................Whereas I am satisfied that Pound your turnover in respect of thefollowing Pounds sales and purchases, namely :-....................................................................................for the period from .....................................to .................................... has 'escaped assessment/beenunder assessed/been assessed at a lower rate, and Pounds deductionsfor the following Pounds sales and purchases, namely :-....................................................................................have been wrongly made from your turnover for the period from ......to .............................................. You are herebydirected to attend in person or by a legal practitioner or by an agentauthorised in writing at ...........................................(Place)at .......................... on ............................. and(time) (date)to show cause as to why the amount of tax payable by you in respectof the said Pounds sales and purchases for the said period shouldnot be assessed/reassessed and to produce or cause to be producedthe following documents and accounts :-......................................................................................and to furnish the following information :-......................................................................................You may also produce any other evidence for determining the correctamount of tax payable by you for the said period.(Seal)Place ............................ Signature ......................Dated ............................ Designation ....................Pounds Strike out whichever is not required.'
Once a notice under section 15 is issued and served upon the dealer, the reassessing authority acquires the jurisdiction to proceed to assess the escaped turnover or to reassess the dealer. The concluding portion of section 15(1) is important. After setting out what the notice is to contain, namely', all or any of the requirements which may be included in a notice under sub-section (3) of section 14', the sub-section states that and may proceed to assess or reassess the amount of the tax due from such dealer and the provisions of this Act shall apply accordingly as if the notice were a notice served under that sub-section. 'Therefore once a notice in form XV is issued and served upon a dealer, than the procedure which the reassessing authority is to follow is the procedure which it would have been entitled to follow under section 14 had the case of reassessment been a case of an original assessment under section 14.
6. It is obvious that the books of account of a dealer would usually constitute the evidence which a dealer would be called upon to produce in the case of an original assessment. Whether it is a case of an original assessment, or of a reassessment, books of account, if true and correct, usually be such evidence as would satisfy the assessing authority that the returns filed by the dealer are correct and that the turnover on which he is liable to be taxed is the turnover as shown in his returns. The evidence which a dealer is called upon to produce by a notice cannot obviously be false or fabricated evidence or evidence which is unworthy and unreliable. A notice in Form XIV further requires a dealer to show cause why the amount of tax payable by him in respect of the sales and purchases, which are specified in the said notice as having escaped assessment, should not be assessed or reassessed. Now under clause (b) of sub-section (3) of section 14, after giving a hearing to the dealer, the assessing authority, after considering such evidence as the dealer might produce and such other evidence as the assessing authority might require on specified points, is to assess the amount of the tax due from the dealer. This implied that when an assessing authority proceeds under section 14(3) (b) it is satisfied that the evidence produced by the dealer is genuine and true, that his books of account are true and correct and that the returns which he has filed are correct. Under sub-section (4) of section 14 if a dealer who has furnished returns in respect of a period fails to comply with the terms of the notice issued to him under section 14(3), the assessing authority is given the power to assess to the best of his judgment the amount of tax due from such dealer. This postulates that there is a dealer who has already filed returns and has been called upon by notice to attend or to produce or cause to be produced his evidence to satisfy the assessing authority that his returns are correct. Now, if a dealer does not attend or if he does not produce any evidence or evidence which is credible and satisfactory, he cannot be said to have complied with the terms of the notice issued to him. By reason of the concluding portion of section 15(1) we have to read into section 15 all the provisions inter alia of section 14 for the purposes of assessment of escaped turnover. Thus, while assessing the escaped turnover if a reassessing authority is satisfied that the evidence produced by the dealer shows that there is in fact no escaped turnover as the authority had prima facie come to the conclusion that there was, it would not make the order of reassessment but confirm the original assessment. If the dealer to whom a notice in Form XIV is issued fails to comply with any of its terms, the reassessing authority is competent, in exercise of the powers conferred by section 14(4) which are to be read into section 15, to reassess such dealer to the best of its judgment. In such a case a dealer cannot be said to have complied with the terms of the notice if he as not attended or has produced books of account which are not true or are false or has suppressed his books of account which would disclose the true state of affairs. We, therefore, find that the Special Bench of the Tribunal was wrong in the view which it took of the provisions of section 15 of the said Act. According to us, when the facts and circumstances of a case are such as to attract to a reassessment proceeding the powers of the assessing authority under sub-section (4) or (5) or (6) or (7) of section 14, the authority making an assessment under section 15 is entitled to do so to the best of its judgment.
7. We will now turn to the first of the two decisions relied upon by the Special Bench and cited before us by Mr. Surte, learned advocate for the Respondents, namely, the decision of the Andhra Pradesh High Court in State of Andhra Pradesh vs. Ravuri Narsingh (supra). In that case a best judgment assessment was made under the Andhra Pradesh General Sales Tax Act, 1957. The Andhra Pradesh High Court held that the Legislature had confined the power of the Department to assessing such turnover as was shown to have escaped assessment and had not extended it to estimates depending upon inferences to be drawn by the Department from certain circumstances and that it did not clothe the Department with power to make a best judgment assessment. A similar view was taken of the relevant provisions of the Madras General Sales Tax, Act, 1959 by a Full Bench of that court in P. S. Subramaniam Chettier & Sons vs. Joint Commercial Tax Officer III, Dindigul, (supra). The power of an authority assessing escaped turnover came up for consideration of the Supreme Court in C.S.T., M.P. vs. H. M. Esufali H. M. Abdulali 1973 32 STC 77, a case of a best judgment reassessment under section 19 of the Madhya Pradesh General Sales Tax Act, 1958. Section 19 of the Madhya Pradesh Act did not in specific terms confer on an assessing authority the power to make a best judgment assessment. What that section specifically stated was that the assessment made thereunder was a 'reassessment'. Section 18 of the Madhya Pradesh Act, which dealt with original assessments, however conferred a power to make a best judgment assessment upon the assessing authority. It was urged before the Supreme Court that since in the case of a regular assessment the power to make a best judgment was given but it was not given in the section which dealt with a reassessment, the Legislature did not intend to confer such a power upon the authority making a reassessment, but only intended to confer it upon the authority making the assessment. The Supreme Court rejected this contention in the following words (at P. 85);
'What is true of the assessment must also be true of reassessment is nothing but a fresh assessment. When reassessment is made under section 19, the former assessment is completely reopened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assessee him on his total estimated turnover. While making reassessment under section 19, if the assessing authority has no power to make best judgment assessment, all that the assessee need do to escape assessment is to refuse to file a return or refuse to produce his account books. If the contention taken on behalf of the assessee is correct, the assessee can escape his liability to be reassessed by adopting an obstructive attitude. It is difficult to conceive that such could be the position in law.'
In that case in express terms the Supreme Court overrule the decision of the Andhra Pradesh High Court in State of Andhra Pradesh vs. Ravuri Narsingh referred to by us above.
8. Mr. Surte, learned Counsel for the Respondents, urged that the provisions of the Andhra Pradesh and the Madhya Pradesh Acts were different from those of the Bombay Sales Tax Act, 1953, but the position under the Bombay Act is much stronger because the concluding portion of sub-section (1) of section 15, as we have pointed out earlier, expressly confers upon the authority making a reassessment all the powers which the authority making a regular assessment under section 14 possesses, which necessarily means that it also confers upon the reassessing authority the power which the assessing authority possesses of making a best judgment assessment. How these powers are to be exercised has itself been enunciated by the Supreme Court in C.S.T., M.P. vs. H. M. Esufali H. M. Abduali, referred to earlier in which the Supreme Court cited with approval the following classic passage from the judgment of Lord Russell in C.I.T. vs. Laxminarain Badridas, (1937) 5 ITR 170 :
'The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge of previous returns by and assessments of the assessees and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary.'
In this case the Supreme Court also reaffirmed the law relating to best judgment assessment as laid down by it earlier in Raghubar Mandal Harihar Mandal vs. The State of Bihar, 1957 8 STC 770 and cited with approval the following passage from the judgment of S. K. Das, J. in that case :
'No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than suspicion. To use the words of Lord Russell of Killowen again, 'he must make what he honestly believes to be a fair estimate of the proper figure of assessment' and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him arriving at a fair and proper estimate.'
Thus, once a valid notice is issued and once the condition which in a regular assessment would enable the assessing authority to made a best judgment assessment, namely, the conditions set out in sub-section (4), (5), (6) and (7) of section 14 exist, the reassessing authority would be entitled to made a best judgment assessment. We find that the view we have taken on the construction of sections 14 and 15 of the Bombay Sales Tax Act, 1953, has also been taken by a Division Bench of the Gujarat High Court in Jayantilal Thakordas vs. State of Gujarat 1969 23 STC 11. In that case the Gujarat High Court held that under the Bombay Sales Tax Act. 1953, so far as all stages after the issue of the notice under section 15 are concerned, the original assessment proceedings and reassessment proceedings are to stand on the same footing, and in both these proceedings the authority concerned has to follow the same procedure and that therefore, the power to make a best judgment assessment which could be exercised in respect of original assessment could be exercised in respect of reassessment proceedings also.
9. The Tribunal has allowed the revision application of the Respondents only on the legal point raised on behalf of the Respondents before us, namely, that the authority was not competent to make a best judgment in reassessment proceedings, and has not considered the other points raised by the Respondents on the merits. It was also the contention of the Respondents that the conditions which would enable the Assistant Commissioner to make a best judgment assessment did not exist in their case. This point too has not been considered by the Tribunal. What is also referred to us is a question of law in the abstract about the power of a reassessing authority to make a best judgment assessment. These points will therefore all fall to be decided by the Tribunal when it comes to dispose of the case finally after it receives a copy of our judgment.
10. For the reasons set out above, we answer the question referred to us in both these References in the affirmative.
11. The Respondents will pay to the Applicant the costs of both these References quantified in all at Rs. 250.