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H.M. Esufali, H.M. Abdulali Siyagunj Vs. Commissioner of Sales Tax, M.P., Indore - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Civil Case No. 84 of 1968
Judge
Reported inAIR1969MP134; 1969MPLJ228; [1969]24STC1(MP)
ActsMadhya Pradesh General Sales Tax Act, 1958 - Sections 19 and 19(1); Madhya Pradesh General Sales Tax Rules, 1959 - Rule 33(1)(2); Evidence Act, 1872 - Sections 3; Central Sales Tax Act, 1956 - Sections 9 and 9(3); Madhya Pradesh Sales Tax (Central) Rules, 1957 - Rule 12
AppellantH.M. Esufali, H.M. Abdulali Siyagunj
RespondentCommissioner of Sales Tax, M.P., Indore
Appellant AdvocateM. Adhikari and ;A.S. Usmani, Advs.
Respondent AdvocateK.P. Munshi, Govt. Adv.
Cases ReferredCommissioner of Sales Tax v. Kantilal Mohanlal and Brothers
Excerpt:
.....act or whether revision of the assessment should be confined to the quantum of proved or admitted escaped turnover? 31,171.28. these sales had not been entered in the assessee's account books which were produced before the sales tax authorities when assessments under the two acts were made for the period from 1st november 1959 to 20th october 1960. 3. the sales tax officer, indore, therefore issued notices to the assessee under section 19 (1) of the local act for assessment under the local act as well as under the central act of the escaped turnover for the period from 1st november 1959 to 20th october 1960. the notices mentioned that a turnover of rs. thereupon, the assessee preferred appeals before the board of revenue (sales tax tribunal). the board of revenue upheld estimates of..........basis of the undisputed escape in the amount of rupees 31,171.28 by adopting the said amount of escaped turnover as the measure for determining the quantum of enhancement for the whole year was illegal, unjustified or excessive? 2. whether a best judgment assessment could at all be made under section 19 (1) of the act or whether revision of the assessment should be confined to the quantum of proved or admitted escaped turnover? 3. if the answer to the previous question is that the revision in the assessment should be confined only to the quantum of proved or admitted escape in turnover was the penalty of rs. 2,000/-imposed on the footing of the revision of the assessment for the whole year legal and justified?' the question which has been referred to us for decision at the instance of.....
Judgment:

Dixit, C.J.

1. In this consolidated reference under Section 44 of the Madhya Pradesh General Sales Tax Act, 1958, the questions which have been stated for our decision at the instance of the assessee are:

'1. Whether an the facts and circumstances of the case the revised assessment enhancing the taxable turnover under the State Law by Rs. 2,50,000/- and the taxable turnover under the Central Law by Rs. 1,00,000/- on the basis of the undisputed escape in the amount of Rupees 31,171.28 by adopting the said amount of escaped turnover as the measure for determining the quantum of enhancement for the whole year was illegal, unjustified or excessive?

2. Whether a best judgment assessment could at all be made under Section 19 (1) of the Act or whether revision of the assessment should be confined to the quantum of proved or admitted escaped turnover?

3. If the answer to the previous question is that the revision in the assessment should be confined only to the quantum of proved or admitted escape in turnover was the penalty of Rs. 2,000/-imposed on the footing of the revision of the assessment for the whole year legal and justified?'

The question which has been referred to us for decision at the instance of the Commissioner of Sales Tax is:

'Whether on the facts and circumstances of the case the imposition of a penalty under Section 19 (1) of the Madhya Pradesh General Sales Tax Act, 1958, read with Section 9(3) of the Central Sales Tax Act was not legal?'

2. The material facts are that the assessee M/s. H.M. Esufali, H.M. Abdulali is a registered dealer engaged in the business of sale of iron and steel. For the period from 1st November 1959 to 20th October 1960 the assessee's taxable turnover under the Madhya Pradesh General Sales Tax Act, 1958 (hereinafter referred to as the local Act) was determined at Rs. 1,21,567/- and a tax of Rs. 3743.34 was levied. The assessee's taxable turnover for the same period under the Central Sales Tax Act, 1956 (hereinafter referred to as the Central Act) was determined at Rs. 22,916/- and the assessee was held liable to pay a tax of Rupees 252.04 under the Central Act. The assessee did not prefer any appeals against these orders of assessment. Several months after the assessment orders were made, the Flying Squad of the Sales Tax Department 'raided' the business premises of the assessee and found a bill-book for the period from 1st September 1960 to 19th September 1960 showing that during this period the assessee had effected sales of the value of Rs. 31,171.28. These sales had not been entered in the assessee's account books which were produced before the sales tax authorities when assessments under the two Acts were made for the period from 1st November 1959 to 20th October 1960.

3. The Sales Tax Officer, Indore, therefore issued notices to the assessee under Section 19 (1) of the local Act for assessment under the local Act as well as under the Central Act of the escaped turnover for the period from 1st November 1959 to 20th October 1960. The notices mentioned that a turnover of Rs. 2,50,000/- escaped assessment under the local Act and a turnover of Rs. 1,00,000/- escaped assessment under the Central Act. The assessee was also called upon toshow cause why penalty should not be imposed on it for suppressing the escaped turnover. In response to these notices the assessee gave an explanation saying that the bill-book discovered by the Flying Squad did not pertain to its business and the sales entered in the bill-book had not been effected by it. It was also said that the estimates of escaped assessment made by the Department were excessive and arbitrary.

4. After hearing the assessee the Sales Tax Officer determined the escaped turnover of the assessee under the local Act at Rs. 2,50,000/- and imposed a tax of Rs. 6000/-. The escaped turnover under the Central Act was determined at Rs. 1,00,000/- and a tax of Rs. 4500/- was assessed under that Act. A penalty of Rs. 2000/- was imposed on the assessee under the State Act and a penalty of Rs. 1500/- was imposed under the Central Act.

The assessee then preferred appeals before the Appellate Assistant Commissioner of Sales Tax, Indore, which were dismissed. Thereupon, the assessee preferred appeals before the Board of Revenue (Sales Tax Tribunal). The Board of Revenue upheld estimates of escaped assessment under the two Acts made by the Sales Tax Officer, It, however, took the view that the imposition of penalty under the Central Act was illegal inasmuch as a penalty under that Act could be imposed only under Rule 12 of the Madhya Pradesh Sales Tax (Central) Rules, 1957, for a breach of any of the rules and the Department had failed to show the breach committed by the asses-see. In the appeals which the assessee preferred before the Appellate Assistant Commissioner and the Board of Revenue, the assessee contended that the escaped assessment could at the most be that shown by the bill book which the Flying Squad discovered and that there was no justification whatsoever for estimating the escaped assessment for the entire period from 1st November 1959 to 20th October 1960 adopting Rs. 31,171.28 as extra turnover for a period of 19 days during the period from 1st September 1960 to 19th September 1960 as the measure of escaped assessment.

5. It would be convenient to consider first the second question which the Board of Revenue has referred. The question has to be answered with reference to Section 19 of the local Act and Sub-rules (1) and (2) of Rule 33 of the Madhya Pradesh General Sales Tax Rules, 1959. Section 19 (1) is as follows:--

'19. Assessment of turnover escaping assessment. (1) Where an assessment has been made under this Act or any Act repealed by Section 52 and if for any reason any sale or purchase of goods.chargeable to tax under this Act or any Act repealed by Section 52 during any period has been under-assessed or has escaped assessment or assessed at a lower rate or any deduction has been wrongly made therefrom, the Commissioner may, at any time within five calendar years from the date of order of assessment after giving the dealer a reasonable opportunity of being heard and after making such enquiry as he considers necessary, proceed in such manner, as may be prescribed to re-assess the tax payable by such dealer and the Commissioner may direct that the dealer shall pay, by way of penalty, in addition to the amount of the tax so assessed, a sum, not exceeding thatamount:

***** Sub-rules (1) and (2) of Rule 33 in so far as they are material here run thus:--

'33 (1) Where-

***** (f) the sale or purchase of goods by a dealer during any period has been under assessed or has escaped assessment or has been assessed at a lower rate or any deduction has been wrongly made therefrom within the meaning of Sub-section (1) of Section 19, or

(g) a dealer has deliberately concealed his turnover in respect of any goods or has furnished a false return,

then in every such case, the assessing authority shall serve on the dealer a notice in Form XVI specifying the default, escapement or concealment, as the case may be, and calling upon him to show cause by such date, ordinarily not less than 30 days from the date of service of the notice as may be fixed in that behalf, why he should not be assessed or re-assessed to tax and/or penalty should not be imposed upon him and directing him to produce on the said date his books of accounts and other documents which the assessing authority may require and any evidence which he may wish to produce in support of his objection:

Provided that no such notice shall be necessary where the dealer, having appeared before the assessing authority, waives such notice.

(2) on the date fixed in the notice Issued under Sub-rule (1) or in case the notice is waived on such date which may be fixed in this behalf the assessing authoritty shall, after considering the objections raised by the dealer and examining such evidence as may be produced by him and after taking such other evidence as may be available, assess or reassess, the dealer to tax and/or impose a penalty or pass any other suitable order''. It will be seen from the aforestated pro-visions that the escaped turnover has to be determined after giving a notice to the dealer in Form XVI specifying the escapement or concealment and calling upon himto show cause why he should not be reassessed to tax and after making such enquiry as the Sales Tax Officer may think it necessary. Rule 33 (1) also says that the assessee shall be called upon to produce the books of accounts and other documents which the assessing authority may require and any evidence which he may wish to produce in support of his objection.

When such a notice is issued to the dealer, he either appears before the assessing authority on the date fixed in the notice issued under Sub-rule (1) to prefer his objections and produce such evidence as he may think it necessary or he does not appear. If he appears, then as provided in Sub-rule (2) of Rule 33 the assessing authority is required to make the reassessment after considering the objections raised by the dealer and examining such evidence as may be produced by him and after taking such evidence as may be available. It is important to note that in the notice which is issued to the assessee in Form XVI the extent of escaped turnover has to be specified. The estimated escaped turnover in the notice is plainly one made by the assessing authority in its judgment on the basis of such material as is available to it at that stage.

If, therefore, in response to the notice the assessee does not appear and attempt to show that no turnover of his escaped assessment, or that if it did, it was not of the alleged extent, then if the assessment is made on the basis of the figure of escaped turnover determined by the assessing authority itself, that assessment is clearly one made by the assessing authority to the best of its judgment on the material before it. The quantum of such assessment, though not admitted by the assessee, would be one 'proved in the judgment of the assessing authority', for after all even according to the Evidence Act a fact is said to be proved when, after considering matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists.

6. It is no doubt true that neither Section 19 (1) nor Rule 33 (1) and (2) provides in so many words that if a dealer does not appear or does not produce any evidence in response to a notice issued to him under Rule 33 (1), then the assessing authority shall assess the dealer to the best of its judgment; but from this omission it does not follow that if the dealer does not appear and show that no turnover of his escaped assessment, or that if it did, it was not of the alleged magnitude, then the assessing authority cannot make an assessment even on the basis of the escaped turnover determinedby itself. Such an absurd result is really not contemplated either by Section 19 (1) or by Rule 33 (1) and (2).

7. In Commissioner of Sales Tax v. Kunte Brothers, (1962) 13 STC 366 (MP) a Division Bench of this Court dealt with a similar question arising under Section 10 of the Madhya Bharat Sales Tax Act, 1950, and held that under that provision a best-judgment assessment could be made in proceedings for the assessment of any escaped turnover. The provisions of Section 10 of the Madhya Bharat Act are analogous to Section 19 (1) of the local Act before us. In that case it was observed that-

'Under Section 10 the burden of proving that any turnover has escaped assessment or that there has been under assessment is no doubt upon the department; but this only means that in order to justify initiation of proceedings under Section 10 it is necessary for the assessing authority to establish at least one transaction the turnover of which was not included in the previous assessment. Once that is done, it is for the assessee to satisfy that no turnover has escaped assessment or that the escaped turnover is of a certain magnitude. If the assessee fails to discharge this burden by failing to appear or failing to produce his account books despite a notice under Section 10, then the assessing authority is entitled to form its own opinion about the escaped turnover.'

With reference to these observations, Shri Adhikari, learned counsel appearing for the assessee, said that it was impossible for the assessee to prove that no turnover of his, escaped assessment; that he could only prove positively his turnover. In order to understand the real import of these observations it is necessary to remember that in the notice which is issued to the assessee to show cause why he should not be assessed in respect of any escaped turnover, the amount of escaped turnover provisionally determined by the assessing authority has to be stated. When this figure is stated in the notice, there should be no difficulty for the assessee to show that the alleged escaped turnover did not really escape in his previous assessment or that it was not of the extent alleged.

Learned counsel for the assessee drew our attention to the decision of the Andhra Pradesh High Court in State of Andhra Pradesh v. Ravuri Narasimloo, (1965) 16 STC 54 (AP) where the decision in (1962) 13 STC 366 (MP) (Supra) was dissented from. The learned Judges of the Andhra Pradesh High Court were inclined to think that when the relevant provision under which escaped turnover was assessed did not itself say in so many words that the assessing authority could make a best-judgment assessment,there could be no best-judgment assessment What has been said earlier is sufficient to show that even in the absence of an express provision enabling the assessing authority to make a best-judgment assessment, the assessment made by it when the assessee does not appear in response to a notice issued to him would none the less be a best-judgment assessment. Such an assessment is no doubt on the basis of the quantum of escaped turnover determined by the assessing authority itself; the quantum is one 'proved' in the judgment of the assessing authority though not admitted by the assessee who failed to appear. That being so, the assessment would be one made by the assessing authority to the best of its judgment.

It must be noted that in the case of (1962) 13 STC 366 (MP) (Supra) the assessee failed to appear and to produce his account books in response to a notice issued to him under Section 10 of the Madhya Bharat Sales Tax Act. We do not think that the Andra Pradesh High Court intended to lay down in (1965) 16 STC 54 (AP) (Supra) that if the assessee does not appear in response to a notice or if he appears and does not show any cause against the assessment intended to be made, then no assessment can at all be made inasmuch as the relevant provision does not expressly provide for the making of an assessment to the best of the judgment of the assessing authority in such circumstances.

8. In our judgment, there can be a best-judgment assessment under Section 19 (1) of the local Act. In a best-judgment assessment the quantum of escaped turnover would be that which the assessing authority thinks is proved or established. In other assessments the quantum of escaped turnover would be the one which the assessing authority finds proved whether on the admission of the assessee or on the material produced at the enquiry in which the assessee has participated.

9. The real point to be considered in connection with the first question is the correctness of the escaped turnover under the local Act and the Central Act determined by the assessing authority for the period from 1st November 1959 to 20th October 1960 by adopting the measure of Rs. 31,171.28 as the escaped turnover for a period of 19 days. The assessee no doubt first denied that the bill-book which was found by the Flying Squad disclosing an escaped turnover of Rupees 31,171.28 during the period from 1st September 1960 to 19th September 1960, was its bill-book. Later on the Munim of the assessee when examined by the Sales Tax Officer admitted that the bill-book was of the transactions effected by the assessee. The assessee is undoubtedly liable to pay tax under the local Act andthe Central Act on the taxable turnover comprised in the escaped turnover of Rs. 31,171.28. The question is whether there is any justification for computing the escaped turnover for the entire period from 1st November 1959 to 20th October 1960 taking as base Rs. 31,171.28 as the escaped turnover for a period of 19 days even if the assessee's explanation was rejected and it did not produce any material to show that the escaped turnover was not of the magnitude specified in the notices served on him.

9A. Now, it is well settled that whenever the Sales Tax Officer is required to make an estimate of the assessee's turnover, he must pay due regard to the extent of the business carried on by the dealer, the surrounding circumstances and all matters which may be of assistance in arriving at a far and proper estimate of the taxable turnover of the dealer. The, assessing authority cannot make an arbitrary estimate of the turnover without any material to support it. This principle has been laid down by the Supreme Court in Raghubar Mandal Harihar Mandal v. State of Bihar (1957) 8 STC 770 : (AIR 1957 SC 810). In that case it has been held with reference to Section 10 (2) (b) of the Bihar Sales Tax Act that in making an assessment under that provision the Sales Tax Officer is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence in a Court of law, but he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all; there must be something more than bare suspicion to support the assessment; 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 mere suspicion; and for this purpose he must take into consideration such materials as he has before him including the assessee's circumstances, knowledge of previous returns and all other matters which he thinks will assist him in arriving at a fair and proper estimate.

10. Applying these principles here it is plain that the estimate of turnover made by the Sales Tax Officer for the entire period in question was a pure guess unrelated to any evidence or material circumstances with regard to the assessee's business. In making an estimate for the entire period taking Rs. 31,171.28 as the escaped turnover for a period of 19 days as the yardstick, the assessing authority assumed that the assessee continued to effect in the entire period of assessment extra transactions, which were suppress-ed, on the same scale as disclosed by the bill-book found by the Flying Squad, There is no basis for such an assumption. The assessee is a dealer in iron and steel, a commodity for which there is no uniform market day after day. The sales of iron and steel depend on the extent of constructional activity. The sales tax authority made no attempt to find out whether having regard to the constructional activity during the material period the assessee could effect transactions in iron and steel day after day on the same scale.

Again, iron and steel being a controlled commodity, it should have been easy for the Sales Tax Officer to find out the quantity of iron and steel secured by the dealer under permits and the quantity sold from the assessee's stock registers. But nothing of the kind was done; and the Sales Tax Officer made estimates of the sales of iron and steel by the assessee on the basis of escaped turnover of Rs. 31,171.28 for 19 days treating the commodity in which the dealer carried on business as no different from a vegetable for which there is a uniform constant market. In our judgment, the estimate of escaped turnover under the local Act and the Central Act for the entire period from 1st November 1959 to 20th October 1960 made by the sales tax authority was based on mere guess work and was without any proper basis.

11. In this connection it would be pertinent to refer to the decision in Jami Narasaya Prusty and Brothers v. State of Orissa, (1958) 9 STC 648 : (AIR 1959 Ori 79). That was a case where the assessee's return did not include the turnover of sale of five watches and the Sales Tax Officer made an addition of Rs. 15,000/- covering the period during which the watches were sold. The Orissa High Court quashed the assessment taking the view that it was based on mere guess-work and there was no proper basis for making it. The decisions in (1957) 8 STC 770 :(AIR 1957 SC 810) (Supra) and (1958) 9 STC 648 :(AIR 1959 Ori 79) (Supra) were followed by the Kerala High Court in Alikoya and Co. v. State of Kerala (1961) 12 STC 567 (Ker). In that case also an estimate for the entire relevant period was made on the basis of suppressed turnover in respect of a certain period. The Kerala High Court observed:

'In the case before us the material recovered may justify the conclusions of the sales during the days, being what the recovered evidence covering the days disclose, but such material could hardly be the basis for ascertaining sales during the entire period preceding the recovery; for same quantity of the commodity for sales would not be uniformly available, nor the market rate would be the same.'

12. In our view, the estimate of taxable turnover under the local Act and the Central Act made by the assessing authority for the period from 1st November 1959 to 20th October 1960 on the basis of Rs. 31,171.28 as the escaped turnover for a period of 19 days was altogether illegal and unjustified. In the present case, the escaped turnover proved is only Rs. 31,171.28. The assessee is liable to be assessed under both the Act only on the taxable turnover comprised in the escaped turnover of Rs. 31,171.28.

13. In regard to the third question the position is that under Section 19 (1) of the local Act the penalty that can be imposed for escaped assessment cannot exceed the amount of tax determined payable on reassessment. The amount of Rs. 2,000/- as penalty was imposed on the assessee on the footing that the escaped taxable turnover under the local Act was Rs. 2,50,000/- and that under the Central Act, was Rs. 1,00,000/- for the period from 1st November 1959 to 20th October 1960. If, as we have endeavoured to point out, the taxable turnover for the period is only that comprised in the escaped turnover of Rs. 31,171.28, then it follows that the amount of tax payable on reassessment would be proportionately reduced and consequently the amount of penalty would also be reduced. The penalty of Rs. 2,000/- imposed on the assessee cannot, therefore, be held to be legal and justified.

14. The answer to the question referred to us by the Tribunal at the instance of the Commissioner of Sales Tax is to be found in Section 9(3) of the Central Act itself. That sub-section reads thus:

'The authorities for the time being empowered to assess, collect and enforce psyment of any tax under the general sales tax law of the appropriate State shall on behalf of the Government of India and subject to any rules made under this Act, assess, collect and enforce payment of any tax, including any penalty, payable by a dealer under this Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, appeals, reviews, revisions references, penalties and compounding of offences, shall apply accordingly: *****'

The effect of Section 9(3) is that the procedure of making an assessment, collection of tax and enforcement of payment of any tax including penalty under the Central Act is the very same procedure as laid down in the local Sales-tax Act. Therefore, the provisions contained in Section 19(1) of the local Act including the provisions for the imposition of penalty for escaped assessment would apply for assessment and imposition of penalty for escaped assessment under the Central Act. The Board of Revenue was in error in thinking that penalty could be imposed only under Rule 12 of the Madhya Pradesh Sales-Tax (Central) Rules, 1957, for a breach of any of the provisions of those Rules and that the said Rules did not in any way deal with escaped assessment.

The decision of this Court in Commissioner of Sales Tax v. Kantilal Mohanlal and Brothers, (1967) 19 STC 377 : (AIR 1968 Madh Pra 20) supports the view that penalty for escaped assessment under the Central Act can be imposed under Section 19 (1) of the local Act. That was a case in which the question raired was whether when failure to file returns within time was not dealt with by the Madhya Pradesh Sales Tax (Central) Rules, 1957, penalty for late submission of the returns could be imposed under Section 17 (3) of the local Act. It was held that penalty for late submission of returns in Form V appended to the Madhya Pradesh Sales Tax (Central) Rules, 1957, could be imposed under Section 17 (3) of the Madhya Pradesh General Sales Tax, Act, 1958. The reasoning given in the case of (1967) 19 STC 377: (AIR 1968 Madh Pra 20) (Supra) applies equally here.

15. For these reasons, our answer to the first question is that the estimate of taxable turnover under the local Act and the Central Act made by the assessing authority for the period from 1st November 1959 to 20th October 1960 on the basis of Rs. 31,171.28 as the escaped turnover for a period of 19 days was illegal and unjustified'. The escaped turnover proved in the present case is only Rs. 31,171.28 and the assessee is liable to be assessed under both the Acts only on the taxable turnover comprised in the escaped turnover of Rs. 31,171.28. Our answer to the second question is that there can be a best-judgment assessment under Section 19 (1) of the local Act. In a best-judgment assessment the quantum of escaped turnover would be that which the assessing authority thinks is proved or is established. In other assessments the quantum of escaped turnover would be the one which the assessing authority finds proved whether on the admission of the assessee or on the material produced at the enquiry in which the assessee has participated. The third question is answered by saying that the imposed penalty of Rs. 2,000/- is, in view of our answer to the first question, not legal. Our answer to the fourth question isthat a penalty for escaped assessment under the Central Act can be imposed under Section 19 (1) of the local Act.

16. As the assessee has substantiallysucceeded in the present reference, wedirect that the Commissioner of SalesTax shall pay costs of the reference tothe assessee. Counsel's fee is fixed atRs. 200/-.


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