B.C. Varma, J.
1. In this reference under Section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958 at the instance of the respondent-assessee, the following questions of law arising out of the Tribunal's order have been referred to this Court for decision :
(i) Whether under the facts and circumstances of the case, assessment under Section 18(7) of the Act was justified ?
(ii) Whether under the facts and circumstances of the case, evasion of payment of tax as required under Section 18(7) had been established and the onus cast upon the Commissioner had been discharged ?
(iii) Whether the provisions of Section 18(7) are penal in nature and mens rea has been established from the facts and circumstances of the case ?
(iv) Whether under the facts and circumstances of the case, the order of the first appellate authority was erroneous and prejudicial to the interest of the Revenue and revision under Section 39(2) of the Act was justified ?
The applicant M/s Narbada Ice Factory, Jabalpur, is a dealer registered under the Madhya Pradesh General Sales Tax Act, 1968. It is engaged in manufacture and sale of ice and was assessed to sales tax for the period 1st May, 1963 to 31st March, 1964. The assessing authority assessed the applicant-assessee under Section 18(7) of the Act at Rs. 49,000 and determined a sum of Rs. 2,450 as tax. The Appellate Assistant Commissioner in appeal, however, held that Section 18(7) was not attracted and therefore, modified the assessment. The department invoked the revisional jurisdiction of the Commissioner of Sales Tax under Section 39(2) of the Act. The Commissioner found that the sales were made to the favoured buyer and held that Section 18(7) of the Act applied. It, therefore, set aside the order of the appellate authority and restored the original assessment. In appeal by the assessee, the Tribunal (Board of Revenue) concurred with the Commissioner and dismissed the appeal. The assessee then sought for a reference. This is how the aforesaid questions have been referred by the Tribunal to this Court.
2. A few more facts may be noted. At Jabalpur, there are three ice manufacturing factories, including the applicant. Long before the Madhya Pradesh General Sales Tax Act, 1968 came into force, they constituted a partnership in the name and style of 'Jabalpur Ice Distributing Agency' when the C. P. and Berar Sales Tax Act, 1947 was in force. This partnership itself is a dealer registered under the Sales Tax Act. The ice produced by these three constituents to this partnership firm which acting as a distributing agency sells it to the consumers. To this distributing agency ice is sold at quite a low price and then is ultimately sold to the consumers at a higher price. Earlier under the C. P. and Berar Sales Tax Act as the tax was on the last point, it is this distributing agency whose sales were taxed. The position, however, is different under the present Act where tax is at the first point. Apparently by this arrangement of sale to the distributing agency and by it to the consumers at a higher price, the three constituents forming the partnership are in a position to avoid sales tax to certain extent. It appears that influenced by this factor the sales tax authorities, except the Appellate Assistant Commissioner, have resorted to Section 18(7) of the Act while assessing the sales by the applicant.
3. Section 18(7) of the Madhya Pradesh General Sales Tax Act, 1958 reads as follows :
If the Commissioner is satisfied that a dealer has, with a view to evade payment of tax, effected sales mostly to favoured buyers at prices which are abnormally low in comparison to the prices charged by other dealers similarly circumstanced, the Commissioner may, after giving the dealer a reasonable opportunity of being heard assess or reassess the dealer to the best of his judgment.
Before resorting to assess an assessee under this section, it has to be seen that the method of sale adopted was intended to evade payment of tax. It has to be found if the sales at comparatively low prices were effected to favoured buyers only with a view to evade the taxes. The facts narrated above in the present case disclose that this method of sales through the distributing agency was employed by the applicant-assessee right from the year 1951 when the C. P. and Berar Sales Tax Act, 1947 was in force whereunder the tax was payable on the last point. This arrangement continued to exist for the last so many years. This is clearly indicative of the fact that this arrangement was with a view to avoid competition among the three constituents of the distributing agency and not with a view to evade tax. The evasion of payment of tax under this arrangement, therefore, does not appear to be the real object constituting the firm although now under the 1958 Act, payment of tax at higher rate is avoided. This avoidance of tax, however, cannot be said to be the main object constituting the distributing agency but it appears only an incidence thereof. It is also not the finding of the Tribunal that this distributing agency was fake, illusory or was a mere make-believe affairs, It was not possible to say so because the agency was in existence since 1951 when the tax was on the last point. In our opinion, therefore, the dominant object of constituting the distributing agency is not with a view to avoid payment of tax but is to eliminate competition among its three constituents, including the applicant. We further find that there is no material on record to show that the sales by the applicant to the distributing agency, i.e., the favoured buyer, are abnormally low in comparison to the price charged with other dealer similarly situated. No such finding has been recorded by the Tribunal. That being so, we are of the opinion that Section 18(7) is not at all attracted in the present case. A Division Bench of this Court in Miscellaneous Petition No. 204 of 1976 decided on 7th December, 1979 has taken a similar view in the case of Bharat Ice and Aerated Waters (Private) Limited, Civil Lines, Jabalpur, which is also one of the three constituents of the distributing agency, namely, 'Jabalpur Ice Distributing Agency'. We see no reason to differ from the view so taken.
4. Our answers to the aforesaid questions are as follows :
(i) The assessment under Section 18(7) of the Act was not justified.
(ii) The evasion of tax is not established.
(iii) In view of the answers to questions Nos. (i) and (ii), this question need not be answered.
(iv) The order of the first appellate authority was neither erroneous nor prejudicial to the interest of Revenue and therefore, interference in revision under Section 39(2) was not justified.
5. The parties are directed to bear their own costs of the reference.