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Jai Ram Hans Raj Vs. the State of Haryana and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtPunjab and Haryana High Court
Decided On
Case NumberLetters Patent Appeal No. 496 of 1971
Judge
Reported in[1973]32STC107(P& H)
AppellantJai Ram Hans Raj
RespondentThe State of Haryana and ors.
Appellant Advocate S.K. Jain (Kalkawala), Adv.
Respondent Advocate G.C. Garg and; Jaswant Jain, Advs. for respondent Nos. 2 and 3
DispositionAppeal allowed
Cases ReferredIn Polisetti Subbaraidu and Co. v. Commissioner of Income
Excerpt:
.....authorities have jurisdiction to decide rightly as well as wrongly, no judicial or quasi-judicial authority has the right to decide in an arbitrary manner and if it so decides, the high court should safeguard the interest of the victim of such decision by interfering under article 226 of the constitution. ) observed as under :under section 12(2)(b) of the act, power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. the limits of the power are implicit in the expression 'best of his judgment'.judgment is a faculty to decide matters with wisdom truly and legally. though there is an element of guess-work in a 'best judgment assessment',it shall not be a wild one, but shall have a reasonable nexus to..........representations and the materials and a fair determination of the question involved.if the quasi-judicial authority disregards the materials available or if it refuses to apply its mind to the question and if it reaches a conclusion which bears no relation to the facts before it, to allow those decisions to stand would be violative of the principles of natural justice. arbitrary decisions can also, therefore, result in violation of the principles of natural justice which is a fundamental concept of indian jurisprudence. in certain cases, where an authority refuses to apply its mind to the question and makes a decision as it likes, it may amount to even a mala fide decision.the existence of an alternative remedy is not an absolute bar to the issue of a writ of certiorari when there has.....
Judgment:

Bal Raj Tuli, J.

1. This appeal under Clause 10 of the Letters Patent is directed against the judgment of the learned, single Judge dismissing C.W. No. 728 of 1970 on 26th July, 1971.

2. The appellant is a firm carrying on business as a licensed dealer in agricultural produce at village Mullana within the territorial jurisdiction of Market Committee, Ambala Cantt. On 9th December, 1969, the business premises of the appellant were visited by the secretary of the market committee, who found that entries with regard to ten transactions of sale had not been made by the appellant in its book in form 'H' although the auction and weighment of the goods covered by them had already taken place. The total value of such goods was found to be Rs. 2,204.00 on which the market fee payable was Rs. 22.04.

3. On 8th January, 1970, the administrator of the committee issued a notice to the appellant in form 'O' declaring that the firm had not furnished return/correct return in form 'M' for the period from 1st April, 1969, to 9th December, 1969 and that it had made habitual default in the submission of return for that period from which it appeared to the committee that the firm had failed to furnish the return in respect of the above-mentioned period and that an assessment under Rule 31 of the Punjab Agricultural Produce Markets (General) Rules, 1962 (hereinafter referred to as the Rules), in respect of the above-mentioned period should be made. The appellant-firm was directed to produce or cause to be produced its accounts and documents at the office of the Market Committee at Ambala Cantt. A partner of the appellant-firm appeared and pleaded guilty with regard to the omission of the transactions which had been found by the secretary on 9th December, 1969 and asked for forgiveness. The administrator passed an order dated 19th January, 1970, making an assessment on the appellant at the rate of, Rs. 22.04 per working day with effect from 1st April, 1969, to 9th December, 1969, in exercise of his power under Rule 31(8) of the Rules. The secretary of the market. committee was directed to work out the working days and the total amount to be recovered from the appellant on that basis. The appellant-firm challenged that order of assessment by filing C.W. No. 728 of 1970 in this court which was dismissed by the learned single Judge as stated above.

4. The main argument advanced by the learned counsel for the appellant is that the basis of best judgment assessment adopted by the administrator, while passing the assessment order, is arbitrary and is not reasonable. We find force in this submission of the learned counsel. It is true that the market committee is entitled to make best judgment assessment but it must be based on some reasonable data and not on an arbitrary basis adopted by the assessing authority. It was open to the administrator of the market committee or its secretary to find out the extent of the business done by the appellant-firm during the period from 1st April, 1969, to 9th December, 1969 and then to determine how much of that business had been concealed and the approximate number and value of the transactions that had not been entered in form 'H' in the books. The best judgment assessment has to be made honestly by exercising judicial mind as the proceedings are quasi-judicial in nature. The mere fact that the secretary of the committee found that on a particular date a number of transactions had not been entered in the books of account did not justify the conclusion that transactions of similar amounts were not entered in the books on every working day during the previous eight or nine months. The assessment made on that basis was not only arbitrary and punitive in nature but smacks of vindictiveness. A Division Bench of the Orissa High Court considered the making of the best judgment assessment in Jami Narasaya Prusty and Brothers v. State of Orissa [1958] 9 S.T.C. 648 in a similar case. In that case, the assessees submitted a return of their sales for three quarters but did not include in the return of the first quarter the sum of Rs. 125 being the sale amount of five watches and the officer for that reason added Rs. 15,000 not only to the return made for the period during which the watches were sold but to the returns of all the three periods.

5. The assessees thereupon filed a petition under Article 226 of the Constitution for quashing the assessments. It was held that the assessments for the three periods should be quashed inasmuch as they were based upon mere guess-work and there was no proper basis for making the best judgment assessment. As the error was apparent on the face of the order, it was not necessary for the assessees to go in appeal under the Sales Tax Act before invoking the jurisdiction of the High Court under Article 226. A Division Bench of the Kerala High Court in Balakrishna and Sons v. Sales Tax Officer and Anr. [1961] 12 S.T.C. 272, held that:

In making a best judgment assessment, the assessing authority discharges quasi-judicial functions and the order he passes must not be capricious, arbitrary or gunitive. The order must also disclose the basis for the best judgment assessment, so that the higher authorities may know the grounds on which the assessment has been based.

6. A learned single Judge of the Kerala High Court (Vaidialingam, J., now a Judge of the Supreme Court) in Namadeva Shenoy v. Sales Tax Officer, Special Circle, Cannanore [1963] 14 S.T.C. 159, observed as under:

It is needless to state that when the officer proceeds to make a best judgment assessment, there is a duty on his part to make available to the petitioner every point or aspect that he proposes to take into account in making the best judgment assessment and give the assessee opportunity to place all the objections that may be available to him both under law and on facts, regarding the proposal. After completing all these formalities, it is open to the assessing authority to make the final assessment.

7. In that case the pre-assessment notice issued to the assessee stated that the books of account produced by the assessee had been rejected on account of certain defects and that the officer was estimating the turnover to the best of his judgment, but it did not, as such, indicate the basis the officer had proposed to adopt for making the best judgment assessment. It was held that it could not be said that the assessee had been given a fair and full opportunity to place all his points of view regarding the return that he had filed and, therefore, the order making the best judgment assessment must be set aside.

8. A learned single Judge of the Calcutta High Court in Jhagru Sham and Ors. v. Commissioner of Commercial Taxes and Ors. [1966] 17 S.T.C 130, held as under :

It is now a well-known proposition of law that if a Revenue Officer is to make an assessment to the best of his judgment, against an assessee who is in default as regards supplying information, he must not act dishonestly, or vindictively or capriciously, because he must exercise his 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 may take into consideration local knowledge and repute in regard to the assessee's circumstances and his own knowledge of the 130 previous returns by and the assessments of, the assessee and all other matters which he thinks would assist him in arriving at a fair and proper estimate. Though there must be necessarily some guess-work in the matter, it must be honest guess-work.

9. In M. Appukutty v. Sales Tax Officer, Kozhikode [1966] 17 S.T.C. 380, a single Judge of the Kerala High Court (P. Govindan Nair, J.) held as under :

Principles of natural justice demand that there should be a fair determination of a question by quasi-judicial authorities. Arbitrariness will certainly not ensure fairness. If giving a mere opportunity to show cause and to explain would satisfy the principles of natural justice the notice to show cause becomes an empty formality signifying nothing, for, after issuing the notice to show cause, the authority can decide according to his whim and fancy. The judicial process does not end by making known to a person the proposal against him and giving him a chance to explain. It extends further to a judicial consideration of his representations and the materials and a fair determination of the question involved.

If the quasi-judicial authority disregards the materials available or if it refuses to apply its mind to the question and if it reaches a conclusion which bears no relation to the facts before it, to allow those decisions to stand would be violative of the principles of natural justice. Arbitrary decisions can also, therefore, result in violation of the principles of natural justice which is a fundamental concept of Indian jurisprudence. In certain cases, where an authority refuses to apply its mind to the question and makes a decision as it likes, it may amount to even a mala fide decision.

The existence of an alternative remedy is not an absolute bar to the issue of a writ of certiorari when there has been violation of the principles of natural justice and infringement of fundamental rights. The remedy available by way of appeal to the appellate authority and then by way of second appeal to the Tribunal and then by a revision to the High Court is not adequate where an assessee is compelled in the meantime to pay the tax imposed on him by an arbitrary assessment which has been solely guided by the whim and fancy of the assessing authority.

When sales tax is imposed illegally in an arbitrary and capricious manner there is an infringement of the fundamental right of an assessee to carry on his trade or business. Although quasi-judicial authorities have jurisdiction to decide rightly as well as wrongly, no judicial or quasi-judicial authority has the right to decide in an arbitrary manner and if it so decides, the High Court should safeguard the interest of the victim of such decision by interfering under Article 226 of the Constitution. Further, in such cases, Article 265 of the Constitution is also violated, inasmuch as there is no collection of tax by the authority of law when assessments are made in an arbitrary fashion.

10. Their Lordships of the Supreme Court in The State of Kerala v. C. Velukutty [1966] 17 S.T.C. 465 (S.C.) observed as under :

Under Section 12(2)(b) of the Act, power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though Sub-section (2) of Section 12 of the Act provides for a summary method because of the default of the assessee, it does not. enable the assessing authority to function capriciously without regard for the available material.

Can it be said that in the instant case the impugned assessment satisfied the said tests From the discovery of secret accounts in the head office, it does not necessarily follow that a corresponding set of secret accounts were maintained in the branch office, though it is probable that such accounts were maintained. But, as the accounts were secret, it is also not improbable that the branch office might not have kept parallel accounts, as duplication of false accounts would facilitate discovery of fraud and it would have been thought advisable to maintain only one set of false accounts in the head office. Be that as it may, the maintenance of secret accounts in the branch office cannot be assumed in the circumstances of the case. That apart, the maintenance of secret accounts in the branch office might lead to an inference that the accounts disclosed did not comprehend all the transactions of the branch office. But that does not establish or even probabilise the finding that 135 per cent, or 200 per cent, or 500 per cent, of the disclosed turnover was suppressed. That could have been ascertained from other materials. The branch office had dealings with other customers. Their names were disclosed in the accounts. The accounts of those customers or their statements could have afforded a basis for the best judgment assessment. There must also have been other surrounding circumstances, such as those mentioned in the Privy Council's decision Commissioner of Income-tax, Central and United Provinces v. Laxminarain Badridas [1937] 5 I.T.R. 170 (P.C.) cited supra. But in this case there was no material before the assessing authority relevant to the assessment and the impugned assessments were arbitrarily made by applying a ratio between disclosed and concealed turnover in one shop to another shop of the assessee. It was only a capricious surmise unsupported by any relevant material. The High Court, therefore, rightly set aside the orders of the Tribunal.

11. In Polisetti Subbaraidu and Co. v. Commissioner of Income-tax, A.P. [1968] 69 I.T.R. 738, a Division Bench of the Andhra Pradesh High Court held that:

As the estimate was made by the department without disclosing to the assessee the details of material relied upon and the details of comparable cases, it was arbitrary and capricious.

12. In view of these judgments, we are of the opinion that the order of assessment passed by the Administrator, Market Committee, Ambala Cantt., dated 19th January, 1970, was arbitrary and not in accordance with the rules and the principles of natural justice. After the account books of the appellant-firm had been disbelieved, it was the duty of the administrator or the secretary to make honest enquiries from other sources and then to estimate the quantity of agricultural produce on which the payment of .the market fee had been evaded. After collecting the information, the administrator should have communicated that information to the appellant-firm and given it an opportunity to show that the material collected was faulty and could not be made the basis of best judgment assessment. It is true that an element of guess-work enters the best judgment assessment but it must be an honest estimate, as has been emphasised by the learned Judges in the cases cited above. We have, therefore, no option but to set aside the order of assessment dated 19th January, 1970 and the notice of demand issued in pursuance thereof.

13. For the reasons given above, this appeal is accepted with costs, the judgment of the learned single Judge is set aside and the order of assessment dated 19th January, 1970 and the notice of demand issued in pursuance thereof are quashed. It will be open to the market committee to make fresh assessment in accordance with the law and the observations made above. Counsel's fee Rs. 100.


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