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V.S. Narayanan Nair Vs. Sales Tax Officer - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case Number O.P. Nos. 3695, 3697 and 3936 of 1969
Judge
Reported in[1972]29STC37(Ker)
AppellantV.S. Narayanan Nair
RespondentSales Tax Officer
Appellant Advocate C.T. Peter,; T.C. Karunakaran,; P.K. Shamsuddin,;
Respondent AdvocateGovernment Pleader
Cases ReferredIn Bhopal Sugar Industries v. Income
Excerpt:
.....ample opportunity in the presence of the person who has kept the secret accounts to effectively cross-examine him and elicit the necessary facts as to how exactly the relevant entries came to be made connecting the petitioner with such books of account. he has proceeded on the footing that the evidence in the proceedings before the sales tax authorities or other similar authorities must mean the evidence recorded in the best judgment assessment as understood in law and what is commonly referred to as legal evidence. it may be that he wanted to display his better learning, or it may be the result of frustration of some hopes he had from the petitioners. whatever that may be, the respondent has grossly misconducted himself and failed to discharge his duty by refusing to implement the..........the representatives of messrs munnalal bhalotia and co., and messrs bata shoe company, for being cross-examined by the petitioner in assessing him afresh as directed by the appellate assistant commissioner of sales tax, kottayam. o. p. no. 3936 is for the same reliefs in respect of the assessment against the petitioner in that case for the year 1960-61.2. the petitioner's main business during the relevant years was purchase and sale of rubber, which was then taxable at the point of first sale in the state. their sales were to m/s. munnalal bhalotia and co., cochin, and bata shoe company, kottayam, both of whom had purchase depots at palai. on inspection of the books of accounts of these companies, the respondent noticed large quantities of purchases in the names of three persons. he.....
Judgment:

M.U. Isaac, J.

1. These three cases have been heard jointly and are being disposed of by this single judgment as they arise out of similar facts and involve the same question. The petitioner in O. P. Nos. 3695 and 3697 is the same. He is a dealer in rubber and hill produce at Palai. The petitioner in 0. P. No. 3936 is another such dealer at the same place. The respondent in all these cases is the Sales Tax Officer, Palai. O. P. Nos. 3695 and 3697 are to quash the orders of assessment passed by the respondent under the General Sales Tax Act, 1125, for the years 1960-61 and 1961-62, and for a writ of mandamus directing the respondent to summon the representatives of Messrs Munnalal Bhalotia and Co., and Messrs Bata Shoe Company, for being cross-examined by the petitioner in assessing him afresh as directed by the Appellate Assistant Commissioner of Sales Tax, Kottayam. O. P. No. 3936 is for the same reliefs in respect of the assessment against the petitioner in that case for the year 1960-61.

2. The petitioner's main business during the relevant years was purchase and sale of rubber, which was then taxable at the point of first sale in the State. Their sales were to M/s. Munnalal Bhalotia and Co., Cochin, and Bata Shoe Company, Kottayam, both of whom had purchase depots at Palai. On inspection of the books of accounts of these companies, the respondent noticed large quantities of purchases in the names of three persons. He found for the reasons stated in his orders of assessment made against the petitioner in 0. P. Nos. 3695 and 3697 that they were fictitious persons in whose names the petitioner sold rubber to the above companies. On the above basis the petitioner's books of accounts were rejected and his turnovers for the years 1960-61 and 1961-62 were fixed more or less at twice the amounts returned by him. The petitioner's contention that he has not made any sales to the above companies except those disclosed by his books of account was rejected by the respondent. The petitioner applied to the respondent to summon the representatives of the above two companies, and give him an opportunity to cross-examine them with reference to the account books relied on by the respondent so as to enable the petitioner to establish his case. That was refused by the respondent. The petitioner also contended that he was not liable to tax on the sales made by him to the above companies, as the said sales were not the first sales in the State. This contention was not considered by the respondent.

3. The petitioner filed appeals before the Appellate Assistant Commissioner of Sales Tax, Kottayam, from both the assessments. By a common order dated 31st October, 1966, copy of which is marked as exhibit P-3 in O. P. No. 3695, he allowed both the appeals, set aside the orders of assessment and remitted the cases to the respondent for fresh disposal after taking proper action on the petitioner's request for cross-examination of the representatives of the above companies. Regarding the petitioner's contention that his sales were not the first sales and were not, therefore, liable to tax, the Appellate Assistant Commissioner directed the respondent to reconsider the matter in the light of the evidence produced by the petitioner. The cases came back to the respondent, who held that the petitioner's contention that he should be given an opportunity to cross-examine the representatives of the said companies was unsustainable; and he confirmed his previous assessments. The orders of assessment are dated 12th June, 1969; and they have been marked as exhibit P-6 in each of the two cases.

4. In 0. P. No. 3936, the respondent found that some of the sales by the petitioner which were found in the books of account of Messrs Munna-lal Bhalotia and Co. and Messrs Bata Shoe Company, have not come into the petitioner's accounts ; and his turnover was estimated on that basis. The petitioner denied these sales; and he wanted to cross-examine the representatives of these companies with reference to their accounts for the purpose of establishing his case. His request was rejected. The petitioner filed an appeal from the above assessment before the Appellate Assistant Commissioner of Sales Tax, Kottayam, who set aside the assessment and remitted the case to the respondent for fresh disposal with a direction to summon the above-said persons, and give the petitioner an effective opportunity to cross-examine them. The respondent refused to summon the above persons; and he confirmed his previous assessment, stating that the materials gathered by his Intelligence Officer proved that the petitioner had clandestine transactions with the above companies, and his rebuttal was only a device to evade payment of tax. The petitioner again filed an appeal ; and the Appellate Assistant Commissioner, by his order dated 24th April, 1968, copy of which is marked as exhibit P-4 in this writ petition, set aside the order of assessment, and remanded the case, reiterating the direction to summon the representatives of the said companies and give the petitioner an opportunity to cross-examine them. The respondent again refused to summon the above persons ; and confirmed the previous assessment by his order dated 9th June, 1969 holding that the petitioner's contention that he should be given an opportunity to cross-examine the above persons was unsustainable. Exhibit P-7 is a copy of the above order.

5. The petitioners contend that the Appellate Assistant Commissioner has accepted the contention that rejection of their books of account, and estimating their turnover on the basis of entries found in the books of the above two companies without giving them an opportunity to cross-examine the representatives of those companies is violative of natural justice, and that the assessments made by the respondent without giving them such an opportunity in disobedience of the direction of the appellate authority is breach of a public duty. It is, therefore, submitted that the said assessment must be quashed, and the respondent should be commanded to make fresh assessments in compliance with the direction of the appellate authority. The finding of the Appellate Assistant Commissioner and his direction are the same in all the three cases ; and it is enough to read the relevant part of his order, marked exhibit P-3 in 0. P. No. 3695 of 1969:

The second contention before me is common for both the assessments under appeal. As stated in the assessment orders, the officer made an addition of Rs. 4,00,000 in 1960-61 and Rs. 1,00,000 in 1961-62 on the ground that unaccounted sales effected by the appellant to M/s. Bha-lotia & Co., Cochin, in 1960-61 and Bata Shoe Co., Palai, in 1960-61 and 1961-62 were detected from secret books and documents recovered from the business premises of those dealers. But it is contended before me by the learned Advocate that no such unaccounted sales to the above two firms were effected by the appellant as alleged by the officer and that an addition on this ground made without giving to the appellant an opportunity to cross-examine those parties was wrong. It is pointed out by him that the request for an opportunity to cross-examine the parties was made by the appellant before the Intelligence Officer who initiated action and later before the assessing authority also before completion of the assessments and that it was quite illegal to have made any addition on the alleged sales without giving sufficient opportunity to the appellant to cross-examine those parties. The decisions in M. Appukutty v. State of Kerala [1963] 14 S.T.C. 489 and Appukutty v. Sales Tax Officer, Kozhikode 1965 K.L.T. 803, were cited before me in support of the contention.

As revealed by the assessment records, the request for an opportunity to cross-examine the representatives of Bhalotia and Co. and Bata Shoe Co., were made by the appellant in his reply to the notice from the Intelligence Officer, Ernakulam, who initiated action on the alleged secret documents detected from the two dealers. Again his request is seen to have been repeated in the reply to the 12(2)(b) notice from the Sales Tax Officer, Palai, at a later stage. But neither the Intelligence Officer nor the assessing authority is seen to have taken any action on this request and the assessments were completed without giving to the appellant an opportunity to cross-examine the parties, books detected from whom were relied upon by the assessing authority for making the additions. In the light of the decisions cited above the contention on this point appears to have much force and the additions made in the circumstances cannot be sustained. I am therefore inclined to remand the cases to the officer for fresh disposal after taking proper action on the appellant's request for cross-examination of the parties in the light of the various High Court decisions on this point.

The finding of the Appellate Assistant Commissioner and his direction to the respondent are very clear. It is interesting to note in what manner, he disregarded and despised the above finding, and flouted the direction of the appellate authority., The impugned orders speak for themselves; and I shall read exhibit P-6 in O.P. No. 3695 :-

The assessment was finalised on 25th February, 1965, and the appeal preferred by the dealer was remanded by Appellate Assistant Commissioner in order No. 18/65-66/31-10-1966, with the direction to afford an opportunity to the dealer to cross-examine the representatives of Bhalotia & Co. and Bata Shoe Co.

M/s. Munnalal Bhalotia & Co., Cochin, and M/s. Bata Shoe Co., Ltd., Palai, have ceased to function since a long time and to afford an opportunity to cross-examine the representatives of the firms that are not existent is an impossibility.

The Honourable High Court of Gujarat in the case of Jayantilal Thakor-das v. State of Gujarat [1969] 23 S.T.C. 11, has held that evidence- means any material having probative value irrespective of the manner in which the material is produced or the mode of proving the particular piece of material. It is also held that if the details are intimated to the assessee, the question of violation of natural justice by not affording an opportunity to the assessee to cross-examine the persons from whom the material was gathered does not arise.

In the judgment, the Honourable High Court has dealt with in detail the decisions of the various High Courts such as Appukutly v. State of Kerala [1963] 14 S.T.C. 489, etc. The basis of the verdict is the finding of the Supreme Court in Dhakeswari Cotton Mills' case [1954] 26 I.T.R. 775 (S.C.), wherein it is stated that the Income-tax Officer is not fettered by the technical rules of evidence and pleadings and that he is entitled to act on materials, which may not be accepted as evidence in a court of law. In such a case, there must be something more than bare suspicion, in support of the assessment. In Raghubar Mandal's case [1957] 8 S.T.C. 770 (S.C.), the Supreme Court has again held that once the returns and books of accounts are rejected as undependable, then it is open to the assessing authority to estimate the turnover. But the authority should base its conclusion on some material before it.

Here, the source of the information, the quantum of escape, the turnover proposed to be added, etc. were notified to the assessee so that he can let in evidence if any to prove the case otherwise. But he is hanging on the point that the denial of an opportunity to cross-examine the firms, which are non-existent, is a violation of natural justice. So the inference to be drawn is that it is only a device to escape from the levy of tax.

In the light of the decisions quoted above, there is no violation of principles of natural justice and the argument is found to be untenable.

The dealer was informed of this in notice dated 10th April, 1969. In the reply dated 18th April, 1969, he is again initiating the same point of violation of natural justice. It is found to be quite unsustainable. So they are overruled and the assessment finalised as under.

Now this court has held in Appukutty v. State of Kerala [1963] 14 S.T.C. 489 which is one of the two decisions relied on by the Appellate Assistant Commissioner that an assessment cannot be based on the entries found in the books of account of a third party without giving to the assessee an opportunity of cross-examining that party with reference to those books, if so required. That is a requirement of natural justice. In that case, Vaidialingam, J., stated :

The fact that some third party maintaining, even according to the department, some secret accounts has made certain entries in his accounts which may connect a person like the petitioner, by itself will not give jurisdiction to the assessing authority to utilise that information, unless that person has been given ample opportunity in the presence of the person who has kept the secret accounts to effectively cross-examine him and elicit the necessary facts as to how exactly the relevant entries came to be made connecting the petitioner with such books of account.

It is true that the Gujarat High Court in Jayantilal Thakordas v. State of Gujarat [1969] 23 S.T.C. 11, the decision relied on by the respondent, has dissented from the view expressed by Vaidialingam, J., and commented on it at length. With all respect, it appears to me that the whole comment is based on a misunderstanding of the judgment of Vaidialingam, J. That is evident from the following passage appearing in the Gujarat decision :

With utmost respect to Vaidialingam, J., we are unable to agree with the reasoning which he adopted in that case. He has proceeded on the footing that the evidence in the proceedings before the sales tax authorities or other similar authorities must mean the evidence recorded in the best judgment assessment as understood in law and what is commonly referred to as legal evidence.

Vaidialingam, J. has not laid down any such proposition; and I do not find anything in his judgment inconsistent with any of the propositions laid down in the decision of the Supreme Court on which reliance has been made by the Gujarat High Court. It is, however, unnecessary for me to pursue this point, as the respondent is plainly bound by the decision of this court and the direction given by the appellate authority. In Bhopal Sugar Industries v. Income-tax Officer [1960] 40 I.T.R. 618 (S.C.), with reference to a similar conduct on the part of an Income-tax Officer, the Supreme Court stated :

By that order the respondent virtually refused to carry out the directions, which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is further more destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice....

There is no question whether the decision of the superior tribunal or the direction given by it is correct or not; the inferior tribunal is bound by it, as long as it remains in force. The position in the instant case is far worse. Not only that the respondent refused to follow the law laid down by this' court and flouted the direction of the appellate authority, but he also went to the extent of holding that the decision of this court and the direction of the appellate authority were both wrong under law. I am unable to understand the conduct of the respondent. It may be that he wanted to display his better learning, or it may be the result of frustration of some hopes he had from the petitioners. Or it may also be due to his over-enthusiasm in support of the revenue or the reaction of a pernicious tendency to harass the assessee. Whatever that may be, the respondent has grossly misconducted himself and failed to discharge his duty by refusing to implement the direction of the Appellate Assistant Commissioner in making fresh assessments.

6. In justification of his above conduct the respondent has casually stated in his orders of assessment that these companies 'have ceased to function since a long time and to afford an opportunity to cross-examine the representatives of the firms that are not existent is an impossibility'. With reference to the above statement paragraph 7 of the petition in O. P. No. 3695 states as follows :

These are firms existing and their representatives are available within the hand's reach of the respondent. The respondent has refused to summon them in spite of the fact that the petitioner requested the respondent to summon them and to comply with the direction of the appellate authority. The observation in paragraph 2 of exhibit P-6 that the firms are not existing is contrary to facts.

Similar averments are contained in the other two petitions also. There is no counter-affidavit in any of these cases. I have, therefore, to accept the above statement. Apart from that, it is a limit for the respondent to assert that a concern like Messrs Bata Shoe Company is non-existent. It is such a well-known company, that its existence in several parts of this State can be taken judicial notice of. The respondent has, therefore, also gone to the extent of making an untrue assertion of fact for justifying his refusal to comply with the direction of the appellate authority to summon the above persons for being cross-examined by the petitioners.

7. In the result, I quash the assessment orders, exhibit P-6 in O.P. Nos. 3695 and 3697 of 1969 and exhibit P-7 in O.P. No. 3936 of 1969 ; and the cases are remitted to the respondent for being dealt with and disposed of in compliance with the direction of the Appellate Assistant Commissioner and in the light of the observations herein contained. The petitioners have been subject to unnecessary expense wholly due to the contumacious conduct of Shri N. Venkitachalam who passed the above orders. He is, therefore, directed to personally pay the costs of the petitioners in all these three cases. Counsel's fee is fixed at Rs. 150 in each case. A copy of this judgment will be forwarded to the Board of Revenue, Trivandrum, for information.


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