Supreme Court Upholds High Court Decision on Sales Tax Assessment

The State of Madras Versus SG. Jayaraj Nadar & Sons  

The State of Madras Versus SG. Jayaraj Nadar & Sons   - [1971] 28 STC 700 (SC)   Issues:
Assessment of turnover under the Madras General Sales Tax Act, 1959; Applicability of penalty for incorrect return submission; Interpretation of Section 12(2) of the Act; Justifiability of penalty imposition based on best judgment assessment.

Analysis:
The case involved an appeal from a judgment of the Madras High Court concerning the assessment of turnover under the Madras General Sales Tax Act, 1959. The assessee, a dealer in various goods, had discrepancies in the turnover reported for the assessment year 1961-62. The assessing authority found that certain items were not included in the monthly returns, leading to a higher determined turnover. The High Court decision addressed the issue of penalty imposition for incorrect return submission under Section 12(2) of the Act.

The High Court analyzed Section 12(2) of the Act, which empowers the assessing authority to assess the dealer to the best of its judgment in cases of incomplete or incorrect returns. The court determined that penalty imposition is only justified when the assessment is made to the best judgment of the authority. Sub-sections (2) and (3) were interpreted together to conclude that penalty can only be levied when the assessment is based on best judgment principles. The court emphasized that best judgment assessment must be made on recognized principles of justice and supported by available material.

In this case, the High Court found that the turnovers related to certain items were not determined based on best judgment but were derived from the assessee's account books. It was acknowledged that the turnovers in question were discovered from the account books of the assessee and included in the total turnover. Therefore, the High Court ruled that penalty imposition for these items was not justifiable as the assessment was not based on best judgment principles.

Conclusively, the appeal was dismissed by the Supreme Court, upholding the High Court's decision. The penalty imposition was deemed unjustified for the items where turnover assessment was derived from the assessee's account books rather than through best judgment assessment principles.