Jurisdiction under sales tax assessment rules fails where turnover is disclosed but claimed exempt and tax liability is denied.

The Sales Tax Officer lacked jurisdiction to assess under rule 41(3) of the U.P. Sales Tax Rules where the return disclosed the turnover but expressly claimed that the sales of handspun woollen yarn were exempt from sales tax. In that situation, rule 41(2) did not require tax deposit with the return because the dealer was not admitting the turnover as taxable. Rule 41(3) applies only when no return is filed or when a return is filed without payment of tax in respect of turnover on which tax is payable. As the assessee denied tax liability on the disclosed turnover on the ground of exemption, the statutory precondition for assessment under rule 41(3) was absent and the assessment order was liable to be quashed.

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Issues: Whether the Sales Tax Officer had jurisdiction to make an assessment under rule 41(3) of the U.P. Sales Tax Rules when the return disclosed the turnover but claimed it was exempt from sales tax and no tax was deposited.

Analysis: The return filed by the petitioner disclosed the sales of handspun woollen yarn but expressly asserted that the turnover was exempt from sales tax. In such a situation, rule 41(2) did not require deposit of tax before filing the return, because the dealer was not treating the disclosed turnover as taxable. Rule 41(3) authorises an assessment only where no return is submitted or where a return is submitted without payment of tax in a case where tax is payable on the disclosed turnover. Where the assessee denies tax liability on the very turnover shown in the return on the ground of exemption, the precondition for invoking rule 41(3) is absent.

Conclusion: The assessment order made under rule 41(3) was without jurisdiction and liable to be quashed in favour of the petitioner.

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