1970 (7) TMI 71 - HC - VAT and Sales Tax

Validity of UP Sales Tax Act Sec 21 proceedings upheld based on electricity consumption disparities. Account book rejection requires concrete evidence.

Mahabir Prasad Jagdish Prasad, Varanasi Versus Commissioner of Sales Tax, UP.

The court upheld the validity of proceedings under section 21 for determining escaped turnover under the U.P. Sales Tax Act based on disparities in ... - Issues:1. Validity of proceedings under section 21 for determination of escaped turnover under the U.P. Sales Tax Act.2. Justification for rejecting the account books during the assessment.Detailed Analysis:Issue 1: Validity of proceedings under section 21 for determination of escaped turnover under the U.P. Sales Tax ActThe case involved a reference under section 11(1) of the U.P. Sales Tax Act initiated by the assessee, a business engaged in the manufacture and sale of oil. The assessment for the year 1959-60 was reopened under section 21 due to disproportionately high consumption of electrical energy in the manufacturing process. The Sales Tax Officer conducted supplementary assessments, determining the escaped turnover under both U.P. Sales Tax Act and Central Sales Tax Act. The appellate authority upheld the proceedings under section 21 but reduced the escaped turnover for U.P. sales. The revising authority further revised the turnover amount. The main question was whether the initiation of proceedings under section 21 was valid based on the expert's report indicating high electricity consumption per unit of oil produced. The court held that the disparity in electricity consumption provided sufficient grounds for initiating proceedings under section 21, as the assessing authority only needed to have a reason to believe that turnover had escaped assessment. The court answered this part of the question in favor of the department.Issue 2: Justification for rejecting the account books during the assessmentThe second part of the question concerned the rejection of the assessee's account books during the assessment process. The court emphasized that account books cannot be rejected based on mere suspicion or conjecture unless they are maintained in a manner that renders them unreliable. While high electricity consumption raised suspicion of production suppression and understated sales, it was not enough to reject the accounts without additional material indicating evasion. The court noted that strong suspicion alone cannot substitute positive material to justify rejecting accounts. In this case, the assessing authority failed to provide specific instances of evasion beyond high electricity consumption to support the rejection of accounts. The court highlighted that the consumption of electricity varies based on factors like machinery type and oil production mix, and it alone could not justify rejecting the accounts, especially when they were previously accepted during regular assessment proceedings. Consequently, the court answered the second part of the question in favor of the assessee and against the department.In conclusion, as both the assessee and the department succeeded partially in their arguments, no costs were awarded. The reference was answered accordingly.