Evasion-based sales tax assessment fails where a longstanding genuine distribution arrangement lacks proof of tax evasion intent.

Section 18(7) of the Madhya Pradesh General Sales Tax Act applies only where sales to favoured buyers at abnormally low prices are shown to have been effected with the dominant object of evading tax. A longstanding distributing agency arrangement, existing since 1951 and found to be a genuine commercial structure aimed at reducing internal competition, did not satisfy that test merely because it incidentally produced a tax advantage. In the absence of proof that the agency was fake or that evasion was established, invocation of section 18(7) was unjustified, and the appellate view declining revision under section 39(2) was legally sustainable.

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Issues: (i) Whether assessment under section 18(7) of the Madhya Pradesh General Sales Tax Act, 1958 was justified. (ii) Whether evasion of payment of tax within section 18(7) was established. (iii) Whether the order of the first appellate authority was erroneous and prejudicial to the interests of Revenue so as to justify revision under section 39(2) of the Madhya Pradesh General Sales Tax Act, 1958.

Issue (i): Whether assessment under section 18(7) of the Madhya Pradesh General Sales Tax Act, 1958 was justified.

Analysis: Section 18(7) applies only where the Commissioner is satisfied that the dealer, with a view to evade payment of tax, effected sales mostly to favoured buyers at abnormally low prices compared with similarly circumstanced dealers. The sales through the distributing agency were a long-standing commercial arrangement existing since 1951, when tax was on the last point under the earlier sales tax regime. The arrangement was found to be directed towards eliminating internal competition among the constituent factories, not towards evading tax. There was also no finding that the agency was fake or that the sales were abnormally low in comparison with other dealers similarly situated.

Conclusion: The assessment under section 18(7) was not justified.

Issue (ii): Whether evasion of payment of tax within section 18(7) was established.

Analysis: The material showed that the distributing agency pre-existed the present taxing regime and operated as a genuine commercial entity. The tax advantage under the later regime was only incidental to the arrangement and not its dominant object. In the absence of proof that the sales were made with a view to evade tax, the statutory condition for invoking section 18(7) was not satisfied.

Conclusion: Evasion of tax was not established.

Issue (iii): Whether the order of the first appellate authority was erroneous and prejudicial to the interests of Revenue so as to justify revision under section 39(2) of the Madhya Pradesh General Sales Tax Act, 1958.

Analysis: Once section 18(7) was found inapplicable and evasion was not established, the appellate authority's view that the provision could not be invoked was a legally sustainable one. There was no basis to treat that order as erroneous or prejudicial to the interests of Revenue.

Conclusion: Revision under section 39(2) was not justified.

Final Conclusion: The reference was answered against the Revenue and the assessee succeeded on the substantive questions decided.

Ratio Decidendi: Section 18(7) can be invoked only when sales to favoured buyers at abnormally low prices are proved to have been effected with the dominant object of evading tax; a bona fide and longstanding commercial arrangement does not attract the provision merely because it incidentally reduces tax liability.

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