Assessment stay upheld on genuine enquiry grounds, while excess penalty failed for breach of draft-order procedure.

A stay of assessment is not vitiated merely because the reasons in the show-cause notice and the stay order differ, where the recorded reason is genuine and supported by pending enquiry into the transactions; the stay orders were therefore upheld. A taxing authority cannot impose a penalty above its statutory limit without following the prescribed draft-order procedure and inviting objections before finalising the higher amount; the excess fine was therefore illegal and without jurisdiction to that extent. The authorities were left free to proceed in accordance with law.

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Issues: (i) Whether the orders staying the assessment proceedings were vitiated for want of proper reasons or non-application of mind; (ii) Whether the Sales Tax Officer had jurisdiction to impose a fine exceeding the statutory limit without first issuing a draft penalty order.

Issue (i): Whether the orders staying the assessment proceedings were vitiated for want of proper reasons or non-application of mind.

Analysis: The reasons mentioned in the show-cause notices and the reasons recorded in the stay orders were different, but the discrepancy did not by itself establish non-application of mind. The relevant departmental records showed that the reasons for stay were genuine and that a further enquiry into the petitioners' transactions was actually pending. A bona fide enquiry intended to ascertain the true nature of the transactions could justify keeping the assessment proceedings in abeyance.

Conclusion: The stay orders were held to be valid and supported by genuine and sufficient reasons.

Issue (ii): Whether the Sales Tax Officer had jurisdiction to impose a fine exceeding the statutory limit without first issuing a draft penalty order.

Analysis: The statutory scheme, as applied by the Court, did not authorise the Sales Tax Officer to impose a fine exceeding Rs. 7,500 in the manner adopted. In view of the governing provision, the officer ought to have proceeded by serving a draft penalty order and inviting objections before passing a final order for the higher amount. The final imposition of Rs. 11,110.03 without following that procedure was therefore unlawful.

Conclusion: The penalty portion of the assessment order was held to be illegal and without jurisdiction to the extent of the excess fine.

Final Conclusion: The petition succeeded only in part: the stay orders were upheld, but the penalty component of the assessment was quashed to the extent indicated, leaving the authorities free to proceed in accordance with law.

Ratio Decidendi: A stay of assessment is not invalid merely because the reasons stated in the notice and the order differ, if the recorded reason is genuine and sufficient; and a taxing authority cannot impose a penalty beyond its statutory jurisdiction without following the prescribed draft-order procedure.

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