Tax assessment machinery for detecting under-invoicing and true turnover upheld as a valid state power.

Section 12-A of the Tamil Nadu General Sales Tax Act was upheld as a valid machinery provision within the State's legislative competence because it enables the assessing authority, after notice and enquiry, to test whether declared sale prices reflect the real consensual value and to make a best judgment assessment where under-invoicing appears. It was not treated as creating a new charge or altering the bargain between the parties. Rule 18-C was also upheld because it only supplies guiding factors, including comparable prices and permissible variations, to assist the assessment of true turnover; the 15 per cent reference was treated as a safeguard and not an enlargement of statutory power.

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Issues: (i) Whether section 12-A of the Tamil Nadu General Sales Tax Act, 1959 is constitutionally valid and within the legislative competence of the State Legislature; (ii) Whether rule 18-C of the Tamil Nadu General Sales Tax Rules, 1959 is ultra vires section 12-A of the Act.

Issue (i): Whether section 12-A of the Tamil Nadu General Sales Tax Act, 1959 is constitutionally valid and within the legislative competence of the State Legislature.

Analysis: The provision was construed as a machinery measure aimed at preventing tax evasion in cases where sales or purchases are shown in accounts at abnormally low prices compared with the prevailing market price. The Court held that it does not create a new charge or alter the bargain between the parties, but only enables the assessing authority to test whether the declared price reflects the true consensual value and, if necessary, to make a best judgment assessment after enquiry and notice. The provision was therefore held to operate within Entry 54 of List II read with Article 246(3) of the Constitution of India and not to trench upon the field of inter-State trade.

Conclusion: Section 12-A was upheld as constitutionally valid and intra vires the legislative competence of the State.

Issue (ii): Whether rule 18-C of the Tamil Nadu General Sales Tax Rules, 1959 is ultra vires section 12-A of the Act.

Analysis: Rule 18-C was treated as a set of guiding factors for determining whether the price shown in accounts is the real consensual price. The Court held that the rule does not travel beyond the parent provision, because it only assists the assessing authority in assessing bona fides and in arriving at the taxable turnover through relevant commercial indicators, including comparable prices and permissible variations. The 15 per cent reference was regarded as a safeguard and guiding norm, not as an impermissible enlargement of the statutory power.

Conclusion: Rule 18-C was held to be valid and not ultra vires section 12-A.

Final Conclusion: The statutory scheme for checking under-invoicing and determining the true turnover was sustained, and the challenge to both the provision and the rule failed.

Ratio Decidendi: A tax provision that authorises best judgment assessment to detect evasion by comparing declared prices with the prevailing market price, while preserving safeguards of notice and enquiry, is a valid machinery provision if it merely determines the real taxable turnover and does not rewrite the contract of sale.

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