1973 (4) TMI 49 - SC - VAT and Sales Tax

Supreme Court overturns High Court decisions on tax assessment and penalties

Commissioner Of Sales-Tax, Madhya Pradesh Versus HM Esufali HM Abdulali

The Supreme Court allowed the appeals, overturning the High Court's decisions regarding the legality and justification of the revised assessment enhancing ... Whether there is a reasonable nexus between the basis adopted by the assessing authority and the estimate of escaped turnover made? Held that:- Allow these appeals, vacate the answers given by the High Court to questions Nos. (1) and (3) and answer those questions in favour of the department, i. e., that the estimate of taxable turnover under the 'State Act' and the 'Central Act' made by the assessing authority for the period from November 1, 1959, to October 20, 1960, on the basis of ₹ 31,171.28 as the escaped turnover for a period of 19 days was legal and justified and, consequently, the penalty of ₹ 2,000 imposed on the assessee was in accordance with law Issues Involved:1. Legality, justification, and excessiveness of the revised assessment enhancing taxable turnover.2. Validity of best judgment assessment under section 19(1) of the Madhya Pradesh General Sales Tax Act.3. Legality and justification of the penalty imposed based on the revised assessment.4. Legality of penalty imposition under section 19(1) of the Madhya Pradesh General Sales Tax Act read with section 9(3) of the Central Sales Tax Act.Detailed Analysis:1. Legality, Justification, and Excessiveness of the Revised Assessment:The High Court found that the estimate of taxable turnovers under the local and Central Acts, made by the assessing authority for the period from November 1, 1959, to October 20, 1960, based on Rs. 31,171.28 as the escaped turnover for 19 days, was illegal and unjustified. The escaped turnover proved was only Rs. 31,171.28, and the assessee was liable to be assessed only on this amount. However, the Supreme Court disagreed, stating that the Sales Tax Officer was entitled to infer large-scale dealings outside the accounts from the proven escaped turnover. The officer could only estimate the suppressed turnover based on the material before him, and as long as the estimate was not arbitrary and had a nexus with the facts discovered, it could not be questioned. The Supreme Court emphasized that the High Court should not substitute its judgment for that of the assessing authority in 'best judgment' assessments.2. Validity of Best Judgment Assessment Under Section 19(1):The High Court upheld that a best judgment assessment could be made under section 19(1) of the Madhya Pradesh General Sales Tax Act. The Supreme Court agreed, noting that even though section 19 does not explicitly confer the power to make a 'best judgment' assessment, reassessment is essentially a fresh assessment. The assessing authority must have the power to make a best judgment assessment to prevent the assessee from escaping reassessment by refusing to file returns or produce account books. The reassessment process involves calling upon the assessee to produce evidence and objections, and the assessment must be made on a rational basis without bias.3. Legality and Justification of the Penalty Imposed:The High Court found that the penalty of Rs. 2,000 imposed on the footing of the revision of the assessment for the whole year was not legal. However, the Supreme Court overturned this, stating that the penalty was in accordance with the law since the revised assessment was justified. The penalty was imposed due to the assessee's failure to declare the correct turnover, and the reassessment was based on a rational estimate of the escaped turnover.4. Legality of Penalty Imposition Under Section 19(1) Read with Section 9(3) of the Central Sales Tax Act:The High Court upheld the imposition of a penalty for escaped assessment under the Central Act, which could be imposed under section 19(1) of the local Act. The Supreme Court did not find any reason to dispute this finding, affirming that the penalty provisions under the local Act were applicable to assessments under the Central Act.Conclusion:The Supreme Court allowed the appeals, vacating the High Court's answers to questions 1 and 3, and answered these questions in favor of the department. The estimate of taxable turnover under the State and Central Acts made by the assessing authority was legal and justified, and the penalty of Rs. 2,000 imposed on the assessee was in accordance with the law. The assessee was ordered to pay the costs of the department in both the Supreme Court and the High Court.