Recorded reasons and prior satisfaction are mandatory before invoking valuation-based assessment under the JVAT Act.

Section 35(7) of the JVAT Act permits valuation-based assessment only where the prescribed authority first records reasons and is satisfied that goods were sold above the invoice price, and it also requires a hearing before action. The text states that the assessing authority proceeded on an underpricing theory by reference to IBM rates without satisfying this jurisdictional precondition, even while recording that the dealer had not sold goods above invoice price. On that basis, the assessment and penalty proceedings were described as founded on an incomplete and legally unsustainable initiation, and the consequential orders were set aside with remand for fresh action in accordance with law.

---

---

Issues: Whether the assessment and penalty proceedings based on Section 35(7) of the JVAT Act could be sustained when the prescribed authority had not recorded reasons before initiating the proceedings and had proceeded on the premise of underpricing by reference to IBM rates.

Analysis: Section 35(7) permits determination of the value of goods at the time of sale only when the prescribed authority is satisfied that the goods have been sold at a price higher than that shown by the dealer. The proviso makes recording of reasons before initiation of proceedings mandatory and also requires opportunity of hearing. On the facts, the assessing authority itself recorded that the dealer had not sold goods at a price higher than the invoice price, yet treated the matter as one of underpricing and proceeded to assess and impose penalty. The record did not show that the jurisdictional precondition of recorded satisfaction had been complied with, and the impugned orders were therefore founded on an incomplete and legally unsustainable initiation of proceedings.

Conclusion: The proceedings under Section 35(7) could not be sustained in the absence of recorded reasons and prior satisfaction, and the consequential assessment and penalty orders were liable to be set aside.

Final Conclusion: The writ petitions succeeded, the impugned tribunal orders were quashed, and the matter was remitted to the assessing authority to proceed afresh in accordance with law after complying with the statutory preconditions.

Ratio Decidendi: Where a taxing statute makes prior recording of reasons and satisfaction a condition precedent for invoking an assessment power, non-compliance with that jurisdictional requirement vitiates the consequential assessment and penalty.

---