1965 (12) TMI 32 - SC - VAT and Sales Tax

Supreme Court Upholds High Court Decision Setting Aside Tribunal Orders

State Of Kerala Versus C. Velukutty

The Supreme Court dismissed the appeals, upholding the High Court's decision to set aside the Tribunal's orders. The Sales Tax Officer's assessments were ... Whether the Tribunal has either decided erroneously or failed to decide any question of law? Held that:- The accounts of those customers or their statements could have afforded a basis for the best judgment assessment. There must also have been other surrounding circumstances, such as those mentioned in the Privy Council's decision cited supra. But in this case there was no material before the assessing authority relevant to the assessment and the impugned assessments were arbitrarily made by applying a ratio between disclosed and concealed turnover in one shop to another shop of the assessee. It was only a capricious surmise unsupported by any relevant material. The High Court, therefore, rightly set aside the orders of the Tribunal. Nor can we accede to the request of the learned counsel for the State to remand the matter to the Tribunal for fresh disposal. The sales tax authority had every opportunity to base its judgment on relevant material; but it did not do so. The department persisted all through the hierarchy of tribunals to sustain the impugned assessments. The High Court, having regard to the circumstances of the case, refused to give the department another opportunity. We do not think we are justified to take a different view. Issues:1. Assessment of sales tax based on best judgment assessment.2. Validity of best judgment assessment by Sales Tax Officer.3. Jurisdiction of the High Court to interfere with the Tribunal's findings.4. Interpretation of relevant provisions of the Travancore-Cochin General Sales Tax Act.Analysis:Issue 1: Assessment of sales tax based on best judgment assessmentThe case involved two appeals against the sales tax assessments made on the respondent for the years 1955-56 and 1956-57. The Sales Tax Officer conducted best judgment assessments based on secret accounts discovered at the head office. The respondent contested the reassessment of the branch office turnover. The High Court set aside the orders of the Sales Tax Tribunal, leading to the present appeals.Issue 2: Validity of best judgment assessment by Sales Tax OfficerThe Sales Tax Officer applied a percentage increase to the disclosed turnover of both offices based on the secret accounts found at the head office. The respondent argued that the assessments were capricious and arbitrary as there was no substantial evidence supporting the increase. The High Court agreed, ruling that the assessment for the branch office was based on conjecture and lacked a legal basis. The court emphasized that a best judgment assessment must be supported by relevant material and not be arbitrary.Issue 3: Jurisdiction of the High Court to interfere with the Tribunal's findingsThe High Court's jurisdiction under section 15B was limited to determining if the Tribunal decided erroneously or failed to address a legal question. The High Court dismissed the revisions without remanding for a fresh assessment, citing the arbitrary nature of the Sales Tax Officer's actions. The court held that the Tribunal erred in law by upholding the capricious assessments, leading to the dismissal of the appeals.Issue 4: Interpretation of relevant provisions of the Travancore-Cochin General Sales Tax ActThe judgment referred to provisions of the Act, particularly section 12(2)(b), which empowers the assessing authority to make best judgment assessments. The court highlighted that while some guesswork is permissible in such assessments, they must be based on reasonable estimates supported by available material. The court cited precedents emphasizing the importance of considering all relevant factors before making a best judgment assessment.In conclusion, the Supreme Court dismissed the appeals, upholding the High Court's decision to set aside the Tribunal's orders. The court found the Sales Tax Officer's assessments to be capricious and lacking a legal basis, emphasizing the need for assessments to be supported by relevant material. The judgment clarified the limits of best judgment assessments under the Act and affirmed the High Court's jurisdiction in reviewing such assessments.