State of Madras Vs. S. G. Jayaraj
Nadar & Sons  INSC 246 (16 September 1971)
CITATION: 1971 AIR 2405 1972 SCR (1) 751
Madras General Sales Tax Act, 1959-Penalty
under s. levied only when best judgment assessment is made under s.12(3).
The assessee was a dealer in motor vehicles
and spare parts and certain other goods. During the assessment proceedings
under the Madras General Sales Tax Act, 1959 it was found inter alia that the
assessee had not included in the monthly return in Form A-2, three items of
turnover, namely, delivery charges relating to motor vehicles purchased by the
assessee from Calcutta dealers, sales of motor parts, and sales of firewood.
Assessment was made overlooking the assessee's objections in respect of the
inclusion of these items in the turnover. The Commercial Tax Officer also
imposed penalty on the assessee. The Appellate Assistant Commissioner reduced
the penalty to a nominal figure. The Board of Revenue set aside the appellate
order holding that assessee did not deserve lenient treatment. The High Court
in reference held that penalty was leviable only in respect of the second item
in respect of which a best judgment assessment had been made but not in respect
of the first and third items in respect of Which the figures in the books had
been accepted. In appeal by the Revenue,
HELD : The High Court came to the correct
conclusion because sub-ss. (2). and (3) of s. 12 have to be read together.
Sub-section (2) empowers the assessing
authority to assess the dealer to the best of its judgment in the events : (i)
if no return has been submitted by the dealer under sub-s.
(1) within the prescribed period and (ii) if
the return submitted by him appears to be incomplete and incorrect.
Subsection (3) empowers the assessing
authority to levy the penalty only when it makes an assessment under sub-s.
In other words when the assessing authority
has made the assessment to the best of its judgment it can le a penalty.
When account books are accepted along with
other record there can be no ground for making a best judgment assessment. [753
C-G] State of Kerala v. C. Velukutty, 17 S.T.C. 465, referred to.
In the present case the High Court rightly
found that the turnovers involved in the first and third items were not
determined on the basis of any estimate of best judgment since the quantum of
turnovers in respect of both these items were based on the assessee's books.
The penalty thus could not be levied in respect of these two items. [753 H- 754
B] The appeal must accordingly fail.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1404 of 1969.
Appeal by special leave from the judgment and
order dated July 4, 1967 of the Madras High Court in Tax Case No. 210 of 1964.
752 S. T. Desai, A. V. Rangam and A.
Subashini, for the appellant.
T. A'. Ramachandran, for the respondent.
The Judgment of the Court was delivered by
Grover, J. This is an appeal from a judgment of the Madras High Court in a
matter arising out of the Madras General Sales Tax Act 1959, hereinafter called
The assessee is a dealer in motor cars,
trucks, scooters, motor spare parts and certain other goods. He returned a
turn,.over of Rs. 42,09,912.12 for the assessment year 1961-
62. The Commercial Tax Officer on scrutiny of
accounts determined the turnover at Rs. 68,06,331.49. During the assessment
proceedings it was found that the assessee had not included in the monthly
return in Form A-2, three items of turnover. The first was a sum of Rs.
1,95,311.21 relating to delivery charges which the assessee had paid to certain
Calcutta dealers from whom he had made purchases of cars, trucks, scooters etc.
The second item was of Rs.
2,21,247.97 which related to the sales of
motor parts. The third item was of Rs. 1,56,539.25 being the aggregate of the
sale proceeds of firewood. The assessing authority served a notice on the
assessee to show cause why these items should not be brought to tax. The
assessee filed objections which were rejected. The assessing authority found
that the delivery charges paid by the assessee were included in the cost price
when the cars, trucks, scooters etc. were sold by it and sales tax at 7% had
been collected by the assessee on the delivery charges. As regards the second
item it was held that the assessee had failed to maintain separate accounts
contrary to the rules in respect of the first sales of parts and as it was not
possible to separate the first sales from the general entries in the account
books it was necessary to make assessment on last judgment. The assessment was
completed but certain penalty was levied On the, assessee. The assessee
appealed to the Appellate Assistant Commissioner who took the view that the
failure of the assessee to disclose the taxable turnover in the monthly returns
was due to a bona fide impression on the assessee's part that it would be
sufficient if correct figures were furnished at the time of the final
assessment. He, therefore, imposed a nominal penalty. The Board of Revenue in
exercise of its power under S. 34 of the Act set aside the order of the
Appellate Assistant Commissioner.
According to the Board's findings the failure
of the assessee to disclose the turnover in question was deliberate and called
for no lenient treatment. An appeal was filed against the order of the Board of
Revenue to the Madras High Court. The High Court allowed the appeal so far as
the first and third items were concerned. As regards the second item it decided
against the assessee.
753 Section 12(2) of the Act is in the
following terms "If no return is submitted by the dealer under subsection
(1) within the prescribed period, or if the return, submitted by him appears to
the assessing authority to be incomplete or incorrect, the assessing authority
shall, after making such enquiry as it may consider necessary, assess the
dealer to the best of its judgment :
Provided that before taking action under this
subsection the dealer shall be gives a reasonable opportunity of proving the
correctness or completeness of any return submitted by him".
The question is whether penalty can be levied
while making the assessment under sub-s. (2) of the above section merely
because an incorrect return has been filed. The High Court was of the view that
it is only if the assessment has to be made, to the best of the judgment of the
assessing authority that penalty can be levied. It seems to us that the High
Court came to the correct conclusion because sub-ss. (2) and (3) have to be
read together. Subsection (2) empowers the assessing authority to assess the
dealer to the best of its judgment in two events; (i) if no return has been
submitted by the dealer under sub-s. (1) within the prescribed period and (ii)
if the return submitted by him appears to be- incomplete or incorrect.
Sub-section (3) empowers the assessing authority to levy the penalty only when
it makes an assessment under sub-s. (2). In other words when the assessing
authority has made the assessment to the best of its judgment, it can levy a
penalty. It is well known that the best judgment assessment has to be on an
estimate which the assessing authority has to make not capriciously but on
settled and recognised principles of justice. An element of guess work is bound
to be present in best judgment assessment but it must have a reasonable nexus,
to the available material and the circumstances of each case. (See The State of
Kerala v. C. Velukutty) (1) Where account books are accepted along with other
records there can be no ground for making a best judgment assessment.
In the present case the High Court found that
the turnovers involved in the first and the third items were not determined on
the basis of any estimate of best judgment.
The quantum of turnovers in respect of both
these items were based on the assessee's account books. It has almost been conceded
on behalf of the Revenue before us that the determination of the turnovers
relating to the aforesaid two items was made from the entries in the books (1)
17 S.T.C. 465.
14-L3SupCI/72 754 ,of account of the
assessee. The true position, therefore, was that ,certain items which had not
been included in the turnover shown in the returns filed by the assessee were
discovered from his own account books and the assessing authority included
those items in his total turnover. For these reasons the High Court was
justified in holding that the assessment of the first and the third items could
not be regarded as based on best judgment. The penalty thus ,could not be
levied in respect of those two items.
In the result the appeal fails and it is
dismissed with costs. G.C. Appeal dismissed.