H.M.M LIMITED v. DIRECTOR OF ENTRY TAX, WEST BENGAL & OTHERS

Citation: [1983] 2 S.C.R. 754

Court: Supreme Court of India

Bench: Y.V. CHANDRACHUD, A. VARADARAJAN, AMARENDRA NATH SEN

Case summary

The petitioners challenge the legality, validity and jurisdiction of the impugned levy and recovery of entry tax made on the ''best judgment" basis with reference to the sale price of the product wihin the Calcutta Metropolitan Area, disregarding the cost of the consignments...

Judgment text

H. M. M. LIMITlO v. DIRECTOR OF ENTRY TAX, WEST BENGAL & OTHERS. April 15, 1983 [Y. V. CHANDRACHUD C. J. , A. VARADARAJAN AND A. N. SEN JJ. ] The Taxe~ on Entry ofGoods into Calcutta Metropolitan Area Act, 1972s. 37 (2). The Taxes on Entry of Goods int(l Calcutta Metropolitan Area Rules, 1970 [rained under the Taxes on Entry ofGoods into Calcutta Metropolitan Area Act, 1970-Kept alive by the Taxes on Entry of Goods into Calcutta Metropolitan Area Ordinance, 1972 wlu'cli repealed Act of 1970-Are applicable under the Act of 1972 which replaced the Ordinance(! / 1'72. The Taxes on Entry of Goods into Calcutta Metrvpolitan Rules, 1970- / Rule 12 (I) and 12 (2)-Scope of Under s.

34 of the Taxes on Entry of Goods into Calcutta Metropolitan Area Act, 1970 which provided for levy & collection of a tax on the entry of specified goods into Calcutta M-etropolitan Area for consumption, use or sale therein from any place outside that Area, Taxes on Entry of Goods into Calcutta Metropolitan Area Rules, 1970 were framed. The Act of 1970 was • repealed by the Taxes on Entry of Goods into Cnlcutta Metropolitan Area Ordinance, 1972 but the Rules 1970 were continued in operation bys. l(J) of the Ordinance. This Ordinance was repealed and replaced by the Taxes on Entry of Goods into Calcutta Metropolition Area Act, 1972. Section 37 (2) of this Act provides that anything done or any action taken under the Ordinance of 1972 shall be deen1ed to have been validly done or taken under this Act as if this Act had commenced on the 16th day of November, 1970 (the day when the Act of1970 came into force). Under r.

12(1) of the Rules of 1970, for the purpose of determining the value of the goods every dealer has to make a declaration regarding their value in a prescribed form and submit the same to the Assessing Officer alongwith a copy of the relevant documents in support thereof. Rule 12(2) provides that if the Assessing Officer is satisfied about the reasonableness of the value declared by the dealer he shall accept the same and levy tax acoordingly. It further provides that if the value is not ascertainable on account of nonavailability or non-production of the documents, or if the Assessing Officer is not satisfied about the reasonableness of the va1ue declared by the dealer, the Assessing Officer shall determine the approximate saleable value of the goods in the Calcutta Metropolitan Area to the best of his judgment and tax accordingly. ' II The appellant in the Civil appeal and the petitioner in the writ petition is one and the same Company.

The Company which used to import Horlicks Powder manufactured at its factory in Punjab into Calcutta Metropolitan Area 11. M. M LT! >. JI. DIRlicTOR, ENTRY TAX ? SS for purposes of bottling and marketing both inS:ide and outside that Area, imported 8736 kg•. of that Powder in 18 steel drums cif 182 kgs. each in 1974. . Tho Entry Tax Officer at the Hussenabad Road Check Post assessed and charged entry tax on this po\\der under s. 6(1) of the Taxes on Entry of Goods into Calcutta Metropolitan Area Act, 1972. The Assessing Officer did not accept the declaration and the documents regarding the value, freight and insurance •ubmitted by the Company under r. 12(1) of the Taxes on Entry of Goods into Calcutta Metropolitan Area Rules, 1970 and n1ade -assessment on the 'best judgment" basis under r. 12 (2). The original documents regarding the value, freight and insurance were not produced by the Company before the Assessing Officer in spite of repeated reminders. i '). ,.

On appeal before the second respoi:tdent, Assistant Director, Entry Tax, Government of West Bengal, it was contended that (1) Rules of 1970 framed under the Act of 19i0 cannot be applied for the purpose of the Act of 1972, and (2) as the declaration regarding the value of the goods was submitted and the . documents were st. own to the Assessing Officer, he should have proceeded in accordance withs. 14(1) of the Act of 1972 and since· there was no omission or failure on the part of the Company, there was no scope for determining the value of tt,e powder on the ''best judgment" basis under r. 12(2) of the Rules of 1970. The Assistant Director dismissing the appeal observed that s. l (3) of th c Ordinance of 1972 and s.

37(2) of the Act of 1972 prOvided for continuance of the operation of the Rules of 1970 and those provisions could be validly applied under the Act of 1972: since the value declared hy the Company was much lesi than the market value and also far below the value accepted by the Excise Authorities as ascertained while the product came out of the factory, the Assessing Officer proceeded to ascertain the value on the approximate saleable value of the goods in the Calcutta Metropolitan Area ; the value ascertained by the Assessing Officer could not be said to be arbitrary. The Company filed a writ petition in the High e deemed to have been done under the Act of 1972 as if that Act hac\ been passed on the 16th of November 1970, on which date the Act of 1970 cal)le into force and though s.

36 of the Act of 1972 empowers the State Government, subject to previous publication to make rules for carrying out the provisions of that Act, no fresh rules b,ave been framed in exercise of that power and only certain amendi;ne11ts have been rnade (o certain rules of those Rules of 1970 from time to time in exercise of the power conferred by s. 36 of the Act of 1972 as mentioned above. Therefore, it is clear that the Rules of 197. 0. have be. en kept alive by the provisions of s. I (3) of the 9rdii;iance and s. 37 (2) of the Act of 1972, and that it is open to the Entry Tax Officer to r~sort to the "be. st judgment" method for a,scert. ainment of the va. lue of the goods under rule 12(2) provided t4e rec,. 'irements thereof are satisfied, namely, that the value is· not ascertainable on account of non-availability or non-product10n of the Jiilloi- invoice or consignment note issued by the consignor or other ff, documents of like nature or other documents showillJ!

other charge$, dutie$ and fees or that the Assessing Officer is not satisfied abo. 1Jt ihe reasonableness of the value shown or declared by the dealer. - -il. M'. i. t LTD:v. DIRECTOR; ENTRY TAX (Varadarajan, J. ) 767 . 'Nciw the q~estion for consideration io. whether or not ·the Assessing Officer was justified in resorting tci the "best judgment" method of ascertaining the value of the goods under nile 12 (Z) and the Appellate Authority was or was not ju;fified in confirming the order cir assessment made by Assessing Officer. The appellant ·show- • ed the ·value of the said 8736 kg;. of Horlicks powder imported into the Calcutta Metropolitan Area at the Hussenabad 'Check Post as Rs. 1,22,304;-working out to Rs. 14/-per kg. , but wanted bis declaration of the value as Rs'. 7. 694 per kg. in the Calcui1a Metropolitan Area, rnade up of Rs. 5. 9891 being the value as ~r the stock. transfer invoice, freight and insurance to be accepted by lhe Assessing Officer..

The appellant produced before the Assessing Officer ·a . copy ot the exdse gate pass showing the value to be in respect of the same goods and in respect of die same deafer; The copy purported to be of C. No. CE/20/BPE/70 dated 5J2. 197o of the Superintendent of Central Excfre and Custom's, Patiafa, and it was contended on behalf cif the appellant befo. rc the Assessing Officer tbllt ex'cise·drity was paid at Nabba. Bui tlie copy produced did not . purport io be. a ! certified copy. and the original was nOt produced, and; therefore; the . Assessing Officer beid that excise duiy was not pild a{ the time of teino~at of the goods from the fac'. ory at Nab'iia. ti! s' the appellant'~ contention that onty ID. the case ot export o'f good. s. directly ·from · Nabha or R~jahmrindry having regard to the central excise regulations, clearince of goods f~om the factory is effeCted .. on payment Of excise duty on the invoice value whti:lt includes the cost arid irfariufactu~er's profit.

But the copy produced was not a certified copy and the original gate pass was not produced. Tn'erefore, ii coufd not. lie . held that the Assessi'ng Officer was not justified in rejecting the copy . and holding that'excise duty was not paid at the time of tne removal · Or t! ie concerned consignment froin the factory at :Nabha. A'ccoiding to the appeliant's case in the Writ Petition:when the + goods arrive at the H'. uosenabad check. ~post in bull::, pacl. :edin steel drums containing 182 kgs. of H'. orlick's Powder each; the goods hav~ no other vaiue except the cost of manufacture, . freight and insu'nince am!. only after the Horlicks powder,' packed in the sieel drrin;'s, enters the Calcutta ·Metiopoilta·n· Area the cost of bottling iripuis, . bottling expenses, manufacture's profits are added an. a excise duty is paid ori the total value after the · goods are put into marketable H . . condition. It is also the ·appellant's .

case in the writ Pet;tion that the aJ'pellant never iniended to sell ·a~·cl had never sold' H. orlicks powder iii b~lk coniallieis i~ the Caicutta Meiro~olitaii Area <ir ' elsewhere and that respondents 2 and 4 in the wr;·t Petiton, ~amely. Assistant Director (Entry Tax) atid the Inspector (Entry Tax) Husse- · nabad Check Post, rejected the documents produced for the purposes of assessment under rule 12 ·(I) and wrongly resorted to the "best . judgment". method of ascertainment of the· value under fU]e 12 (2) · and assessed the taxable value on· the basis of the retail price of unit • bottles of 450 gms. each in the local market at Calcutta. It is not possible to accept the appelant's contention that the Horlicks powder · packed in steel drums containing . 182 kgs. each had no value at the Hussenabad . Check Post apart from the cost of manufacture, freight ~nd insurance. That may be so from the point of view of ·the manufacture, but it cannot be the value of the gdods in: the.

Calcutta Metropolitan . Area . where the value sliould include in addition. to ·the aforesaid items the cost of further. transport into the Calcutta ' Market. Area from the Hussenabad Check Post, excise duty if not . already paid at the time of the removal of the goods from the . factory "at Nabha, wholesaler's and retailer's profits and sales-tax. Under rule 12 (1) the . value . declared must include cost price of the goods as given in the bill, invoice or consignment note or any·other· documeni. of like nature, shipping duties . where applicable; insurance, excise. duty and sales-iax. It may, be that the process of bottling and labelling is resorted to after the bulk consignment is . received. into the Calcutta Metropolitan Area for the purpose. of convenience and it may also be. that it may. not form part of the value of the goods atthe point of entry. The 'cost of bottling and labelling the Horlicks powder into unit bottle.

3 inside the Ca'cutta Metropolitan' Area would be negligible. It m~y be that the appellant may be entitled· to ask the • Assessing Officer to take· that also into ·c01isideration in the ·case of assessment under. rule 12 (! ). But since the value. declared by ·the . appellant was far less than the value. showed by the appellant company itScl{ in Form Y as Rs. 1,22,304 working out to Rs. 14 per kg. as wdl as the value shown for the unit bottles in the price list of the. appellant's selling agent in the Calcutta Metropolitan ·Area, it is not. possible to hold that the Assessing Officer was not justified in. rejecting the value declared by the appellant as Rs. · 7. 694 per kg. and resorting ,lei' ascertainment'of the' assessable value on the "best judgment" basis· as provided for in rule 12 (2) on the ,basis of the approximate. assessable value of tJ:e :goods inc the Calcutta Metropolitai;i Area.. · The learned counsel for the appellant- invited our attention to ·this Col!

rt's decision in Commissioner ofIncome:Tax; West Bengal·\ '. ' - . ~ H. M. M LTD. v. DIRECTOR, ENTRY TAX ( Varadarajan, J. ) 769 1 v. Padamchand Ramgopal,( ) where in his investigation, the Income-Tax Officer found two insignificant mistakes in the assessee's accounts for the year 1953-54. Those mistakes were (1) failure to bring into account an item of interest received and (2) incorrectness of an entry relating to the receipt of income.. No mistake was found in the accounts relating to assessment years 1954-55 to 1957-58. However, the Income·Tax Officer rejected the accounts as unreliable and added to the returned income half the amount of gross receipts shown by . , the assessee under the head "interest" for each of the years as escaped income. The Tribunal accepted the additions made by the Income-Tax Officer.

But this Court held that the Income-tax Officer and the Tribunal erred in holding that the additions could be made in accordance with law and it was further held that the two mistakes afforded no basis for rejecting the accounts of the subsequent years and the method adopted for determining the escaped income was highly capricious. We think that the ratio of that decision 'will not apply to the facts of the present case. In Haji Lal Mohd. Biri Works, Allahabad v. The State of U. P. and Others,(') which related to "best judgment" method of assessment under s. 18 (4) of the M. P. General Sales Tax Act, it has been held that the Assessing Authority while making "best judgment assessment" should arrive at its conclusion without any. bias and on a rational basis and that if the estimate made by the Assessing Authority is his bonafide estimate and is based on a rational basis the fact that there is no good proof , in respect of that estimate does not render the assessment illegal.

There is no material in the present case for us to hold that the Assessing Authority had any bias against the appellant or that his estimate of the assessable value of the goods is not a bonafide estimate or that it has no rational basis. We find that the Assessing Officer had sufficient reason for not accepting the appellant's declaration regarding the value of the goods and that his assessment of the saleable value on the "best judgment" basis is rational and based on the appellant's own selling agent's price list in the Calcutta Metropolitan Area. We find no merit in the Appeal and Writ Petition. The Appeal and Writ Petition, therefore, fail and are dismissed. The appellant shall pay the respondents' costs in the appeal. There will be no order as to costs in the Writ Petition. H. S. K. Appeal & Petition dismissed. (I) (1970) 76 I. T. R. 719. (2) [1974] 1 S. C. R. 25, ~-~·