THE COMMISSIONER OF SALES TAX, U.P. v. MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW
Citation: [1973] 2 S.C.R. 625; 1972 INSC 254
Court: Supreme Court of India
Bench: K.S. HEGDE , P. JAGANMOHAN REDDY, HANS RAJ KHANNA
Judgment date:
Case summary
1972 INSC 254. Supreme Court of India judgment dated 1972-10-10. THE COMMISSIONER OF SALES TAX, U.P. v. MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW. Read the...
Judgment text
THE COMMISSIONER OF SALES TAX, U. P. v. MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW October 10, 1972 [K. S. HEGIJE, P. JAGANMOHAN REDDY AND H. ),?.. KIIANNA, JJ. ] U. P. Sales Tax Act and Rules, s. 21--Ex-oarte assessment-Notice· for assessment of escaped turnover-When can be issued-'Reason to believe•, scope of. For the assessment year 1957-58, the assessee (respondent) was assessed to mies tax, under the U. P. Sales Tax Act and Rules, on 'a turnover which included the turnover of a flour mill of the assessee. The assessment was made ex-oarte. On account of food shortage the Government had fixed a quota for the flour mill in 1953 on the basis of the average grinding do. ne during the previous three years. In view of the turnover according to the account books of the assessee for the years 1955-56 and • 1958-59, the sales-tax officer thought that the turnover· for the year 1957-58 was underestimated and that ·some turnover had escaped assessment.
He accordingly issued a notice in September 1961 and a memo· randum on 13th March 1962 calling upon the asse'5ee to produtje the account books but no account books were produced. On 24th March, 1962, a notice was issued under s. 21 of the Act. It was served on the asscssoe on 26th March 1962. On March 19, 1963, the sal::s tax officer made an assessment order under s. '21 estimating the turnover at a higher figure. Section 21 provides that if the assessing authority has reason to believe that the whole or part of the turnover of a dealer had es\'aped assestment, he may reassesc the dealer to tax, that such re-assessment shall not be made for any assessmeint year after the expiry of four y:ara, and that where notice under the section had been served within four years, the re-asse· sment may be made within one year of the date of service of the not. ice even if the period of four years is thereby exceeded. The High Court, on reference under s.
11 of the Act, held that: (1) the firs\ notice and ·memora;ndum were not notices under s. 21 so as to attract the period of limitation of one year for making the re-assessnr. nt, but (2) that the assessing offioer could not in the circum'tances of the case, be said to have reason to believe that some turnover of the assessee had escaped assessment. In appeal to this Court, HELD : (I ) The High Court was right in holding that the first notice and memolcandum were of a preliminary nature and did not constitute notices under s. 21. All that was stated in them was to call upon the assessee to produr-e account books, and a threat, in c.. ,e of non-compliance, that action may be taken under s. 2! of the Act. It was only on March 24, 1962, that notice under that sectio. n was given to the respondent. Th. o re-as-essment made on March 19, 1963, was within one year of the dates of service if the notice and hence, the re-as5. essment was no'" barred by limitation.
[635C-El · ' 626 SUPREME COURT RBrORTS [1973] 2 s. c. a. (2) The lfigh Court was in error in holding that the assessing e. utho-rity did not act with~n the ambit of his powers in 'initiating proceedings under s. 21. [634FJ (a) The words 'reason to believe' convey that there . must be some reasonable grounds for the assessing authority to form the belief that tbil turnover had escaped assesslll pondent then went up in revision and contended that there was no material on which the Sales Tax Officer could have -reason to relieve that turnover had escaped assessment. The proceedings initiated l! nder section 21 of the Act were said to be without jurisdiction. It was also urged on behalf of the respondent that notice issued on September 13, 1961 as also the memorandum dated March 13, 1962 constituted valid notices under section 21 of the Act and as the assessment had not been completed within one year of the service of those notices, the assessments were barred by limitation.
The Judge (Revisions) reject-ed these contentions. He was, however, of the opinion that the quantum of turnover needed redetermination. At the instance of the respondent, the Judge (Revisions) referred the questions reproduced at the commencement of this judgment to the High Court. The High Court while ~nswering the ~rst . ~~estio~ in the nega-tive referred to the words reason to believe 111 section 21 of the Act' and observed that the reason must be that of an honest and reasonable person based upon reasonable grounds and that it was not sufficient that the Sales Tax Officer should have reason to suspect that the turnover had been under-assessed. In the opi· nion of the High Court, it could not be said that the Sales Ta" ji of the respondent amounted to over rupees fiftyeight lakhs. Account books of the respondent also sliowed that during the year 1958-59 the tum- ·Over of the respondent for sale of·atta, maida and sooji amounted to over rupees seventyfive Iakhs.
The assessing authority had also material with it to show that the quota of wheat for the respondent had been fixed in August 1958 on the basis Of the average of grinding done in the past three years. There was also the addi-tional fact othat the respondent had in spite of repeated notices not produced its account books for the assessment year 1957-58. 'Jhese facts, in our opinion, were germane to the formation of the belief of the assessing authority that part of the turnover of the respondent had escaped assessment to tax. It cannot be said that the above belief was not formed in good faith or was mere pretence for initiating action under section 21 of the Act. rrJie assessing authority in the circumstances, in our opinion, acted within the ambit of its powers in initiating proceedings under section 21 of the Act. We are unable to accede to the contention of Mr.
Karkhanis that as the assessment sought to tie reopened was ex-parte assessment under rule 41(5) of the Uttar Pradesh Sales Tax Rules, no proceedings in respect of that assessment can be initiated under section 21 of the Act. There is nothing in that section to restrict its· operation to assessments other than those which have been made ex-parte under rule 41 ( 5). The language of the section makes it plain that the assessing authority can take action if such authority has reason to believe that the whole or part of 1he turnover of a dealer has, for any reason, escaped assessment (! ) (1961) 41 I. T. R. 191. c. s. T. v. BHAGWAN INDUSTRIES (Khanna, I. ) 635 to tax for any year. To accede to the contention of Mr. ~arkha nis would be tantamount to affording protection, so far as the operation of section 21 is concerned, to dealers who avoid to put in appearance and produce their account books before the assessing authority..
Such a construction is not only not warranted by the language of the section, it is manifestly unreasonable inas· much as it puts a premium on contumacy. Mr. Karkhanis has also assailed the answer of the High Court to question No. (Ii) and has contended that the notice dated September 13, 1961 and the memorandum dated March 13. 1962 should be construed as notices under section 21 of the Act. As the re-assessment was not completed within one year of the. service of . these notices, the re-assessment, according to the learned counsel, should be )leld to be barred by limitation. There is, in our opinion, no force in this contention, we agree with the High Court that the above notice and the memorandum were of a preliminary nature and did not constitute noti. ces under section 21 of the Act. All that was stated in the said notice and Ihe memorandum was io call upon the respondent to produce account books.
Threat was also held out that in case of non-compliance by the respondent, proceedings would be taken under section 21 of the Act. The above notice and the memorandum could not consequently be construed as notices under section 21 of the Act. It was only on March 24, 1962 that notice under section 21 of the Act was given to the respondent and the same was served on March 26, 1962. The assessment under section 21 was made on March 19, 1963 which was admittedly within one year of the date of the service of the notice under section 21 of the Act. We accordingly accept the appeal and discharge the answer iiven by the High Court to question No. (I). In our orinion. the assessing authority had an honest belief that the turnover of the resoondent had partially escaped taxation so as to . iustifv initiation of proceedinl! s und~ section 21 of the Act. We accordingly answer the said question in the affirmative and in favour of the deoartment.
The aonellant shall be entitled to the costs of ihis Court as well as in the High Cm1rt. V. P. S. Appeal allowed.
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