L.V. Veeri Chettiar and Another vs Sales Tax Officer (XI) Enforcement Branch

Ramaprasada Rao, J.—Thiru L.V. Veeri Chettiar and his minor son V. Shanmugham, the Petitioners herein, formed themselves into an association of persons in the year 1961 for carrying on the business of manufacture of handloom and power loom clothes. They adopted the trading style of Messrs Shanmugham Textiles and their factory was set up in Vambadithalam, Salem district. The Petitioners later concerned themselves in the manufacture of ready made garments and were exporting such garments, art silk fabric and pure silk zari embroidered sarees all of which came under the category of handloom cloth and handicrafts within the meaning of the Export Promotion Scheme for Handicrafts and Handloom Clothes initiated by the Government of India. Under the said schema certain import) licences were issued to the Petitioners as against the export of handloom clothes and handicrafts. It is not necessary to set out the details of the export promotion scheme, as they are not necessary. The Petitioners concede that the import licences so obtained by them were being sold by them by way of forwarded sale through named brokers in Madras. Such blank transfers enabled the brokers to negotiate further the licences and sell the same. The Petitioners would state that once they effected a sale of the licences through the brokers, they were not aware as to who finally imported the goods under cover of the licences and under the letters of authority which they signed in blank contemporaneously along with the sale of the licences. The Petitioners case is that they maintain no accounts in respect of such sale of licences and, according to him, no goods imported under the said licences were sold by them in the Maharashtra State. On 5th October 1964, the Sales Tax Officer (XI), Enforcement Branch, Greater Bombay, who is the Respondent in this case, sent a registered letter stating that the Petitioners have made large imports at Bombay and called upon them to furnish to him the details of such imports and the disposal thereof. He characterized the Petitioners as non-resident dealers and enclosed various forms to be filled up by the Petitioners for the Respondent to deal with them in accordance with the sales tax law in force in Bombay. One such form which, was enclosed with the letter, dated 5th October 1964, was a form which related to a certificate to be issued by a Chartered Accountant relating to the maintenance of the books of account by the Petitioners and the statements of sales of imported goods, etc. The Petitioners replied in their letter, dated 9th March 1965, stating that there were no imports of art silk as claimed during the period 1st January 1960 to 31st March 1964. In this view they sent back the statement marked nil. The Petitioners claim that the association of persons was dissolved on 9th June 1965. In spite of the disowning of any transaction in the nature of import or sale by the Petitioner, the Respondent was pursuing the Petitioners to furnish before him their books of account. In their letter, dated 4th August 1966, the Petitioners made it clear that there was no clearance of goods at Bombay Port and there was no sale of any commodity by the Petitioners who were by then dissolved on 9th Jane 1965. They denied liability and started that the association of persons is under no legal obligation to produce the accounts and documents railed for. They reiterated that the licences were sold in accordance with the common practice of the trade through named brokers, and blank papers in the nature of letters of authority were given at or about the time of such sale. The Petitioners claim that there was no occasion or necessity for them to keep accounts as there was no actual import of goods subsequent to 1st April 1964. The categorically stated as follows.

As soon as transactions are concluded with the brokers, blank papers would be signed to enable them taking necessary steps to effect the imports in the name of the firm, by the ultimate purchasers of the licences. There was no direct contact at any stage between the association and the buyers of the licences. Therefore the association is not in possession of the details regarding the names of parties. The names of buyers could be easily verified and found by the Sales Tax Authorities with reference to the import clearance papers with the Bombay Port Trust Authorities.

If the Officer has any information on which the suspicion that any transaction of sale was effected by the dissolved firm in Maharashtra State is based, the necessary material may kindly be furnished so that it would be possible to explain the nature of those transactions.

In effect, therefore, the Petitioners challenged the factual hypothesis which prompted the Respondent to issue the notice under the provisions of the Bombay Sales Tax Act and purported to exercise jurisdiction thereunder. It appears that the Petitioners� representative interviewed the Respondent on or about 11th August 1966, and the position was made clear to him. This personal interview of the representative WM followed by a letter of confirmation, dated 23rd August 1966. In this letter, while reiterating that they were not in possession of any particulars of sale of material at Bombay, the Petitioners wanted that the details regarding the materials in the possession of the Respondent be furnished to them, to enable them to answer the show cause notice. A reminder was sent on 31st August 1966. There also the position was further elucidated by the Petitioners, but with this difference that they gave the name of the broker through whom the licences were sold as Janab Gaffoor Sahib, Sunkurama Chetty Street, Madras-1. The Petitioners were so diligent and sincere to enquire the Respondent whether the ultimate buyers of the licences misused their names and pretended as if goods were sold in Bombay on behalf of and for the benefit of the Petitioners. The Petitioners also made out specifically that as they did not have direct contact with those buyers, any information leading to such sale may be forwarded to the Petitioners, so that they could clear the suspicion in the mind of the Respondent and consequentially work up their rights. In spite of such a sincere effort on the part of the Petitioners, the Respondent appears to have taken no steps in making any further investigation or securing materials to bring home to the Petitioners that the goods imported under their licences were sold in the State of Maharashtra and within the jurisdiction of the officer concerned. On the other hand, on November 4, 1966, the Respondent issued the notice, which is impugned in this writ proceeding, which is practically a repetition of what he has stated but bereft of the particulars and materials requested for by the Petitioners. The Respondent, however, would state In the impugned notice that the Petitioners have delivered goods imported in Bombay to local buyers. No attempt has been made to disclose as to who the buyers were though information was asked for Apparently the Respondent obtained information about the value of the licences granted for the years 1964-66 and 1965-66 from the Import Control Authorities and incorporated them in his notice under scrutiny by us, and concluded thus:

From this I infer that you must have been granted import licences for similar value in the past for 1960-61. As these goods have been sold after clearance in this State, I provisionally hold you liable from 1st January 1960. . . I propose to pass best judgment order after adding 50 per cent to the C.I.F. value.

He would add that information of imports has been disclosed to the representative and he would not agree that notwithstanding the dissolution of the association of persons, there is no obligation on it to produce the books of account, etc., and subject itself to the jurisdiction of the Respondent. Finally the Respondent would state that since the Petitioners were the owners of the goods as per documentary evidence, as per conditions of import licence, the responsibility rested with the Petitioners, and called upon them to show cause why he should not assess them in the manner proposed and why also a penalty u/s 36(2)(a) of the Bombay Sales Tax Act, 1959, be not imposed. He also served a notice u/s 33 of the said Act calling upon the Petitioners to state their objections, if any, and called upon them to attend hit office on a notified date. This notice prompted the Petitioners to come up to this Court under Article 226 of the Constitution of India for the issue of a Writ of Prohibition prohibiting the Respondent from taking any further proceedings in pursuance of his notice, dated 2nd January 1967.

In the Writ Petition the Petitioners case is that there is total absence of jurisdiction in the Respondent to initiate proceeding against the Petitioners. This is, because the Petitioners did not effect any sales as alleged and as only a sale would attract sales tax and as no particulars of such sales were furnished in spite of several sincere requests made in that behalf, the impugned order is illegal. The Petitioners would categorically state that they had not sold any goods in the rest-while State of Bombay during the period of about five years prior to the date of dissolution. They would also raise a legal plea that the Petitioners who formed themselves into an association of individuals having been dissolved, the assessing authorities could not take any further notice in law to bring to tax any transaction of theirs even if there were any, on the ground that they have escaped assessment. The claim that the Respondent was acting in an arbitrary and high-handed manner in the absence of any material whatsoever and the proposed levy of penalty is capricious. Apprehending, therefore, that final orders would be passed, which would be totally beyond the jurisdiction of the Respondent, a rule nisi in the nature of a prohibition was sought. This Court issued the rule nisi and the Respondent has filed a counter affidavit.

In the counter the Respondent''s case is that this Court has no jurisdiction to entertain and hear the Petition as no part of the cause of action has arisen within the jurisdiction of this Court. He would claim that the petition as framed is not maintainable. On the facts, it is stated that as a mere proposal has been made u/s 38 of the Bombay Sales Tax Act, 1959, and as it is in the nature of a show cause memo., the Petitioners are not entitled to challenge the said notice as the Act provides for adequate and efficacious remedies to challenge the final assessment orders by way of appeal, revision, etc. The Respondent does not admit that the Petitioners did not import the goods or did not sell them in the State of Maharashtra or that the Petitioners'' firm was not aware to whom the imported goods were sold. He adds that as lawful custodian of the relevant documents connected with import licences it was incumbent upon the Petitioners to produce the relevant evidence before the Respondent to prove that the Petitioners had not imported the goods and that they did not sell imported goods in the State of Maharashtra. He would maintain that he was justified in making the proposal as he did and such a proposal to assess even a dissolved association is competent u/s 19(3) of the Act read with Section 18 thereto. The Respondents'' specific case is that the onus is upon the Petitioners to establish that there was no sale in the State and he had the necessary jurisdiction to issue the order and there has not been a violation of the principles of natural justice.

In reply the Petitioners contending contra state that under Article 226(1-A) of the Constitution of India a part of the cause of action has arisen in the State of Tamil Nadu and the notice initiating the impugned proceedings were all received by the Respondent in the State of Tamil Nadu and, therefore this Court has jurisdiction to entertain the Writ Petition and pass necessary orders thereon. They deny that no writ can lie against the person of the Respondent and that the action proposed by the Respondent is wholly without jurisdiction and, therefore, a writ of prohibition is the only effective remedy, though other alternative remedies are available under the Act after an illegal order of assessment is passed. The Petitioners would reiterate that they requested both orally and in writing for the transmission of any material available with the Respondent regarding the alleged sale of goods and on such a revelation the Petitioners would be in a better position to answer the show cause memo. The Petitioners would add that they have given all the particulars relating to the sale of their licences, the name of the brokers with whom they negotiated and having denied that they had anything to do with the later importation or the sale thereof, the Respondent cannot assume jurisdiction without initially establishing that there was a sale of goods within the meaning of the Act by the Petitioners in the State of Maharashtra.

Mr. K.K. Venugopal, learned Counsel for the Petitioners, says that the writ is maintainable under Article 226(1-A) of the Constitution and that the action proposed by the Respondent against the association of persons which has been dissolved is ab initio illegal and unsustainable. He would say that a writ of prohibition would lie when there is total absence of jurisdiction and a Petitioner in such circumstances need not wait till a final order of assessment is made and exhaust all statutory remedies since it would be practically suffering an order known to be against law and passed without jurisdiction. His other legal contention is that the association of persons once it is dissolved, no proceedings either in the nature of a proposal or by way of final order of assessment under the Bombay Sales Tax Act, 1959, can be made. Therefore, the assumption of jurisdiction on the fact that the Respondent has the right to do so is wholly without legal basis and is, therefore, unsustainable. On merits be would say that the Respondent has not proved or attempted to place any material which might provoke a reply from the Petitioners in the matter of the actual sale or disposal of goods by the Petitioners as a dealer in the State of Maharashtra. The learned Counsel for the Respondent maintains that under the provisions of the Bombay Sales Tax Act, the proceedings are well-founded and in any event a writ of prohibition in the circumstances of the case is not the proper remedy.

We shall immediately dispose of the contention regarding the maintainability of the writ petition. It is by now well-settled that a writ of prohibition will issue in a case where it hag been reasonably established that the assessing authority or the authority which issues the impugned order acted without jurisdiction and without any necessary power statutorily derived to act in the manner it did. It is fundamental to expect an assessing authority to find materials on which to act and which, as it were, forms the jurisdictional fact on the bedrock of which its exercise of power depends. An arbitrary and naked attempt on the part of the Revenue to attempt to bring to tax, dealings which never took place and which have not been prima facie established to have taken place has to be checkmated even at its threshold of operation. In such circumstances it is not necessary for an aggrieved person to suffer an order which can reason ably be stated to be without jurisdiction and later on exhaust the statutory remedies provided under a fiscal enactment. If a litigant were to be driven to this unfortunate and illogical limits, then the Court should be encouraging the exercise of power by authorities when there is obviously none and such encouragement is against all fundamental canons of administration of justice. In the instant case the correspondence reveals that there was a sincere attempt on the part of the Petitioners to get information from the Respondent who was only functioning under the Sales Tax legislation, as to whether any sale was effected in the name of the Petitioners or on their behalf. The impugned notice would state that the Petitioners have delivered the imported goods to the local buyers. When repeatedly asked who those local buyers were, no information was furnished. The Petitioners emphatically deny that there was any sale of any commodity, and in fact, challenged the Revenue to the effect that such names, which could be easily found by the authorities, could be ascertained and transmitted to them, so that they could explain the proposed action. In spite of the fact that the Revenue was incessantly referring to the fact that the imports made were disposed of, sold and delivered to the local buyers, goods have been sold after clearance in this State, there was absolutely no further attempt excepting the bare allegations as above, to substantiate that there was indeed a sale factually and legally. For a sale it is obvious that there are two parties, namely, the purchaser, and the seller, and it is impracticable to allege that there was a sale without identifying such sale as an act as between an identifiable buyer and an identified seller. What has been repeated in this easels that the Respondent was assuming that the Petitioners have sold the imported goods in the State of Maharashtra, to local buyers. If really goods which were imported under various manifests and which ought to have gone out of the port through an accredited process were the subject-matter of a sale between one party and the other, it would not have been difficult for the Revenue to discover at least one of such sales, its nature, contents, description and character. Beyond saying that the Petitioners sold to local buyers, there was no disclosure as to who the buyer was, where the sale was effected, when and by whom and to whom. It is in such circumstances that the Petitioners are seeking for the issue of a writ of prohibition.

As pointed out by the Allahabad High Court in State of U.P. v. Duli Chand Vashi Prasad (1968) 22 S.T.C. 191.

A writ in the nature of prohibition issues to restrain a quasi-judicial authority from exceeding the bounds of its jurisdiction. It may be issued at the threshold of the enquiry before it or soon after it has given a decision on the issue of its jurisdiction. It issues at the threshold of the enquiry before it if there is patent want of jurisdiction. If the jurisdiction depends on the existence of certain facts, it is generally proper that the court should not interfere with the enquiry until it has decided the issue of jurisdiction, for then full facts, relating to its jurisdiction would be before the court. It may be that if there is prima facie no evidence to give it jurisdiction the court may in a suitable case interfere at the threshold of the enquiry.

We respectfully adopt the observations made by the learned Judges. We are of the view that in the absence of any disclosure of acceptable material or reasonable data to entertain a doubt at least that the goods were sold in the State of Maharashtra, then it is proper for this Court to stop the enquiry at its threshold even at its inception, for neither the jurisdictional fact which would vest the Revenue with the power to proceed is present or the normal facet of jurisdiction to exercise a power is apparent in the proceedings. We are unable to appreciate the line of argument of the learned Counsel for the Respondent that this application is premature. This argument ignores the plain intention of the notice which calls upon the Petitioners to prove the negative to show that they did not effect a sale and in its absence to submit to the heavy assessment and the consequential penalty indicated therein. This places upon the Assessee considerable hardship: harassment and liability, for if it is established that there was no sale and the inchoate and incomplete material of the assessing authority is a myth, then it would constitute in present an encroachment on and an infringement of the Petitioner''s right which entitles them to immediately appeal to the appropriate Court for redress-see the observations of the Supreme Court in The Bengal Immunity Company Limited Vs. The State of Bihar and Others, 669. We are, therefore, unable to accept the argument that this writ is not maintainable because an alternative remedy is available and the Respondent is outside the jurisdiction of this State.

One other incidental contention is that this Court has no jurisdiction to issue a writ because no part of the cause of action has arisen within the jurisdiction of this Court. We do not agree. Under Article 226(1-A), of the Constitution of India, the High Court has the power to issue directions, orders or writs to any Government, authority or person provided the cause of action for the issuance of such a rule under Article 226(1) A, wholly or in part, arises, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories. What then is the cause of action that is referred to in this Sub-clause of Article 226 of the Constitution? Cause of action has always been understood as referable to the bundle of facts in a legal proceeding and if a limb of that bundle of facts is available, seen or discernible in one particular place which is a seat of the High Court, then such High Court has the power to exercise all the powers conferred on it under Article 220(1)A. Notwithstanding the fact that the authority against whom the ultimate rule has to be issued and whose act has created a cause of action as a whole or in part, is situate outside its territorial limits. The person primarily affected by the Respondent issuing the notices from time to time to the Petitioners and calling upon them to produce the accounts of their business carried on in the State of Tamil Nadu and again by proposing to assess them to the best of his judgment on the assumption of certain jurisdictional facts, is the addressee of such notice and such affectation relates to the bundle of facts in the totality of the his or proceeding concerned, and such impact necessarily gives rise to a cause of action, though it may be in part. It is established that in fiscal laws a proposal to assess forms part and parcel of the machinery of assessment and thus understood, the service of notice to assess and calling upon the Petitioner to explain has given rise to a cause of action as is popularly and legally understood and the machinery of assessment has been set in motion and the impact of that motion is felt by the Petitioners within the territorial limits of this state. We have, therefore, no hesitation in holding that a part of the cause of action has arisen in the State of Tamil Nadu.

One other contention which is substantial is that the impugned notice cannot be proceeded with and no action thereunder can be taken because the Petitioners were originally an association of persons and as they were dissolved on June 9, 1965, the notice under consideration, dated January 2, 1967, is without jurisdiction and cannot be pursued. It is common ground that beyond Sections 18 and 19 of the Bombay Sales Tax Act, 1959, there is no express provision in the Act which would enable the Revenue to proceed against a dissolved firm or a dissolved association of persons. Dealer has been defined in Section 2(11) of the Act as meaning any person who for commission, remuneration or otherwise carries on the business of buying or selling goods in the State. We have already expressed the view that there is no material for us to hold that the Petitioners either brought or sold goods in the State of Maharashtra. Even assuming that the impugned notice presumes that the Petitioners are dealers, which include an association of individuals, the question is whether after dissolution of such an association, proceedings can be initiated against the quondam association through its members. Learned Counsel for the Respondent relied upon Sub-section (3) of Section 19 of the Act which provides as follows:

Where a dealer, liable to pay tax under this Act, is a firm, and the firm is dissolved, then every person who was a partner shall be jointly and severally liable to pay to the extent to which he is liable u/s 18 the tax (including any penalty) has been assessed before such dissolution but has remained unpaid or is assessed after dissolution.

It is contended that this Sub-section read with Section 18 of the Act provides sufficient authority to the Respondent to issue the notice against the Petitioners not withstanding the dissolution of the association of persons. It is a common norm of fiscal law that if a person''s dealings or transactions can be brought into the net of taxation, then the concerned fiscal enactment should expressly provide for such bringing to tax the dealing or the transaction concerned and an assessment or taxing of that deal or act on the pan of a person cannot be assumed or presumed by necessary implication. In fact, the law is well established that if there is a doubt whether a particular person is liable to tax at all under a tax law, then the benefit of such doubt should go to the proposed assesses. We have not been shown any provision in the Bombay Sales Tax Act, expressly conferring authority on the Revenue which could prompt the Respondent to assess or propose to assess a defunct firm or a dissolved association of individuals. Sub-section (3) of Section 19 is sought to be pressed into service. This sub-section is not a charging section. It merely declares the liability of the quondam members whether assessment has been made before such dissolution or assessed after dissolution. It is this last expression in this sub-section which is very strongly relied upon. On a fair reading of this sub-section we are unable to conclude that this by itself is sufficient to infer an express power in the statutory authority to assess an association of person after dissolution. This sub-section is only declaratory of the liabilities of the erstwhile members of an association of individuals, but it does not proprio vigore give an indication that a dissolved firm or association of individuals could be taxed notwithstanding dissolution. Under the Madras Act there was no such provision originally, but now a new section has been introduced as 19-A. Sub-clauses (a) of Section 19-A of the Madras General Sales Tax Act expressly provides for such tax liability on a dissolved association of persons even after dissolution, but for the pre-dissolution period as if no such dissolution had taken place. Clause (b) of Section 19A of the Madras General Sales Tax Act, is in pari materia with Sub-clause (3) of Section 19 of the Bombay Sales Tax Act, 1959. We shall presently consider the necessity for the introduction of Section 19-A in the Madras General Sales Tax Act, 1959 by amending Act XII of 1968. At this stage, however, it is sufficient for us to say that we are unable to agree with the learned Counsel for the Respondent that Sub-clause (3) of Section 19 read with Section 18 of the Act is sufficient indication that a person who is a dissolved association can be subjected to tax under such provisions. The net result of the discussion that there is no express provision in the Bombay Act which enables the Respondent to issue a notice and proceed thereafter to assess an association of persons which has been dissolved on the date of such issuance of notice. No doubt, the liability of the quondam members may be there. But in the absence of a charging section, the Respondent cannot assume jurisdiction and issue a notice proposing to assess on the best of his judgment.

That an association of persons which is also a legal entity like a partnership firm cannot be proceeded against after dissolution, for its pre-dissolution -- transactions is now very clear from the decision of the Supreme Court in State of Punjab Vs. Jullunder Vegetables Syndicate, . In that case, a partnership firm was dissolved on 11th July 1953. On 3rd September 1955, the Sales Tax Officer made an assessment on the firm under the provisions of the East Punjab General Sales Tax Act, 1948. At the relevant time there was no provision expressly empowering the assessing authority to assess a dissolved firm in respect of its turnover before its dissolution. In those circumstances the Supreme Court held that the assessment was bad and observed as follows:

in interpreting a fiscal statute the Court cannot proceed to make good the deficiencies, if there be any, in the statute; it shall interpret the statute as it stands and in case of doubt it shall interpret it in a manure favourable to the tar payer. In considering a taxing Act, the Court is not justified in straining the language in order to hold a subject liable to tax.

Though under the partnership law a firm is not a legal entity but only consists of individual partners for the time being, for tax law, income tax as well as sales tax, it is a legal entity. On the dissolution of the firm it ceases to be a legal entity, and on principle thereafter, unless there is a statutory provision permitting the assessment of a dissolved firm, there is no longer any scope for assessing the firm, which cease to have legal existence.

There cannot be a distinction on principle between an assessment made on a firm under a proceeding initiated before its dissolution and one made in a proceeding started after the dissolution. In either case, unless there is an express provision, no assessment can be made on a firm which has lost its character as an assessable entity.

The above decision wag the primary cause for the introduction of the new Section 19-A in the Madras General Sales Tax Act.

Reference was also rightly made by the learned Counsel for the Petitioners to the provisions of the income tax Act only to sustain his argument that there should be a specific provision in a fiscal enactment enabling the assessing authority to assess a dissolved firm and bring to tax its dealings during its pre-dissolution period. Though an argument was hesitantly raised by the Counsel for the Respondent that a father and a minor son cannot form an association of persons within the meaning of the Bombay Sales Tax Act, 1959, yet this was not seriously pressed in view of the ratio in M. Ipch v. Commissioner of income tax ILR (1962) Mad. 175 which was confirmed later by the Supreme Court in M.M. Ipoh v. Commr. of I.T., Madras AIR 1965 S.C. 817 wherein such a situation has been held to be valid and such a union has been treated as an association of persons.

Thus, even the second contention raised by the learned Counsel for the Petitioners that no proceedings as initiated by the Respondent can be furthered is well-founded. It is not in dispute that the alleged damage were of the quondam association of persons. A notice is served on one of its members. Unless there is a provision which enables the Respondent to assess a dissolved association of persons he cannot proceed Tinder the Act and set afoot the process and machinery of assessment against two members of the quondam association merely on the strength of Section 19(3) of the Bombay Sales Tax Act, 1959. Section 19(3) is comparable to the ultimate process which the Revenue can issue against an Assessee; but if the Assessee himself can not be brought to book, then no question of issuing any process does arise. The second contention also has to be upheld.

On the facts we are fully satisfied that there is absolutely no material which enabled the Respondent to issue the impugned notice. A sale cannot be assumed. The Petitioners cannot be called upon to prove the negative. There is no provision in the Bombay Sales Tax Act which throws the burden of proof on the proposed Assessee. It is not urged to be so. Merely because the Petitioners held the import licences it does not follow that they imported the goods at Bombay by themselves and sold the goods in the State of Maharashtra. We have already considered this aspect in detail. Excepting for the vague and imaginary conclusions arrived at by the Respondent he was unable to confront the Petitioners with any particular data or material to substantiate his apprehension that the Petitioner sold goods in his State. It is only such a factual sale within the jurisdiction that would vest him with authority to proceed under the Bombay Sales Tax Act, 1959. No attempt has been made by the Respondent to secure such information even though he was challenged by the Petitioners to prove the positive. Factually also the Petitioner should succeed. As pointed out by Shelat J. in The Barium Chemicals Ltd. and Another Vs. The Company Law Board and Others, .

Before the discretion conferred by Section 237(b) of the Companies Act, 1956, to order an investigation can be exercised, there most exist circumstances which is the opinion of the Authority suggest what has been set out in Sub-clause (i), (ii) or (iii). If it is shown that the circumstances do not exist or that they ire suck that it is impossible for any one to form an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute.

With respect we re-state the rule to suit the facts of this case as follows. Before a proposed notice of assessment on the best judgment formula can be issued, the fiscal authority should establish that there exists circumstances which in its opinion suggest that there has been a sale or a purchase by a dealer under the Bombay Sales Tax Act, 1959. But if it is shown that circumstances do not exist or that they are such that it is impossible for a reasonable and a prudent and well instructed person to form an opinion therefrom suggestive of a sale under the Sales Tax Act, then the opinion and the consequential action is challengeable on the ground of non-application of mind or on the ground that it was formed on collateral grounds. Thus, therefore, the notice issued, without even the requisite material to act, is beyond the scope of the Respondent.

For all the above reasons this Writ Petition has to be allowed. It, is accordingly allowed with.