State of Tamil Nadu vs Moti Sales Corporation

K. Raviraja Pandian, J.—The revision is filed questioning the correctness of the order of the Tribunal in deleting the penalty u/s 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959.

We have heard the argument of the learned Government Advocate appearing for the revision petitioner.

We are of the view that issue is squarely covered by the decision of this Court in W.P. No. 23274 of 2002 dated October 26, 2007 (Krishna Alloy Steels v. Registrar Tamil Nadu Taxation Special Tribunal [2008] 13 VST 424), wherein the Division Bench relied on the decision in the case of Appollo Saline Pharmaceuticals (P) Limited v. Commercial Tax Officer (FAC) [2002] 125 STC 505 in which decision, after taking note of the decision in the case of The State of Madras Vs. S.G. Jayaraj Nadar and Sons, , it was held as follows : (at page 508)

The Supreme Court in the case of State of Madras v. S.G. Jayaraj Nadar & Sons [1971] 28 STC 700 at page 701 after extracting Section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 which remains in the same form even now, observed thus:

The question is whether penalty can be levied while making the assessment under Sub-section (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-sections (2) and (3) have to be read together. Sub-section (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-section (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-section (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 guesswork 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 State of Kerala Vs. C. Velukutty, ]. Where account books are accepted along with other records there can be no ground for making a best judgment assessment.

The law so declared that the best judgment assessment is based on an estimate and is not one based solely on the account books was reiterated by the Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali H.M. Abdulali [1973] 32 STC 77.

Though other sub-sections of Section 12 were amended by the State Legislature subsequent to the date of the judgment in the case of The State of Madras Vs. S.G. Jayaraj Nadar and Sons, , Sections 12(1) and 12(2) have remained in the same form. The legislative intention therefore, except during the period December 3, 1979 to May 27, 1993 and on and after April 1, 1996 must be taken to be to, permit the levy of penalty only in case where the assessment is a best judgment assessment made on an estimate and not by relying solely on the accounts furnished by the assessee in the prescribed return. On and after April 1, 1996 an Explanation has been added below Section 12(3) which requires the turnover relating to the tax assessed on the basis of the accounts of the assessee, to be disregarded, while determining the turnover on which the penalty is to be levied u/s 12(3).

The assessments for the assessment years 1993-94 and 1994-95 which were assessments made on the basis of the accounts, and not based on any other material and were not estimates, have therefore, to be regarded as assessments made u/s 12(1) to which the penal provisions of Section 12(3) are not attracted. The levy of penalty for those two assessment years is set aside.

The above settlement of law would squarely cover the issue in this case against the Revenue. Following the same, this revision is dismissed.