Case Note & Summary
The dispute arose from sales tax reassessment proceedings under Section 21 of the U.P. Sales Tax Act for the assessment year 1957-58. The respondent, M/s Bhagwan Industries (P) Ltd., Lucknow, carried on business of selling atta, maida and sooji and operated Venkateshwar Flour Mills. The assessee was originally assessed ex parte on 26 December 1958 under rule 41(5) of the U.P. Sales Tax Rules on an estimated turnover of Rs. 46,00,000, with net turnover of the flour mill estimated at Rs. 43,00,000. Due to food shortage, the Government fixed wheat quota for rolling flour mills in August 1958 based on average grinding of the previous three years; the quota for Venkateshwar Flour Mills was 1,192 tons per month. In the assessment year 1958-59, the respondent disclosed a turnover of Rs. 75,70,840 with that quota. The Sales Tax Officer noticed discrepancy between the assessed turnover for 1957-58 and the turnover disclosed for 1955-56 (Rs. 58,18,425) and 1958-59 (Rs. 75,70,840), and suspected that part of the 1957-58 turnover had escaped assessment. The officer issued a notice on 13 September 1961 and a memorandum on 13 March 1962 calling for account books, but the respondent failed to produce them. A notice under Section 21 was issued on 24 March 1962 and served on 26 March 1962. On 19 March 1963, the Sales Tax Officer made a reassessment order estimating total net turnover at Rs. 84,50,000 and escaped turnover at Rs. 38,50,000. The respondent's appeal was dismissed, and on revision the respondent contended lack of jurisdiction and absence of reason to believe. The Allahabad High Court on reference under Section 11 of the Act answered two questions in the negative: first, that the assessing officer could not be said to have an honest belief that turnover had partially escaped taxation; second, that the two preliminary notices could not be treated as notices under Section 21. The Commissioner of Sales Tax appealed to the Supreme Court. The Supreme Court held that the expression 'reason to believe' requires only relevant material giving rise to a prima facie inference of escaped turnover, and that sufficiency of grounds is not justiciable. The Court found that the assessing authority had valid grounds for forming a bona fide belief based on turnover discrepancies and non-production of account books. The Court also held that the preliminary notices were not notices under Section 21, so limitation ran from the actual Section 21 notice, and the reassessment was within time. Further, the Court held that Section 21 can be invoked even after an ex parte assessment. Accordingly, the Supreme Court allowed the appeal, set aside the High Court's finding on the reason to believe issue, and upheld the reassessment order.
Headnote
A) Sales Tax - Reassessment - Reason to Believe - U.P. Sales Tax Act, Section 21 - The expression 'reason to believe' requires relevant material giving rise to a prima facie inference of escaped turnover; the belief must be held in good faith and not be a pretense; sufficiency of grounds is not justiciable, and only existence of belief can be challenged if grounded in extraneous material. The High Court erred in holding that the assessing authority lacked valid grounds when discrepancies between assessed turnover and quota-based subsequent turnover plus non-production of account books provided relevant material. Held that the assessing authority acted within jurisdiction (Paras 632D-H, 634C-F). B) Limitation - Notice under Section 21 - Preliminary Notices Not Section 21 Notices - U.P. Sales Tax Act, Section 21 - The first notice dated 13 September 1961 and memorandum dated 13 March 1962 merely called for production of account books and threatened action under Section 21, but did not constitute notices under Section 21. The actual notice under Section 21 was issued on 24 March 1962 and served on 26 March 1962; the reassessment made on 19 March 1963 was within one year of service, hence not barred by limitation. High Court's view on limitation issue was upheld (Paras 635C-E). C) Sales Tax - Reassessment - Ex-Parte Assessment Can Be Reopened - U.P. Sales Tax Act, Section 21 - There is nothing in Section 21 to preclude reassessment proceedings after an ex parte assessment. A contrary construction would put a premium on contumacy and protect dealers who avoid appearing before the assessing authority. The assessing authority could validly initiate proceedings under Section 21 despite the original assessment being ex parte (Paras 634G-H, 635A-B).
Issue of Consideration
Whether the assessing officer had reason to believe that turnover had escaped assessment under Section 21 of the U.P. Sales Tax Act; whether preliminary notices asking for account books constitute notices under Section 21 for limitation; whether Section 21 can be invoked after ex parte assessment.
Final Decision
The Supreme Court held that the preliminary notices asking for production of account books were not notices under Section 21, so the reassessment made on 19 March 1963 within one year of service of the Section 21 notice dated 24 March 1962 was not barred by limitation. The Court further held that the assessing authority had valid grounds for forming a bona fide belief that part of the turnover had escaped assessment, and that Section 21 can be invoked even after an ex parte assessment. The appeal was accordingly allowed, setting aside the High Court's finding on the reason to believe issue and upholding the reassessment.
Law Points
- reason to believe
- escaped turnover
- reassessment
- ex parte assessment
- limitation
- preliminary notices not Section 21 notices
- sufficiency of grounds not justiciable
- jurisdiction
