IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 13/04/2006
Coram
The Hon'ble Mr. JUSTICE K.MOHAN RAM
WP.No.35348 of 2004
and
WP.No.32093 of 2004
32094, 32095, 32096, 32097, 33789
32098, 32099, 32100 of 2004,
11774, 25955, 25956, 25957, 30385
30386, 1954, 28442, 28443, 28444
28445, 28446, 28447, 28448, 28449
28450, 23048, 30678, 33008, 33009,
33010, 31802 and 31803 of 2005
and
328, 329, 330, 1355, 3375, 3376,
4417, 4981, 8523 of 2006
and Connected pending WPMPs.
W.P.No.35348 of 2004
Ponni Sago Factory
169/56 Omalur Main Road
Jagir Ammapalayam,
Salem - 636 302. .... Petitioner
-Vs-
1. The Deputy Commercial Tax Officer
Suramangalam Circle
Salem.
2. The Salem Starch and Sago
Manufacturers Service Industrial
Co-operative Society Limited,
Omalur Main Road, Salem - 636 302.
3. The State of Tamil Nadu
Rep. by the Secretary to Government,
Department of Commercial Taxes,
and Religious Endowments,
Fort St. George, Chennai - 600 009. .... Respondents
For Petitioners in all WPs: Mr. N.Prasad.
For Respondents in all WPs: Mr.S.Manohar Sundaram,
Government Advocate (Taxes).
:C O M M O N O R D E R
In these batch of writ petitions the assessment orders / revised
assessment orders passed by the respective assessment officers have been
challenged on the following grounds:
a) The order of the first respondent is arbitrary, irrational and
violative of Articles 14, 19(1)(g) and 265 of the Constitution of India;
b) The impugned assessment is a mala fide exercise of power lacking in
banafides for the collateral purpose of raising an arbitrary and
disproportionate liability to hurt the petitioners;
c) The condition precedent for the exercise of power under Section 1
2(2) is incorrectness and incompleteness of the return submitted by the
assessee and for this purpose no objective facts have been examined and
evidence established. There is no finding of even a single proved purchase or
sales omission. The records maintained in the course of business of the
petitioners have not been shown to the unworthy of acceptance.
d) The flat rate assessment by arbitrarily adopting an alleged
consumption of 5 units for sago and 6 units for starch as the energy
consumption has no independent or authentic support, nor established by any
proven methodology adopted in the trade.
e) The first respondent cannot adopt a flat rate method for best
judgment assessment ignoring the special features of each assessee, like the
power consumption, the load connected, the horse power employed, the machine
driven operation as against manual operation, the age of the machinery
including the diverse sequence of operations submitted before the first
respondent.
f) The electricity consumption by itself cannot be the basis for the
best of judgment assessment and on the authority of the ruling of this Court
in 32 STC 542 (Kalyani Oil Mills Vs. State of Madras) and that of the other
High Courts, the impugned demand is arbitrary and the resultant figures are
equally perverse.
2. There is no dispute that the petitioners in all these writ
petitions are running small scale units for the manufacture of sago and
starch, and are registered dealers under the Tamil Nadu General Sales Tax Act,
1959 and Central Sales Tax Act, 1956 with the first respondent / assessing
officer. For the manufacture of sago, the principal raw material is tuber of
sago. These are purchased from agriculturists in and around Salem and
Dharmapuri Districts. The petitioners have been selling their goods to Salem
Starch and Sago Manufacturers Service Industrial Co-operative Society Limited
(hereinafter referred to as the “Sago Serve”).
3. It is the contention of the petitioners that it was alleged in the
meeting held on 22.07.2004 the manufacturers were supplying sago to traders
and not to the Sago Serve, resulting in loss of revenue and that demands will
be raised based on electricity consumption and on the basis of octroi details
in Maharashtra. It is the contention of the petitioners that there is no
evidence to show that the petitioners had effected sales within or outside the
State without payment of tax. According to the petitioners, in the above said
background, the Commercial Tax Department have been required to issue the best
of judgment demands on a flat rate basis of electricity consumption. It is
the allegation of the petitioners that demands are being raised at the
instance of the Sago Serve for promoting its affairs and brow beat the
innocent small scale units and not for any bonafide purpose. The further
allegation of the petitioners is that the Sales Tax Department is employed to
create monopoly of procurement for the sago serve as self-evident from the
circulars of the Sago Serve.
4. It is the case of the petitioners that they maintain regular books
of accounts and all purchases are supported by vouchers. All the sales are
supported by invoices and deliveries are under statutory way bill and the
petitioners effected local sales to buyers with invoices and charge sales tax.
Further the petitioners effect sales through agents, who are registered
dealers. According to the petitioners, the sales are faithfully reported and
tax paid. Transport of the goods is under the cover of documents prescribed
under Section 44 of the Act. No sales or purchase is outside the record of
the assessee and no adverse remarks or record have been established against
the petitioners either during the inspection or from the check-post data.
5. While so, it is the further case of the petitioners that suddenly
the petitioners were served with a show cause notice purporting to revise the
earlier notice. In the said show cause notice it was alleged that the books
were rejected, because the electricity consumption showed excess consumption.
The first respondent alleged that one bag of sago would consume 6 units of
electricity, and one bag of starch consume 5 units, and accordingly
electricity consumption was taken and huge proposal was issued. Similarly,
notices were issued to various dealers like the petitioners herein in the
months of August/ September 2004 by the Commercial Tax Authorities in Salem,
Athur, Namakkal, Rasipuram and Aroor Divisions. The petitioners herein
brought to the notice of the Principal Commissioner through their Association
( TASMA) on 16.09.2004 and reminders dated 07.10.2004 were also sent, but
there was no response. It is the case of the petitioners that they filed
their objections to the show cause notice and was served with the notice of
impugned assessment. By the impugned assessment, the flat rate of electricity
consumption has been adopted and it has been arbitrarily stated (without
calling for the books of account) that the petitioners and similarly placed
assessees had not furnished documentary evidence or qualitative details with
gate pass copies. The best of judgment based on electricity consumption on
generalised basis, according to the petitioners, is not a honest guess work.
6. The learned counsel for the petitioners submitted that the
impugned assessment orders are contrary to the law laid down by the Division
Bench of this Honourable Court in the case of Kalyani Oil Mills Vs. The State
of Madras, reported in 32 S.T.C. 542 and in the case of Madurai Soft Drinks
(Private) Limited Vs. The State of Tamil Nadu reported in 60 S.T.C. 94. The
learned counsel for the petitioners submitted that in the above said two
decisions the following principles have been laid down:-
i) The assessing authority should have material to doubt the
correctness or genuineness of the entries in the account books before
proceeding to make the best judgment assessment, taking the electricity
consumption as the basis for making an estimate.
ii) Actual test check should be done in the assessee’s own factory.
iii) The assessing authority should gather comparable data from other
similar oil mills.
iv) In the absence of actual test check, adopting a particular rate of
consumption for estimation would be an arbitrary basis and therefore a best
judgment assessment based on such arbitrary figure cannot legally be upheld.
7. On the above said submissions, the learned counsel for the
petitioners submitted that the best judgment assessments / revised assesments
made on the basis of the survey report prepared in the year 1994 based on the
consumption of electricity alone without looking into the account books are
nothing but arbitrary and submitted that the impugned assessment orders /
revised assessment orders are liable to be set-aside.
8. Mr. S.Manohar Sundaram, learned Government Advocate (Taxes), on
written instructions from the respondents, submitted that though no counter
affidavit has been filed, the above writ petitions may have to be allowed with
suitable directions to safeguard the interests of the Revenue. In fact, Mr.
S.Manohar Sundaram produced a letter from the Commissioner of Commercial
(Taxes) Chepauk, Chennai – 5 addressed to the Special Government Pleader
(Taxes) High Court, wherein the Commissioner has given instructions to the
Special Government Pleader ( Taxes). A perusal of the said communication
shows that the respondents are not in a position to sustain the assessment
orders / revised assessment orders passed by the respective assessment
officers.
9. Mr. S.Manohar Sundaram, learned Government Advocate (Taxes)
submitted that in view of the above said law laid down in the two cases by two
different Division Benches of this Court, the impugned proceedings cannot be
sustained. But, further submitted that the assessees without resorting to the
alternative remedy available under the Act have straightaway filed the writ
petitions and hence the writ petitions may not be entertained. But I am
unable to accept the said contention of the Government Advocate (Taxes), as
the impugned proceedings are grossly erroneous and directly against the law
laid down by the above said decisions of this Court. Therefore, when the
impugned proceedings are directly against the law laid down by this Court, it
is not just and equitable to direct the assessees to take recourse to the
alternative remedy available under the Act. The learned Government Advocate
alternatively submits that if this Court is inclined to setaside the impugned
proceedings, liberty may be given to the assessing officers to pass fresh
assessment orders in accordance with law. The learned counsel for the
petitioners has no objection for the same and in fact he cannot have any
objection for the same.
10. Accordingly, applying the law laid down by the two Honourable
Division Benches of this Court in the above said decisions, viz., Kalyani Oil
Mills Vs. The State of Madras, reported in 32 S.T.C. 542 and in the case of
Madurai Soft Drinks (Private) Limited Vs. The State of Tamil Nadu reported in
60 S.T.C. 94, the impugned proceedings are set-aside. But however, the
respective assessing officers are at liberty to pass fresh assessment orders /
revised assessment orders in accordance with the law, more particularly
applying the law laid down by this Court in the cases mentioned supra.
11. For the foregoing reasons, the above writ petitions are allowed.
No costs. Consequently, the connected pending WPMPs are closed.
srk