THE HONOURABLE MR v. The RegistrarTamil Nadu Taxation Special TribunalSingaravelar MaaligaiRajaji Salai

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 26.10.2007Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANWrit Petition No.23274 of 2002 and W.M.P.No.32074 of 2002 M/s.Krishna Alloy Steels 69, N.M. RoadAminjikarai, Chennai 29.... PetitionerVs.1. The RegistrarTamil Nadu Taxation Special TribunalSingaravelar MaaligaiRajaji Salai,Chennai 1.2. The Commmercial Tax OfficerVadapalani Assessment CircleChennai 29. ... RespondentsWrit Petition filed under Article 226 of the Constitution of Indiapraying for the issuance of a Writ of certiorarified mandamus to callfor the records on the file of the first respondent in O.P.No.52 of 2002dated 26.2.2002 confirming the order of the second respondent dated31.10.1995 and quash the same as illegal, contrary to law relating tothe portion of the order levying penalty under Section 12(3)(b)of theTNGST Act. For Petitioner: Mr.A.ThiyagarajanFor Respondents: Mr.R.Tholkappian Government Advocate (Taxes)ORDER(Order of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The writ petition is filed challenging the correctness of theorder made in O.P.No.52 of 2002, whereby the Taxation SpecialTribunal rejected the prayer of the petitioner for deletion of thepenalty imposed on it under Section 12(3)(b) of the TNGST Act. https://hcservices.ecourts.gov.in/hcservices/

2. For the assessment year 1993-94, the writ petitioner amanufacturer of steel and Iron rough castings reported a total andtaxable turnover of Rs.68,60,790.10 and Rs.66,44,492.10 respectively inthe monthly returns in Form 1 under the TNGST Act. While framing theassessment, the assessing officer checked the returns with the books ofaccounts and almost all the details furnished by the assessee has beenaccepted however, the details in the books of accounts stated thatthe first sales of cast iron rough sketch under Section 3(3) of theAct taxable at 3% was for a turnover of Rs. 17,68, 302/- Only thatportion of the turn over has been rejected by the assessing officer onthe ground that the Supreme Court has ultimately settled the issuethat the cast iron rough castings are declared goods and are liableto be assessed to tax at 4% falling under the second schedule underthe TNGST Act. In view of that the petitioner was not eligible toclaim levy of tax at 3% on the strength of Form 17 declaration and onthat score the turn over in a sum of Rs.17,88,302/- was altered to beassessed to tax at the rate of 4% instead of 3% . The assessing officerwas also of the view that in view of the defect in the assessment asstated above, the assessee is liable to pay penalty under Section 12(3)(b(v) of the TNGST Act and levied penalty in a sum of Rs. 3,64,041/-.The assessee aggrieved by the penalty alone filed the O.P. before theTribunal, which has been dismissed. The correctness of the order of theTribunal is put in issue in this writ petition.3. Learned counsel appearing for the petitioner submitted thatthe issue with regard to levy of penalty under Section 12(3)(b)(v) hasbeen settled long back by the supreme Court in the decision reported in28 STC 700 (STATE OF MADRAS VS. JAYARAJ NADAR & SONS ). Subsequently,the issue has also been considered by the Division Bench of this Courtin the decision in APOLLO SALINE PHARMACEUTICALS (P) LIMITED (Fac) VS.COMMERCIAL TAX OFFICER & OTHERS (125 STC 505). In those cases, theSupreme Court as well as the Division Bench has held that sub-section(2) of Section 12 empower the assessing authorities to assess thedealer to the best of its judgment in two events: (i) if no return hasbeen submitted by the dealer under sub-section (1) within the prescribedperiod, and (ii) if the return submitted by him appears to be incompleteor incorrect. Sub-section (3) empowers the assessing authority to levythe penalty only when it makes an assessment under sub-section (2). Inother words, when the assessing authority has made the assessment to thebest of its judgment, it can levy a penalty. It is well known that thebest judgment assessment has to be on an estimate, which the assessingauthority has to make not capriciously but on settled and recognisedprinciples of justice. An element of guess-work is bound to be presentin best judgment assessment but it must have a reasonable nexus to theavailable material and the circumstances of each case. Where accountbooks are accepted along with other records there can be no ground formaking a best judgment assessment. In this case also as held by theSupreme Court and the Division Bench of this Court the return filed by https://hcservices.ecourts.gov.in/hcservices/ the assessee has been taken as correct with reference to the books ofaccounts and the one and only infraction found by the assessingofficer was that in respect of the cast iron rough castings theassessee claimed 3% tax on the strength of Form 17. That has also beenaccepted by the assessing officer, however , in view of the decisionof the Supreme Court in Vasantham Foundry's case wherein cast ironand rough castings have been declared as declared goods coming underthe second schedule to the TNGST Act. That portion has been taken outfrom the return and assessed to tax at 4% . That cannot be regarded asan assessment under Section 12(2) or otherwise called as best judgmentassessment .4. We heard the arguments of the learned counsel on either sideand perused the materials on record. 5. The Division Bench of this Court after taking note of theJayaraj Nadar 's case reported in 28 STC 700,in the case ofAPPOLLO SALINE PHARMACEUTICALS (P) LIMITED VS. COMMERCIAL TAX OFFICER(Fac) AND OTHERS ( 125 STC 505), wherein also a similar dispute hasarisen has held as follows:-5. The Supreme Court in the case of State ofMadras v.Jayaraj Nadar & Sons [1971] 28 STC 700 atpage 701 after extracting section 12(2) of the TamilNadu General Sales Tax Act, 1959 which remains in thesame form even now, observed thus:"The question is whether penalty can be leviedwhile making the assessment under sub-section (2) ofthe above section merely because an incorrect return has been filed. The High Court was of the view thatit is only if the assessment has to be made to thebest of the judgment of the assessing authority thatpenalty can be levied.It seems to us that the High Court came to thecorrect conclusion because sub-sections (2) and (3)have to be read together. Sub-section (2) empowersthe assessing authority to assess the dealer to thebest of its judgment in two events: (i) if no returnhas been submitted by the dealer under sub-section(1) within the prescribed period, and (ii) if thereturn submitted by him appears to be incomplete orincorrect. Sub-section (3) empowers the assessingauthority to levy the penalty only when it makes anassessment under sub-section (2).In other words, when the assessing authority has madethe assessment to the best of its judgment, it canlevy a penalty. It is well known that the best https://hcservices.ecourts.gov.in/hcservices/ judgment assessment has to be on an estimate whichthe assessing authority has to make not capriciouslybut on settled and recognised principles of justice.An element of guess-work is bound to be present inbest judgment assessment but it must have areasonable nexus to the available material and thecircumstances of each case: [see State of Kerala v.C. Velukutty [1966] 17 STC 465 (SC)]. Where accountbooks are accepted along with other records there canbe no ground for making a best judgment assessment."6. The law so declared that the best judgmentassessment is based on an estimate and is not onebased solely on the account books was reiterated bythe Supreme Court in the case of Commis sioner ofSales Tax, Madhya Pradesh v. H.M. Esufali H.M.Abdulali [1973] 32 STC 77.7. Though other sub-sections of section 12 wereamended by the State Legislature subsequent to thedate of the judgment in the case of Jayaraj Nadar &Sons [1971] 28 STC 700 (SC), sections 12(1) and 12(2)have remained in the same form. The legislativeintention therefore, except during the periodDecember 3, 1979 to May 27, 1993 and on and afterApril 1, 1996 must be taken to be to, permit the levyof penalty only in case where the assessment is abest judgment assessment made on an estimate and notby relying solely on the accounts furnished by theassessee in the prescribed return. On and after April1, 1996 an explanation has been added below section12(3) which requires the turnover relating to the taxassessed on the basis of the accounts of theassessee, to be disregarded, while determining theturnover on which the penalty is to be levied undersection 12(3).8. The assessments for the assessment years1993-94 and 1994-95 which were assessments made onthe basis of the accounts, and not based on any othermaterial and were not estimates, have therefore, tobe regarded as assessments made under section 12(1)to which the penal provisions of section 12(3) arenot attracted. The levy of penalty for those twoassessment years is set aside." https://hcservices.ecourts.gov.in/hcservices/

6. The above statement of law would squarely cover the issue inthis case against the Revenue. Hence the order impugned in the writpetition is liable to be set aside and accordingly the same is setaside. The writ petition is allowed. Consequently, the connected W.M.Pis closed. No costs.krr/Sd/Asst. Registrar/true copy/Sub Asst.RegistrarTo1. The RegistrarTamil Nadu Taxation Special TribunalSingaravelar MaaligaiRajaji Salai,Chennai 1.2. The Commmercial Tax OfficerVadapalani Assessment CircleChennai 29.+ One cc to Spl Govt Pleader SR 64855+ One cc to Mr. A. Thiyagarajan, Advocate SR 64695'KU (c)sg 28/11/07 W.P.No.23274 of 2002Dated :- 26.10.2007