TMI Blog1999 (3) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... able turnover arrived at due to the over-valuation of closing stock as illustrated in detail at Sl. No. 1 of the proposition notice. The taxable turnover arrived at due to the under-valuation of raw materials consumed as illustrated in Sl. No. 2 of proposition notice. The taxable turnover of Rs. 30,82,744 arrived at in respect of the work-in-progress account, as illustrated at Sl. No. 8 of the proposition notice. Demand of Rs. 3,84,39,134 was created. A request was made to defer the assessment since declarations in form 37 were not received. It is also stated that the endorsement for the year 1997-98 have not been issued and assessment order creating huge liability was issued against the principles of natural justice. The order is stated to be arbitrary, vindictive, capricious and subjective in nature. 2.. Under section 12(3) of the KST Act read with rule 18(3) of the KST Rules, it is contended that the assessing authority has to issue a notice in form 31-A. Pro forma of the said notice has contemplated specification of gross and taxable turnover. The proposition notice which has been issued lacks mandatory requirement. Even in the notice exact details of evasion detecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment orders and penalty orders and direct fresh assessments to be made after reasonable opportunity is afforded to the appellant to adduce evidence and to be heard in the matter. It is pointed out by the learned counsel for the appellant that a sum of rupees five lakhs twenty-eight thousand has already been paid by the appellant to the Sales Tax Department towards the liability assessed hitherto, and it is prayed that an order be made releasing the bank accounts and other properties from attachment. We direct that the attachment will continue for a period of four months from today, during which period the Sales Tax Department should complete the fresh assessments. Liberty is granted, however, to the appellant to apply to the Sales Tax Department for release of the bank accounts from attachment. The appeal is disposed of accordingly. There will be no order as to costs. Appeal allowed. In Mysore Cements Limited v. Deputy Commissioner of Commercial Taxes [1994] 93 STC 464 (Kar) the order was found against the principles of natural justice or against the accepted rules of procedure it was held that such action is amenable to judicial review under article 226. The Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaint in this case that the order had been passed without an opportunity to the importer to be heard, so as to be in violation of the principles of natural justice. The learned Solicitor-General questioned the correctness of the reasoning of the learned Chief Justice in condoning the conduct of the respondent in not moving the Government in revision by taking into account the time that had elapsed between the date of the impugned order and that on which the appeal was heard. The submission was that if this were a proper test, the rule as to a petitioner under article 226 having to exhaust his remedies before he approached the court would be practically a dead letter because in most cases by the date the petition comes on for hearing, the time for appealing or for applying in revision to the departmental authorities would have lapsed. 9.. We see considerable force in the argument of the learned Solicitor- General. We must, however, point out that the rule that the party who applies for the issue of a high prerogative writ should, before he approaches the court, have exhausted other remedies open to him under the law, is not one which bars the jurisdiction of the High Court t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is not per se a bar to the issue of a writ of certiorari and if in a proper case it may be the duty of the superior court to issue a writ of certiorari to correct the errors of an inferior court or Tribunal called upon to exercise judicial or quasi-judicial functions and not to relegate the petitioner to other legal remedies available to him and if the superior court can in a proper case exercise its jurisdiction in favour of a petitioner who has allowed the time to appeal to expire or has not perfected his appeal, e.g., by furnishing security required by the statute, it cannot then be laid down as an inflexible rule of law that the superior court must deny the writ when an inferior court or Tribunal by discarding all principles of natural justice and all accepted rules of procedure arrived at a conclusion which shocks the sense of justice and fair play merely because such decision has been upheld by another inferior court or Tribunal on appeal or revision. In the case of J.J. Spinners Ltd. v. Commissioner of Commercial Taxes, Orissa [1998] 109 STC 289 (Orissa) it was observed that where the statute provide a complete machinery for obtaining relief in respect of an allegedly im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or not. Since the assessee petitioner) has got an efficacious remedy from the provisional assessment orders, by way of revisions, before the statutory authority, we see no reason as to why this Court should, in the exercise of extraordinary jurisdiction under article 226 of the Constitution of India, scrutinise the legality of the provisional assessment orders. There are no extraordinary circumstances in this case. The respondent (assessee) has no case that the revisional authorities are incompetent in law to construe the impact of the notifications or that there was any denial of natural justice by the assessing authority before passing the provisional assessments. In such cases, the respondent (assessee) should pursue the statutory remedy by way of revision and was not justified in invoking the extraordinary discretionary jurisdiction of this Court under article 226 of the Constitution of India. In the case of State of West Bengal v. North Adjai Coal Co. Ltd. [1971] 27 STC 268 (SC) it was observed that in appropriate cases, the High Court can entertain a petition under article 226 of the Constitution of India and grant the relief even though the petitioner has not exhausted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from law, this Court in appropriate cases could interfere. Even in a case where the alternative remedy is dilatory in giving the relief which the citizen is entitled, resulting in irreparable prejudice or lengthy proceedings or unnecessary harassment, this Court can interfere in its extraordinary jurisdiction which is not seriously disputed by the learned Government Advocate. The alternative remedy is onerous, may result in palpable injustice and inordinate delay. Therefore the arguments on merits were heard. 3.. On February 11, 1999, when the matter was heard, learned counsel for the respondent was directed to bring any specific instance of sale which is not recorded in the books of account. From the perusal of the assessment order it is evident that there is no such incidence cited. In Commissioner of Income-tax v. Simon Carves Ltd. [1976] 105 ITR 212 it was observed that the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a relative decrease in the sales turnover and the sales turnover escaping tax is proposed to be arrived at as under: Rate of closing stock over-valued by... Rs. 8,638.00 PMT Total quantity of closing stock declared 519.624 MT Over-valuation of the entire Rs. 5,19.624 x 8,638 closing stock by 44,88,512 The over-valuation arrived at Rs. 44,88,512 is proposed to be added to the taxable turnover: Rs. Taxable turnover proposed to be increased due to over-valuation of closing stock by 44,88,512 Tax effect at 10% 4,48,851 2. Similarly at serial No. 3 of page 2, of the directors report, it is categorically stated as: .... However, profit has not increased proportionately due to increase in the cost of raw material and reduction in the selling prices. In the background of this revelation, a comparison of the rates of major raw materials consumed during the years 1996-97 and 1997-98 reveals the following details as per statements at page 25 of annual report. Raw materials consumed in manufacture: Sl. No Raw materials consumed 1997-98 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rate, Rs. Turnover proposed to be added to the taxable turnover. 33,08,05,462 Extra tax effect 3,30,80,546 3. On verification of the total energy consumption and energy consumed per unit of production, the following details are found to be furnished at page 4 of the annual report: Unit Rs. (1) Electricity (a) Purchased: (i) Units 56,10,840 (ii) Total amount rate per unit 2,22,12,367 (iii) 3. 96 (iv) No. of units consumed per unit production of aluminium extrusions PMT 421 To put it more succinctly, for producing one MT of aluminium extrusions, 421 units are required. In this background the total production of aluminium extrusions could be worked out as under: Total units consumed: (a) Electricity 5,610,840 Units (b) Ben generation 1,190,000 Units (c) Diesel generation 1,214,472 Units Total units of electricity consumed 8,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions. In reply to the proposition notice various objections were taken with the prayer that final notice may be issued so that the reply may be submitted. Power of best judgment assessment: 5.. In order to see as to whether the principles laid down for best judgment assessment have been followed or not it would be relevant to refer the following decisions: (a) Commissioner of Income-tax v. Laxminarain Badridas [1937] 5 ITR 170. It was observed by the Privy Council that the officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, vindictively, or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must take into consideration the local knowledge and repute circumstances of the assessee as well. (b) In Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [1973] 32 STC 77 (SC); [1973] 90 ITR 271 (SC), it was observed that the assessing authority while making the best judgment assessment, no doubt should arrive at its conclusion without bias a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Evidence Act are not applicable, the principles thereof have to be complied with. The best judgment assessment must not be punitive. The liability must be fixed by a speaking and well reasoned order after giving a reasonable opportunity of hearing. The assessment must be honest and fair having reasonable nexus to the material. 8.. On behalf of the respondent in the statement of objections filed it is stated that the opportunity required to be afforded to the assessee before concluding the assessment under section 12(3) of the Act read with rule 18(3) of the Rules have been given by issuing a proposition notice in form 31A on November 10, 1998 giving the reasons of the proposed assessment to be made. Gross and taxable turnover in the format of proposition notice is only a broad guideline for the assessing authority and it is the taxable turnover which computes the liability to tax which if added to the declared taxable turnover compliance of rule 18(3) of the Karnataka Sales Tax Rules would be considered. In Khanna Scooters v. Assistant Sales Tax Officer [1988] 69 STC 103, it was held by the Madhya Pradesh High Court that the assessment order in the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were conducted on February 18, 1999 in respect of the market price of aluminium alloy ingots during the period 1997-98 and it was stated to be Rs. 73,500 per metric tonne. Copy of the invoice dated June 6, 1997 of M/s. Fareed Sons Aluminium, Pvt., Ltd., is also submitted. Addition of 10 per cent over the previous year average cost of raw material is supported by the decision given by the West Bengal Taxation Tribunal in the case of Presidency Kid Leather (Pvt.) Ltd. v. Commercial Tax Officer, Ballygunge [1991] 80 STC 338. 10.. At the end it is conceded that the assessment be quashed for framing the reassessment afresh. 11.. I have considered over the matter. In spite of the opportunity being given to point out any instance of sale effected outside the books of account either detected by the intelligence wing or by the assessing authority, nothing has come on record and on contrary it is submitted that the evasion of tax is in respect of inter-State sales. Even that contention has no substance because according to the petitioners the transfers to branch/depot/agent were considered as inter-State sales. It is a matter of interpretation as to whether a particular transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegation of over-valuation of entire stock. Learned counsel for the respondent duly assisted by the assessing authority could not point out as to whether the purchase price of the raw material for the year 1997-98 was taken into consideration. If there is an increase in the purchase price the value of closing stock is bound to increase. Petitioner is maintaining the stock register and other regular books which have not been rejected and no defect has been pointed out in them. It is strange without understanding the accounting principles the assessing authority has come to the conclusion of over-valuation of closing stock. The value of closing stock is bound to increase if there is increase in the cost of raw material. In para 2 of the proposition notice itself it is mentioned that there is increase in the cost of raw material. The addition in the first para on account of valuation of stock therefore prima facie based on misunderstanding of accounting principles and suffers from mistake apparent from record as the directors report that due to increase in cost of raw material and reduction in selling price the profit is not increased is not denied by the assessing authority. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,956 per metric tonne by considering average consumption of all the raw material. Where the consumption of aluminium was more 99 per cent and the components less than 1 per cent then for taking average cost of raw material the percentage of price should have been considered. Admittedly from the figures received by the assessing authority average cost of aluminium was higher in 1997-98 as in 1996-97 it was Rs. 65,399 per metric tonne while in 1997-98 it was Rs. 68,764 per metric tonne therefore average cost of raw material consumed could not be lesser in 1997- 98 than that of previous year. A blunder is committed. It is admitted that in 1997-98 there was increase in cost of raw material consumed and not decreased. Under-valuation of raw material resulting in decrease in sales figure is based on complete misunderstanding of the accounting books and principles on accountancy. No addition on this ground was justified. Even the argument that aluminium component in one ton is 95 per cent and other material is 5 per cent is based on misunderstanding of mathematics. Total raw material is stated to be 19660 MT for which aluminium is 19495 MT and magnesium 80 MT and silicon 84 MT. The total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the CST Act that this action was taken. Though any error in the issue of proposition notice will not affect the jurisdiction of the assessing authority to proceed for assessment or even making best judgment assessment, but in this case it does not appear that the petitioner had adopted any dilatory tactics. When request was made to issue another notice the assessing authority could have informed that notice already issued is final and no further notice will be issued and still if the assessee failed to furnish the reply, then adverse inference could have been drawn or best judgment assessment order could have been passed. 14. It is submitted that the assessing authority acted in a biased manner and therefore the file may be directed to be transferred to some other assessing authority. This Court while exercising the power under article 226 of the Constitution cannot exercise that power. The contention that assessment order was framed in biased manner appears to be prima facie correct as stated above. It is for the petitioner to move the Commissioner for transfer of file. It may also be observed that the books maintained in the regular course of business are the prima faci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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