2008 (12) TMI 715 - HC - VAT and Sales Tax

Whether the penalty levied under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act 1959 is sustainable when the assessment order is one made to the best of judgment under section 12(2) of the Act? Held that - In the present case the accounts filed by the assessee were not accepted and that is why the assessing authority made an assessment to the best of its judgment which is what the Appellate Assistant Commissioner found in his order where he has stated that the details were from the account books of the appellants plus 15 per cent estimation towards freight and unloading charges and therefore rightly held that the assessment was one under section 12(2) of the TNGST Act. The question is answered in favour of the assessee. The tax case (revision) is accordingly allowed.

Summary

Issues:
1. Whether penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act is sustainable when the assessment order is made to the best of judgment under section 12(2) of the Act.

Analysis:
The case involved a dispute regarding the sustainability of a penalty levied under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act when the assessment order was made to the best of judgment under section 12(2) of the Act. The Appellate Assistant Commissioner initially found that penalty under section 12(5)(iii) could not be levied in a best judgment assessment but could only be imposed under section 12(4) of the Act. The Revenue appealed to the Tribunal, which ruled in favor of restoring the penalty, stating that it was applicable since the assessment was made under section 12(4) of the Act.

The petitioner argued that the assessment was indeed a best judgment assessment under section 12(2) of the Act, citing relevant case law to support this claim. The Tribunal, however, maintained its decision that the penalty was rightly restored under section 12(5)(iii) of the Act. The Special Government Pleader contended that the penalty was justified as the assessing officer found the return to be incorrect and incomplete, invoking the provisions of section 12(4) of the Act.

The court examined the provisions of section 12(2) and 12(4) of the Act to determine the appropriate assessment category. Citing the case of Devendran and Company v. State of Tamil Nadu, it was established that section 12(4) applies when the return filed by the assessee, found incorrect or incomplete, is inconsistent with the entries in the accounts accepted as correct. In this case, since the accounts filed by the assessee were not accepted, the assessment was rightly considered a best judgment assessment under section 12(2) of the Act.

Referring to the case of State of Madras v. S.G. Jayaraj Nadar & Sons, the court reiterated that penalty under section 12(5)(iii) can only be levied when the assessment is made to the best judgment of the assessing authority. The court emphasized that the best judgment assessment must be based on reasonable estimates and not on guesswork, with a nexus to available material and the circumstances of the case. The judgment clarified the distinction between sections 12(2) and 12(4) of the Act, highlighting that the latter applies when discrepancies exist between filed returns and accepted account entries.

In conclusion, the court found in favor of the assessee, determining that the assessment was indeed a best judgment assessment under section 12(2) of the Act. Consequently, the court allowed the tax case (revision) in favor of the assessee, with no costs imposed.