STATE OF MADRAS versus S. G. JAYARAJ NADAR & SONS

Citation: [1972] 1 S.C.R. 751 · Decided: 16-09-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

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STATE OF MADRAS 
V. 
S. G. JAYARAJ NADAR & SONS 
September 16, 1971 
[K. S. HEGDE AND A. N. GROVER, JJ.] 
751 
Madras General,Sales Tax Act, 1959-Penalty under s. 12(3) can be 
levied only lvhen best jud,Rn1ent assessment is nzade under s. 12(2). 
The assessee \Vas a dealer in motor vehicles and spare parts and cer-
tain other goods. 
During the assessment proceedings under the Madras 
General Sales Tax Act, 1959 it was found inter. alia that the asscssee had 
not included in the monthly return in Form A~2, three items df tutnover, 
namely, delivery charges relating to motor vehicles purchased 
by 
the 
assessee from Calcutta dealers, sales of motor parts, and sales of firewood. 
Assessment was made overlooking the assessee's objections in ·respect of 
the inclusion of these items in the turnover. The Commercial Tax Officer 
also imposed penalty on the assessee. 
The Appellate Assistant Commis' 
sioner reduced the penalty to a nominal figure. 
The Board of Revenue 
set aside the appellate order holding that assessee. did not deserve lenient 
treatment. The High Court in reference held that penalty was lcviable 
only in respect of the second item in respect of which a best judgment 
assessment had been made but not in respect of the first and third items 
in respect of which the figures in the books had been accepted. 
In appeal 
by the Revenue, 
HELD : The High Court came to 
the correct 
conclusion 
because 
sul>-ss. (2) and (3) df s. 12 have to be read together. 
Sub-section (2) 
empowers the 
assessing 
authority to assess the dealer to the best 
of 
its judgment in the events : (i) if no return has been submitted by the 
dealer under sub-s. (I) within 
the prescribed period and 
(ii) if the 
return submitted by him appears to be incomplete and incorrect. 
Sub-
section (3) empowers the assessing authority 
to levy the penalty 
only 
when it makes an assessment under sub-s. (2). In other words when the 
assessing authority has made the assessment to the best of its judgment it 
can levy a penalty. When account books are accepted along with other 
records there can be no ground for- making a best judgment assessment. 
[753 C-G] 
State of Kerala v. C. Velukutty, 17 S.T.C. 465, referred to. 
In the present case the High Court rightly found that the turnovers 
involved in the first and third items were not determined on the basis of 
any estimate of best judgment since the quantum of turnovers in respect 
of both these items were based on the assessee's books. 
The penalty thus 
could not be levied in respect of these two items. [753 H-754 BJ 
The appeal must accc>rdingly fail. 
CrVrL APPELLATE JuRrsmcnoN : Civil Appeal No. 1404 of 
1969. 
Appeal by special leave from the judgment and order dated 
July 4, 1967 of the Madras High Court in Tax Case No. 210 of 
1964. 
752 
SUPREME COURT REPORTS 
[ 1972] l S.C.R. 
S. T. Desai, A. V. Rangam and A. Subashini, for the appellant. 
T. A. Ramachandran, for the. respondent. 
The Judgment of the Court was delivered by 
Grover. J. 
This is an appeal from a judgment of the Madras 
High Court in a matter arising out of the Madras General Sales 
Tax Act 1959, hereinafter called the "Act". 
The assessee is a dealer in motor cars, trucks, scotoers, motor 
spare parts ·and certain other goods. 
He returned a turnover of 
Rs. 42,09,912.12 for the assessment year 1961-62. The Commer-
cial Tax Officer on scrutiny of accounts determined the turnover at 
Rs. 68,06,331.49. During the assessment proceedings it was found 
that the assessee had not included in the monthly return in Form 
A-2, three !terns ot' turnover. The first was a sum of Rs. 1,95,311.21 
relating to delivery charges which the assessee had paid to certain 
Calcutta dealers from whom he had made purchases of cars, trucks, 
scooters etc. The second item was of Rs. 2,21,247.97 which relat-
ed to the sales of motor parts. 
The third item was of 
Rs. 1,56,539.25 being the aggrega\e of the sale proceeds of fire-
wood. The assessing authority served a notice on the assessee to 
show cause why these items should not be brought to tax. 
The 
assessee filed objections which were rejected. The assessing autho-
rity found that th~ delivery charges paid by the assessee were 
included in the cost price when the cars, trucks, scooters etc. were 
sold by it and sales tax at 7 % had been collected by the assessee 
on the delivery charges. As regards the second item it was held 
that the assessee had failed to maintain 

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