LexTHE COMMISSIONER OF SALES TAX, U.P. versus MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW
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A B c • D E F G H 625 THE COMMISSIONER OF SALES TAX, U.P. v. MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW October 10, 1972 [K. S. HEGIJE, P. JAGANMOHAN REDDY AND H. ),?.. KIIANNA, JJ.] U.P. Sales Tax Act and Rules, s. 21--Ex-oarte assessment-Notice· for assessment of escaped turnover-When can be issued-'Reason to believe•, scope of. For the assessment year 1957-58, the assessee (respondent) was assess- ed to mies tax, under the U.P. Sales Tax Act and Rules, on 'a turnover which included the turnover of a flour mill of the assessee. The assess- ment was made ex-oarte. On account of food shortage the Government had fixed a quota for the flour mill in 1953 on the basis of the average grinding do.ne during the previous three years. In view of the turnover according to the account books of the assessee for the years 1955-56 and 1958-59, the sales-tax officer thought that the turnover· for the year 1957-58 was underestimated and that ·some turnover had escaped assess- ment. He accordingly issued a notice in September 1961 and a memo· randum on 13th March 1962 calling upon the asse'5ee to produtje the account books but no account books were produced. On 24th March, 1962, a notice was issued under s.21 of the Act. It was served on the asscssoe on 26th March 1962. On March 19, 1963, the sal::s tax officer made an assessment order under s. '21 estimating the turnover at a higher figure. Section 21 provides that if the assessing authority has reason to believe that the whole or part of the turnover of a dealer had es\'aped assestment, he may reassesc the dealer to tax, that such re-assessment shall not be made for any assessmeint year after the expiry of four y:ara, and that where notice under the section had been served within four years, the re-asse· sment may be made within one year of the date of service of the not.ice even if the period of four years is thereby exceeded. The High Court, on reference under s.11 of the Act, held that: (1) the firs\ notice and ·memora;ndum were not notices under s.21 so as to attract the period of limitation of one year for making the re-assessnr.nt, but (2) that the assessing offioer could not in the circum'tances of the case, be said to have reason to believe that some turnover of the assessee had escaped assessment. In appeal to this Court, HELD : (I ) The High Court was right in holding that the first notice and memolcandum were of a preliminary nature and did not constitute notices under s.21. All that was stated in them was to call upon the assessee to produr-e account books, and a threat, in c..,e of non-compli- ance, that action may be taken under s.2! of the Act. It was only on March 24, 1962, that notice under that sectio.n was given to the respond- ent. Th.o re-as-essment made on March 19, 1963, was within one year of the dates of service if the notice and hence, the re-as5.essment was no'" barred by limitation. [635C-El · ' 626 SUPREME COURT RBrORTS [1973] 2 s.c.a. (2) The lfigh Court was in error in holding that the assessing e.utho- A rity did not act with~n the ambit of his powers in 'initiating proceedings under s. 21. [634FJ (a) The words 'reason to believe' convey that there .must be some reasonable grounds for the assessing authority to form the belief that tbil turnover had escaped assesslll<lnt. Reasonable grounds necessarily postu· late that they must be germane to the formation of the belief regarding B escaped assessment. The belief· must be held in good faith and should IDOi be a pretence. ·At the stage of the \ssu,e of notice the only consideration which has to weigh with. the assessing authority is whether there is some relevant material giving rise to the prima facie inference that some turn· over has escaped asse'5ment. If the grounds are of an extraneou• characl- ter, they would not warrant initiation of proceedings under the sect.ion. But if they are relevant and have a nexus with the formation of the belief regarding escaped assessment, the assessing authority would be clothed with C jurisdiction to take action under the section. Whether the grounds are adequate or not is not a matter which would be gone into by the High Court or this Court, for, the suffici.e;ncy of the grounds which induced tlie assessing authority to act is not a justiciable issue. What c'.an be challeng- ed is the existence of the belief, but not the sufficiency of reasons for the belief. [63ZD-HJ , . · S.
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