IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.12.2008 CORAM THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN and THE HONOURABLE MR. JUSTICE K.K.SASIDHARAN Tax Case (Revision) No.1328 of 2006 Tvl.S.Rukmangathan ... Petitioner vs 1. The Commercial Tax Officer, Guindy Assessment Circle, Chennai-600 028. 2. The Sales Tax Appellate Tribunal, City Civil Court Buildings, Second Floor, Chennai-600 104. ... Respondents Prayer:- Tax Case Revision filed under section 38 of the Tamil Nadu General Sales Tax Act against the order of the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Chennai, dated 03.02.2000, passed in S.T.A.No.23/1998 against the order of the Appellate Assistant Commissioner (CT)Kancheepuram dated 27.10.97 in AP.No.41/96 against the order of the Commercial Tax Officer, Guindy Assessment Circle, dated 30.10.95 in TNGST/160641/92-93. For Petitioner : Mr.Ravindran for M/s.Chandran Karuppiah & Ramani For Respondents : Mr.Haja Nazirudeen, Spl. Govt. Pleader (Taxes) O R D E R (Order of the Court was made by PRABHA SRIDEVAN,J.) The question raised in this revision is, whether the penalty levied under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act (hereinafter referred to as "the Act") is sustainable, when the assessment order is one made to the best of judgment under Section 12(2) of the Act. 2. The learned counsel for the petitioner would submit that the assessee's accounts were called for and it was found that the return filed by the assessee was incorrect and incomplete and therefore, to the turn over, 15% was added towards freight and unloading charges and 25% https://hcservices.ecourts.gov.in/hcservices/ was added towards Gross Profit and thus taxable turn over was determined. The Assessing Officer, thereupon, proceeded to levy penalty under section 12(5) of the Act. On appeal, the Appellate Assistant Commissioner found that when the assessment is a best judgment one, penalty under Section 12(5)(iii) of the Act cannot be levied and it can be levied only when the assessment is under Section 12(4) of the Act and the appeal preferred was partly dismissed and partly allowed. Against that, the Revenue filed an appeal before the Tribunal for restoration of the penalty. The Tribunal held that the dealer is liable to be penalised under Section 12(5)(iii) of the Act, since assessment is made under Section 12(4) of the Act. 3. The learned counsel for the petitioner would submit that it is apparent from the records that the assessment was a best judgment assessment under Section 12(2) of the Act and in support of his contention, he would rely on the following judgments:- 1) 1971(28) Sales Tax Cases 700 (State of Madras -vs- Jayaraj Nadar and Sons); and 2) 1983 (53) Sales Tax Cases 229 (Devendran and Company -vs- State of Tamil Nadu). 4. The learned Special Government Pleader (Taxes) would submit that the Tribunal was correct in holding that the assessment was one under Section 12(4) of the Act and therefore, penalty was rightly restored and he would further submit that since the Assessing Officer found that the return was incorrect and incomplete, Section 12(4) of the Act is consequently attracted. 5. Sections 12(2) and 12(4) of the Tamil Nadu General Sales Tax Act read as follows:- "Sec. 12(2). If no return is submitted by the dealer under sub-section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incomplete or incorrect, the assessing authority shall, after making such enquiry as it may consider necessary, assess the dealer to the best of its judgment (subject to such conditions as may be prescribed). Sec 12(4). Notwithstanding anything contained in sub-sections (1),(2) and (3), the assessing authority may, if it is satisfied that the accounts maintained by a dealer are correct, assess such dealer on the basis of such accounts, if such dealer has - (i) failed to submit the prescribed return; or (ii) failed to submit the prescribed return within such period as may be prescribed; or https://hcservices.ecourts.gov.in/hcservices/ (iii) if the return submitted is found to be incorrect or incomplete." 6. In Devendran and Company -vs- State of Tamil Nadu (1983 (53) Sales Tax Cases 229), the assessee submitted a return and the Assessing Authority, after the check of the books of account, found that the assessee had failed to disclose a huge turnover in the A-2 returns, though it found its place in the accounts. The matter was taken up in appeal. The Assessing Authority, therefore, levied penalty under Section 12(5)(iii) of the TNGST Act. The Appellate Assistant Commissioner confirmed it. Against that, the revision is filed before the Tribunal and the Tribunal also agreed with the Appellate Assistant Commissioner holding that Section 12(5) of the Act stood attracted. However, refixed the penalty at a lower rate. The assessee moved this Court and it was contended that Section 12(5) cannot be invoked, as the provision will apply only if the turn over returned by the assessee is correct and not when the turnover is incorrect and incomplete and the assessment is made on the basis of the best judgment. On facts, this Court found that the assessment was based on the turn over figures found in the accounts and therefore, the assessment was one under Section 12 (4) of the Act. The following paragraph, in the said judgment, is relevant to note the distinction between Sections 12(2) and 12(4) of the Act:- " A conjoint reading of sub-section (2), (3) and (4) of Section 12 would indicate that section 12(3) will come into operation when no return is filed within the prescribed period, or when the return filed is found to incorrect or incomplete. But sub-section (4) of section 12 will come into play only when the return filed by the assessee, which is found to be incorrect or incomplete, is inconsistent with the entries found in the accounts which are accepted as correct. Thus sub-section (4) of Section 12 covers a different situation and is intended to apply to a case where there is discrepancy between the returns submitted, which are found to be incorrect or incomplete, and the entries made in the accounts which are found to be correct." 7. In State of Madras -vs- Jayaraj Nadar and Sons {1971(28) Sales Tax Cases 700}, the Supreme Court held that penalty can be levied under Section 12(3) of the Madras General Sales Tax Act, 1959, on the ground that the dealer has submitted an incomplete and incorrect return only if the assessment had to be made to the best of his judgment by the assessing authority. In that case, the Assessing Authority found that the assessee had failed to maintain separate accounts and as it was not possible to separate the first sale from the general entries in the account books, it was necessary to make an assessment on best judgment. The Supreme Court further held as follows:- " The question is whether penalty can be levied while making the assessment under sub-section (2) of the above section merely because an incorrect return https://hcservices.ecourts.gov.in/hcservices/ has been filed. The High Court was of the view that it is only if the assessment has to be made to the best of the judgment of the assessing authority that penalty can be levied. It seems to us that the High Court came to the correct conclusion because sub- sections (2) and (3) have to be read together. Sub- section (2) empowers the assessing authority to assess the dealer to the best of its judgment in two events: (i) if no return has been submitted by the dealer under sub-section (1) within the prescribed period, and (ii) if the return submitted by him appears to be incomplete or incorrect. Sub-section (3) empowers the assessing authority to levy the penalty only when it makes an assessment under sub-section (2). In other words, when the assessing authority has made the assessment to the best of its judgment, it can levy a penalty. It is well-known that the best judgment assessment has to be on an estimate which the assessing authority has to make not capriciously but on settled and recognised principles of justice. An element of guess-work is bound to be present in best judgment assessment but it must have a reasonable nexus to the available material and the circumstances of each case: (see The State of Kerala v. C.Velukutty (1966 17 S.T.C. 465 (S.C.). Where account books are accepted along with other records there can be no ground for making a best judgment assessment. " 8. It is explained in Devendran and Company -vs- State of Tamil Nadu (1983 (53) Sales Tax Cases 229) that Section 12(4) of the Act will come into play only when the return filed by the assessee, which is found to be incorrect or incomplete, is inconsistent with the entries found in the accounts, which are accepted as correct. 9. 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% 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. No costs. Sd/- Asst. Registrar. /true copy/ Sub Asst. Registrar. bs/ https://hcservices.ecourts.gov.in/hcservices/ To 1. The Tamil Nadu Sales Tax Appellate Tribunal, (Main Bench) Chennai. 2. The Appellate Assistant Commissioner(CT) Kancheepuram. 3. The Commercial Tax officer, Guindy Assessment Circle, Chennai - 28. + 1 cc to The Government Pleader, SR.68328 T.C.(R).1328 of 2006 BV(CO) EM/15.12.08 https://hcservices.ecourts.gov.in/hcservices/