1962 (3) TMI 71 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Competence to estimate turnover when accounts are accepted.
2. Legitimacy of rejecting accounts and declared turnover.
3. Permissibility of using a formula for estimating turnover.

Issue-wise Detailed Analysis:

1. Competence to estimate turnover when accounts are accepted:
The petitioner argued that the Deputy Commissioner, having accepted the correctness of the accounts of Durga Lodge, should have held that neither he nor the assessing authority had the competence to estimate the turnover of that business. The court noted that the Deputy Commissioner found the accounts of Durga Lodge to be above reproach but still estimated the turnover based on a formula. The court emphasized that if the accounts are accepted as correct and complete, the turnover declared by the dealer should be accepted, and no estimation is permissible. The court concluded that the declared turnover of Durga Lodge should be accepted as the taxable turnover.

2. Legitimacy of rejecting accounts and declared turnover:
The petitioner contended that the assessing authority, having found the accounts of the restaurant properly maintained, could not decline to accept its declared turnover. The court observed that the Commercial Tax Officer acknowledged that the accounts of Sri Krishna Vilas Restaurant were well-maintained and accounted for every transaction. However, the officer rejected the accounts due to perceived defects in the purchase accounts. The court held that if the sales are accurately recorded, the turnover should be accepted regardless of minor defects in purchase accounts. Thus, the declared turnover of Sri Krishna Vilas Restaurant should be accepted as the taxable turnover.

3. Permissibility of using a formula for estimating turnover:
The petitioner argued that the application of a formula for estimating turnover was not permissible. The court examined Section 12(2)(b) of the Mysore Sales Tax Act, 1948, which allows the assessing authority to estimate the turnover to the best of his judgment if the return is found to be incorrect or incomplete. The court emphasized that the estimate must be based on some material, and the material should be disclosed to the dealer. The court criticized the mechanical application of a formula without considering its suitability to the specific case. The court concluded that the Deputy Commissioner and the Tribunal erred in mechanically applying a formula without proper consideration and disclosure to the petitioner.

Conclusion:
The court set aside the impugned assessments, holding that the declared turnovers of Durga Lodge and Sri Krishna Vilas Restaurant should be accepted as the taxable turnovers. The court directed that if the petitioner had paid the tax demanded, the portion attributable to the excess turnover should be refunded. If the tax was not paid, the demand should be restricted to the tax payable on the declared turnover. No order as to costs was made.