1962 (4) TMI 88 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legitimacy of the Commercial Tax Officer's suspicion regarding the transactions.
2. Validity of the rejection of exemption claims based on alleged defects in declaration forms.
3. Jurisdictional error and the applicability of Article 227 of the Constitution.
4. Consistency and adherence to precedents by the Board of Revenue.

Issue-Wise Detailed Analysis:

1. Legitimacy of the Commercial Tax Officer's Suspicion:
The petitioner-firm, a wholesale distributor, submitted its return for the year 1954-55, claiming exemptions under section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, for sales to "registered dealers." The Commercial Tax Officer allowed exemptions for a minor portion but disallowed Rs. 14,57,521, citing suspicion about "the genuineness and integrity" of the transactions due to the heavy amounts and subsequent cancellation of the purchasing dealers' registration certificates. The appellate officer later found the disallowance to be based on presumption and suspicion without proper evidence.

2. Validity of the Rejection of Exemption Claims Based on Alleged Defects in Declaration Forms:
The Assistant Commissioner of Commercial Taxes identified defects in eight declaration forms where the purpose of purchase was not specified, disallowing exemptions for Rs. 5,12,430-4-0. The Additional Commissioner later added another item, bringing the total disallowed amount to Rs. 5,26,667-2-0. The Board of Revenue, however, did not address these defects and instead upheld the disallowance based on the suspicious nature of the transactions, a reason previously rejected by the appellate authorities.

3. Jurisdictional Error and the Applicability of Article 227 of the Constitution:
The petitioner argued that the Board of Revenue acted in excess of its jurisdiction by not considering the reasons provided by the Assistant Commissioner and the Additional Commissioner, thus violating natural justice principles. The court noted that the Board's decision was arbitrary and devoid of reason, constituting a jurisdictional error. The court emphasized that the Board's failure to grant deductions under section 5(2)(a)(ii) resulted in an unlawful tax levy, making the decision amenable to revision under Article 227.

4. Consistency and Adherence to Precedents by the Board of Revenue:
The petitioner highlighted that the Board of Revenue had previously held similar defects in declaration forms as immaterial and of no consequence. The court agreed, noting that the Board acted arbitrarily by not adhering to its own precedents, leading to unfair and inconsistent application of the law. The court emphasized that such arbitrary decisions violate natural justice and create uncertainty in business practices.

Conclusion:
The court set aside the orders disallowing the deductions under section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, and directed that the disputed transactions be deducted from the gross turnover in ascertaining the taxable turnover. The court highlighted the importance of consistency in tax administration and adherence to natural justice principles, making the rule absolute without any order as to costs.