1965 (8) TMI 64 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the legality of proceedings under section 21 of the U.P. Sales Tax Act for the assessment year 1959-60.

Analysis:
The petitioner, a private limited company operating as a flour mill, contested the legality of proceedings under section 21 of the U.P. Sales Tax Act for the assessment year 1959-60. The petitioner received a notice under section 21 on 28th March, 1964, and subsequently, applied for inspection of records on 20th March, 1965. The Sales Tax Officer directed the petitioner to produce relevant account books, leading to objections raised by the petitioner regarding the vagueness of the notice under section 21. The Sales Tax Officer, based on investigations by the Special Investigation Branch, issued notices pointing out discrepancies in the petitioner's accounts, leading to objections raised by the petitioner, including a contention that the proceedings were barred by limitation. The petitioner filed a petition for prohibition and certiorari challenging the Sales Tax Officer's belief that turnover had escaped assessment for the year 1959-60.

The key issue revolved around the interpretation of "reason to believe" under section 21 of the U.P. Sales Tax Act, akin to the provisions in the Income-tax Act. The court emphasized that the assessing authority must have material to form a bona fide belief that income has escaped assessment, requiring more than mere suspicion. The material must provide prima facie grounds for non-disclosure of facts, ensuring a good faith belief based on reasons. The court highlighted the necessity of material supporting the belief, even if not ultimately forming the assessment basis, applying these principles to sales tax proceedings.

The Sales Tax Officer relied on information from the Income-tax Officer regarding discrepancies in the petitioner's accounts for the year 1957, indicating a pattern of turnover suppression. The court examined whether these facts could reasonably lead to a belief that similar practices continued in the subsequent year, 1958-59. The court concluded that the Sales Tax Officer's belief was justified, as the activities in 1957 were likely to persist in 1958-59, based on the proximity of the periods and the nature of the activities. The court emphasized that the Sales Tax Officer's belief need not be based solely on material from the specific year under assessment.

Ultimately, the court dismissed the petition, rejecting the petitioner's contentions and upholding the Sales Tax Officer's belief as valid under section 21. The court emphasized that the petitioner's alternative remedies under the statute did not warrant interference in its extraordinary jurisdiction, citing precedent from the Supreme Court. The petition was dismissed with costs, affirming the legality of the proceedings under section 21 of the U.P. Sales Tax Act for the assessment year 1959-60.