1965 (7) TMI 49 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of provisional assessment orders under the U.P. Sales Tax Act.
2. Whether Rule 41(3) of the U.P. Sales Tax Rules is ultra vires.
3. Requirement of notice before passing a best judgment assessment.
4. Compliance with principles of natural justice.

Detailed Analysis:

Issue 1: Validity of Provisional Assessment Orders
The petitions challenge the provisional assessment orders passed by the Sales Tax Officer for the second and third quarters of the assessment year 1964-65. The petitioner filed returns for both quarters but did not deposit the admitted tax. The Sales Tax Officer rejected the requests for extension of time to pay the tax and proceeded to pass provisional assessment orders without prior notice, assessing the petitioner to the best of his judgment on a higher turnover and demanding the tax within 30 days.

Issue 2: Whether Rule 41(3) is Ultra Vires
Counsel for the petitioner argued that the U.P. Sales Tax Act imposes a yearly tax, and the unit of liability is the financial year. Therefore, Rule 41(3), which provides for provisional assessment for a month or quarter, is ultra vires. The court examined Section 3, the charging section, which establishes an annual liability. Sections 7 and 7-A deal with the machinery for assessment and provisional assessments, respectively. The court concluded that Section 7-A and Rule 41, providing for provisional assessments, do not change the nature of the tax from an annual charge. Rule 41(3) is not ultra vires as it operates within the framework of Section 7-A.

Issue 3: Requirement of Notice Before Passing a Best Judgment Assessment
The petitioner contended that Rule 41(3) does not provide for any notice before passing a best judgment assessment, contrary to Section 7(3) of the Act, which requires a reasonable opportunity for the dealer to prove the correctness of the return. The court held that Rule 41(3) is not referable to Section 7(3) and does not require a reasonable opportunity before a provisional assessment. However, the court emphasized that assessment proceedings are quasi-judicial, and principles of natural justice, including the right to be heard, must be followed.

Issue 4: Compliance with Principles of Natural Justice
The court found that the Sales Tax Officer did not provide the petitioner an opportunity to be heard before determining the turnover to the best of his judgment. This lack of opportunity violated the principles of natural justice, rendering the provisional assessment orders void. The court referenced the case of Qamruddin v. Commissioner of Sales Tax, U.P., where it was held that the statutory provision requires only one opportunity of hearing before a best judgment assessment. However, Rule 41(3) does not explicitly exclude the opportunity of hearing, thereby attracting the principles of natural justice.

Conclusion:
The court quashed the provisional assessment orders dated 31st October 1964, and 6th January 1965, due to the violation of principles of natural justice. The petitions were allowed, and the parties were instructed to bear their own costs.