1973 (4) TMI 84 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the department is required to fix the actual amount of escapement in a reassessment proceeding.
2. Whether the assessment under section 12(8) of the Orissa Sales Tax Act should be confined to the turnover that escaped or was under-assessed.

Issue-wise Detailed Analysis:

Issue 1: Requirement to Fix Actual Amount of Escapement
The first issue concerns whether the Tribunal was correct in holding that the department must fix the actual amount of escapement. Section 12(8) of the Orissa Sales Tax Act allows the Commissioner to reassess if the turnover has escaped assessment or has been under-assessed. The provision authorizes the assessing officer to assess the tax due from the dealer using the best of judgment method as laid down in sub-section (5) of Section 12. The Tribunal's view was challenged by the standing counsel, arguing that the assessing officer could make a best judgment assessment and was not confined to the exact escaped turnover. The court referred to various precedents, including decisions from the Allahabad High Court and the Supreme Court, which supported the view that once the accounts are discarded, the assessing officer can cover the entire range of turnover using best judgment. Thus, the court concluded that the Tribunal was incorrect in holding that it was the department's duty to fix the actual amount of escapement.

Issue 2: Confined to Escaped Turnover
The second issue addresses whether the assessment should be limited to the escaped turnover. The Tribunal had reduced the enhanced turnover from Rs. 12,000 to Rs. 4,000, stating that the department failed to fix the actual amount of escapement. The court examined the principle of best judgment assessment, emphasizing that it must be based on honest guesswork and supported by objective considerations, such as local knowledge, previous returns, and trade practices. The assessing officer's estimate of Rs. 12,000 was deemed unsupported by sufficient foundation, as it merely mentioned the amount of suppression and the volume of trade without further elaboration. The court held that while the assessing officer could estimate the escaped turnover, such an estimate must be justified by materials and indicated clearly. Consequently, the Tribunal's decision to confine the assessment to the actual escaped turnover was upheld, as the estimate lacked a proper foundation.

Conclusion:
The court answered the first question by stating that the Tribunal was incorrect in holding that the department must fix the actual amount of escapement. For the second question, the court upheld the Tribunal's decision to confine the assessment to the actual escaped turnover, emphasizing the need for a justified and supported estimate. Both parties were directed to bear their own costs of the reference.