1980 (12) TMI 157 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether section 12(2) of the U.P. Sales Tax Act is mandatory or directory.
2. Whether account books can be rejected merely for breach of section 12(2).
3. Whether a presumption arises that account books are not maintained in the ordinary course of business and sale and purchase are not verifiable without examining it merely because the stock register or register of product obtained at every stage of production is not maintained.

Detailed Analysis:

1. Mandatory or Directory Nature of Section 12(2):
The court examined whether section 12(2) of the U.P. Sales Tax Act, which mandates the maintenance of stock books by manufacturers, is mandatory or directory. The court referred to several principles of statutory interpretation, including the use of the word "shall" and the legislative intent behind the statute. It was noted that the purpose of section 12(2) is to provide corroborative evidence for the accounts maintained under section 12(1). The court concluded that section 12(2) is mandatory because the corroborative evidence required by this section is essential for the accurate assessment of sales tax. The court emphasized that the legislative intent was to ensure that accounts maintained under section 12(1) are corroborated by stock books as required by section 12(2).

2. Rejection of Account Books for Breach of Section 12(2):
The court addressed whether account books can be rejected solely for the breach of section 12(2). It was argued that if the accounts under section 12(1) are true and correct, the absence of stock books should not lead to rejection. However, the court found this argument flawed, stating that the corroborative evidence required by section 12(2) is necessary to verify the accuracy of the accounts under section 12(1). Without such corroboration, the assessing authority cannot determine the correctness of the accounts. Therefore, the court held that account books can indeed be rejected for non-compliance with section 12(2).

3. Presumption Arising from Non-Maintenance of Stock Register:
The court examined whether a presumption arises that accounts are not maintained in the ordinary course of business and sales and purchases are not verifiable if the stock register is not maintained. The court clarified that the rejection of accounts is not based on any presumption arising from the non-maintenance of the stock register. Instead, it is based on the fact that, without the corroborative evidence required by section 12(2), the accounts under section 12(1) cannot be considered true and correct. Thus, the rejection of accounts is due to the lack of necessary corroboration as mandated by the statute, not due to any presumption.

Conclusion:
The court concluded that section 12(2) of the U.P. Sales Tax Act is mandatory, and account books can be rejected for non-compliance with this section. The absence of stock registers required by section 12(2) means that the accounts maintained under section 12(1) cannot be deemed to reflect the true and correct value of purchases and sales. The matter was remitted back to the learned single Judge for the final decision, and the revision was dismissed with costs.