1981 (3) TMI 225 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Interpretation of Section 41(2) of the Bombay Sales Tax Act, 1959.
2. Determination of whether Section 41(2) is a charging section.
3. Quantification of tax liability under Section 41(2).
4. Applicability of best judgment assessment under Section 41(3).

Issue-wise Detailed Analysis

1. Interpretation of Section 41(2) of the Bombay Sales Tax Act, 1959
The primary issue revolves around the interpretation of Section 41(2) of the Act, which deals with the liability to pay tax in case of a breach of conditions under an exemption notification issued by the State Government. The Court analyzed the statutory provisions and concluded that Section 41(2) is not a charging section but a remedial provision. The Court stated, "Section 41(2) merely substitutes the person in breach for the party who would have otherwise paid the tax and who is the innocent party."

2. Determination of whether Section 41(2) is a Charging Section
The Court examined whether Section 41(2) constitutes a charging section. It was argued that a charging section should specify the rate of tax, which Section 41(2) does not. The Court held, "Section 41(2) of the Act is not a charging section. It is more in the nature of a penal section, and provides a remedy to the State Government for the recovery of tax which it, but for the wrongful act on the part of the seller or the purchaser, as the case may be, would have otherwise got."

3. Quantification of Tax Liability under Section 41(2)
The Tribunal had held that it was impossible to quantify the tax liability under Section 41(2) precisely, making the provision unenforceable. The Court disagreed, stating that the tax liability could be determined by referring to the goods and the relevant schedule entries. The Court emphasized, "Merely because the quantum of tax has to be worked out, it does not mean that the rate of tax has not been prescribed or it cannot be ascertained or determined."

4. Applicability of Best Judgment Assessment under Section 41(3)
The respondents argued that without specific records, the tax authorities could not estimate the tax liability under Section 41(2). The Court held that the taxing authorities could make a best judgment assessment if the dealer did not cooperate. The Court cited the Supreme Court's decision in Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali H.M. Abdulali, stating, "If such a dealer, after service of a notice upon him, does not co-operate by producing his books of account, the taxing authorities would certainly be able to assess his tax liability in the best way they can with the materials at their disposal."

Conclusion
The Court reframed the question to focus on whether the tax liability under Section 41(2) could be quantified with precision. The Court answered this in the negative, ruling in favor of the department and against the assessees. The respondents were ordered to pay the costs of the reference, fixed at Rs. 300.