1982 (9) TMI 228 - HC - VAT and Sales Tax

Summary

Issues:
Assessment under section 18(7) of the Act
Establishment of evasion of tax
Nature of provisions of section 18(7)
Validity of the first appellate authority's order

Analysis:
The case involved a reference under section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958, regarding the assessment of M/s Narbada Ice Factory. The questions referred to the court included the justification of assessment under section 18(7), establishment of tax evasion, the penal nature of section 18(7), and the validity of the first appellate authority's order. The assessing authority initially assessed the applicant under section 18(7) at Rs. 49,000, but the Appellate Assistant Commissioner modified the assessment, leading to the department invoking revisional jurisdiction. The Commissioner found that section 18(7) applied due to sales made to favored buyers, overturning the appellate authority's decision. The Tribunal concurred with the Commissioner, prompting the assessee to seek a reference to the High Court.

The facts revealed a partnership of three ice manufacturing factories, including the applicant, forming a distributing agency to sell ice to consumers. The previous tax regime taxed the distributing agency's sales, but under the current Act, tax was levied at the first point of sale. The sales tax authorities applied section 18(7) due to the arrangement benefiting the constituents in avoiding tax to some extent. However, the court analyzed that the main purpose of the distributing agency was to eliminate competition among the constituents rather than evade tax. The court found no evidence of abnormally low prices compared to other dealers, leading to the conclusion that section 18(7) was not applicable in this case.

The court answered the referred questions as follows: the assessment under section 18(7) was not justified, evasion of tax was not established, and the order of the first appellate authority was neither erroneous nor prejudicial to the interest of Revenue. Therefore, the court held that interference in revision under section 39(2) was not justified. The parties were directed to bear their own costs of the reference.