1981 (3) TMI 253 - HC - VAT and Sales Tax

Summary

Issues involved: Assessment under rule 41(5) of the Rules framed under the U.P. Sales Tax Act for the assessment year 1970-71; Validity of proceedings under Section 21 of the Act for assessment year 1970-71; Legality of the assessment order and notice of demand dated 19th March, 1976.

Assessment under Rule 41(5) of the Rules framed under the U.P. Sales Tax Act for the assessment year 1970-71:
The petitioner, a registered partnership firm engaged in manufacturing tobacco, challenged the assessment made by the Sales Tax Officer under rule 41(5) of the Rules framed under the Act for the assessment year 1970-71. The petitioner contended that all account books were produced and verified during the original assessment proceedings, including details of perfumery purchased in India and imported from outside the country.

Validity of proceedings under Section 21 of the Act for assessment year 1970-71:
The Assessing Authority issued a notice under Section 21 of the Act for the assessment year 1970-71 based on information received regarding import of perfumes by the petitioner. The petitioner, in response, produced account books and filed an affidavit stating that imported perfumery was used only in manufacturing tobacco. The Assessing Authority assessed the petitioner on a turnover of Rs. one lac and imposed sales tax, leading to a challenge by the petitioner on the validity of the proceedings under Section 21 and the legality of the assessment order and notice of demand.

Legal Analysis:
The relevant provision of Section 21 empowers the Assessing Authority to assess or reassess a dealer if there is a reason to believe that the turnover has escaped assessment. The Supreme Court's interpretation emphasizes that there must be a rational basis for forming such a belief, and the belief must be held in good faith, not arbitrary or capricious. The existence of the belief can be challenged, but not the sufficiency of reasons for the belief. The Assessing Authority must have reasonable grounds, relevant to the formation of the belief, to initiate proceedings under Section 21.

Conclusion:
The notice under Section 21 was issued based on information from the Sales Tax Officer, Kanpur, regarding import of perfumery, but the Assessing Authority lacked relevant material to be satisfied that any part of the turnover had escaped assessment. The assessment order reopening the assessment lacked a valid basis and was quashed. The court held that Section 21 is not meant for reopening assessments based on information received after completion of regular assessment. The petition succeeded, and the impugned order and notice of demand were quashed with costs.