2022 (2) TMI 613 - HC - VAT and Sales Tax

Best judgement assessment - defects found on verification of accounts - whether the the best judgment assessment made on the basis of the electricity consumption vis-a-vis determining the input-output ratio, was relevant or not? - levy of penalty under Section 12(3)(b) of the TNGST Act, 1959 at 150% of the difference between the tax assessed and tax paid, which was nil - HELD THAT - On going through the orders of the lower authorities, viz., Assessing officer, First Appellate Authority and Tribunal, we find a consistent view that the books of accounts of the petitioner suffers from defects and not reliable and therefore, warrant a best judgment. While the First Appellate Authority has proceeded to reject the estimation on the basis of electricity consumption, but found that the books of accounts suffer from defects warranting best judgment assessment. The Tribunal has however restored the best judgment assessment made on the basis of the electricity consumption and its bearing on the input-output norms, besides rendering a finding that the books of accounts of the petitioner was not reliable for the various defects. There appears to be divergents views insofar as the question as to whether the consumption of electricity can constitute the sole basis for making a best judgment assessment. However, in the present case, the best judgment assessment was not only necessitated by the survey report/case study on electricity consumption vis-a-vis production of jelly, but also the fact that the books of accounts maintained by the petitioner suffered from defects as set out above, which even according to the First Appellate Authority, required the best judgment assessment - A best judgment assessment necessarily involves an element of guesswork and is a matter of discretion to be exercised by the Assessing Officer and exercise of such power ought not be interfered with lightly unless and until the Court is of the view that the discretion/power of best judgment is exercised in a arbitrary and capricious manner. Any best Judgment assessment is likely to be an over-estimate or an under-estimate, but that itself does not supply a reason or ground for interfering with the same. Levy of penalty - HELD THAT - The assessing officer had levied penalty on the entire turnover arrived at on the best judgment assessment and the same was restored by the Tribunal, by the order impugned herein. Whereas, Explanation to Section 12(3)(b) of the TNGST Act, 1959 provides for certain deductions, while assessing tax at the time of final assessment, for the purpose of determining the quantum of penalty, as can be seen from the extract of the Explanation to Section 12(3)(b) of the TNGST Act, 1959 - the Explanation has been completely overlooked by the lower authorities including the Tribunal and hence, the matter has to be remanded to the Assessing Authority to re-work the quantum of penalty alone, taking into account the Explanation to Section 12(3)(b) of the TNGST Act, 1959 with respect to the eligible deductions and after providing reasonable opportunity of being heard to the petitioner. The order impugned herein stands set aside and the matter is remanded to the third respondent / Assessing Authority, who shall complete the said exercise within a period of three (3) months from the date of receipt of a copy of this order - Petition allowed by way of remand.

Summary

Issues:
Challenge to best judgment assessment based on electricity consumption and defects in the petitioner's accounts, Levy of penalty without considering deductions as per Explanation to Section 12(3)(b) of TNGST Act, 1959.

Analysis:
1. The petitioner sought to quash the Tamil Nadu Sales Tax Appellate Tribunal's order restoring the best judgment assessment of the assessing officer for the assessment year 1996-97. The assessing officer determined the turnover based on defects in the petitioner's accounts and a case study on electricity consumption. The First Appellate Authority modified the assessment, adding 25% to the disclosed turnover but levied no tax due to being below the threshold limit. The Tribunal upheld the best judgment assessment, citing relevant case law and the defects in the petitioner's accounts.

2. The High Court found divergent views on whether electricity consumption alone could justify a best judgment assessment. However, considering the defects in the petitioner's accounts and the necessity of best judgment assessment as per the lower authorities, the Court upheld the Tribunal's decision. Referring to the Supreme Court's ruling on best judgment assessments, the Court emphasized the discretionary nature of such assessments and the limited scope for interference unless exercised arbitrarily.

3. Regarding the penalty levied without considering deductions under Section 12(3)(b) of the TNGST Act, 1959, the Court noted the oversight by the lower authorities, including the Tribunal. The Explanation to Section 12(3)(b) provides for specific deductions in penalty calculations, which were not taken into account. Consequently, the Court set aside the penalty calculation and remanded the matter to the Assessing Authority to rework the penalty, considering the eligible deductions and providing a hearing to the petitioner within three months.

4. In conclusion, the High Court disposed of the writ petition without costs, directing the Assessing Authority to re-evaluate the penalty in accordance with the Explanation to Section 12(3)(b) of the TNGST Act, 1959. The connected miscellaneous petition was also closed as a result of the judgment.