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TMI Blog1970 (3) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... t out the details of the export promotion scheme, as they are not necessary. The petitioners concede that the import licences so obtained by them were being sold by them by way of forward sale through named brokers in Madras. Such blank transfers enabled the brokers to negotiate further the licences and sell the same. The petitioners would state that once they effected a sale of the licences through the brokers, they were not aware as to who finally imported the goods under cover of the licences and under the letters of authority which they signed in blank contemporaneously along with the sale of the licences. The petitioners' case is that they maintain no accounts in respect of such sale of licences and, according to them, no goods imported under the said licences were sold by them in the Maharashtra State. On 5th October, 1964, the Sales Tax Officer (XI), Enforcement Branch, Greater Bombay, who is the respondent in this case, sent a registered letter stating that the petitioners have made large imports at Bombay and called upon them to furnish to him the details of such imports and the disposal thereof. He characterised the petitioners as non-resident dealers and enclosed vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solved firm in Maharashtra State is based, the necessary material may kindly be furnished so that it would be possible to explain the nature of those transactions." In effect, therefore, the petitioners challenged the factual hypothesis which prompted the respondent to issue the notice under the provisions of the Bombay Sales Tax Act and purported to exercise jurisdiction thereunder. It appears that the petitioners' representative interviewed the respondent on or about 11th August, 1966, and the position was made clear to him. This personal interview of the representative was followed by a letter of confirmation dated 23rd August, 1966. In this letter, while reiterating that they were not in possession of any particulars of sale of material at Bombay, the petitioners wanted that the details regarding the materials in the possession of the respondent be furnished to them, to enable them to answer the show cause notice. A reminder was sent on 31st August, 1966. There also the position was further elucidated by the petitioners, but with this difference that they gave the name of the broker through whom the licences were sold as Janab Gaffoor Sahib, Sunkurama Chetty Street, Madras-1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rested with the petitioners, and called upon them to show cause why he should not assess them in the manner proposed and why also a penalty under section 36(2)(a) of the Bombay Sales Tax Act, 1959, be not imposed. He also served a notice under section 33 of the said Act calling upon the petitioners to state their objections, if any, and called upon them to attend his office on a notified date. This notice prompted the petitioners to come up to this court under article 226 of the Constitution of India for the issue of a writ of prohibition prohibiting the respondent from taking any further proceedings in pursuance of his notice dated 2nd January, 1967. In the writ petition, the petitioners' case is that there is total absence of jurisdiction in the respondent to initiate proceedings against the petitioners. This is because the petitioners did not effect any sales as alleged and as only a sale would attract sales tax, and as no particulars of such sales were furnished in spite of several sincere requests made in that behalf, the impugned order is illegal. The petitioners would categorically state that they had not sold any goods in the erstwhile State of Bombay during the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In reply the petitioners contending contra state that under article 226(1-A) of the Constitution of India a part of the cause of action has arisen in the State of Tamil Nadu and the notice initiating the impugned proceedings were all received by the respondent in the State of Tamil Nadu and therefore this court has jurisdiction to entertain the writ petition and pass necessary orders thereon. They deny that no writ can lie against the person of the respondent and that the action proposed by the respondent is wholly without jurisdiction and therefore a writ of prohibition is the only effective remedy, though other alternative remedies are available under the Act after an illegal order of assessment is passed. The petitioners would reiterate that they requested both orally and in writing for the transmission of any material available with the respondent regarding the alleged sale of goods and on such a revelation the petitioners would be in a better position to answer the show cause memo. The petitioners would add that they have given all the particulars relating to the sale of their licences, the names of the brokers with whom they negotiated and having denied that they had anythi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrary and naked attempt on the part of the revenue to attempt to bring to tax dealings which never took place and which have not been prima facie established to have taken place has to be checkmated even at its threshold of operation. In such circumstances it is not necessary for an aggrieved person to suffer an order which can reasonably be stated to be without jurisdiction and later on exhaust the statutory remedies provided under a fiscal enactment. If a litigant were to be driven to this unfortunate and illogical limits, then the court would be encouraging the exercise of power by authorities when there is obviously none and such encouragement is against all fundamental canons of administration of justice. In the instant case the correspondence reveals that there was a sincere attempt on the part of the petitioners to get information from the respondent who was only functioning under the sales tax legislation, as to whether any sale was effected in the name of the petitioners or on their behalf. The impugned notice would state that the petitioners have delivered the imported goods to the local buyers. When repeatedly asked who those local buyers were, no information was furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may be that if there is prima facie no evidence to give it jurisdiction, the court may in a suitable case interfere at the threshold of the enquiry." We respectfully adopt the observations made by the learned Judges. We are of the view that in the absence of any disclosure of acceptable material or reasonable data to entertain a doubt at least that the goods were sold in the State of Maharashtra, then it is proper for this court to stop the enquiry at its threshold even at its inception, for neither the jurisdictional fact which would vest the revenue with the power to proceed is present or the normal facet of jurisdiction to exercise a power is apparent in the proceedings. We are unable to appreciate the line of argument of the learned counsel for the respondent that this application is premature. This argument ignores the plain intention of the notice which calls upon the petitioners to prove the negative to show that they did not effect a sale and in its absence to submit to the heavy assessment and the consequential penalty indicated therein. This places upon the assessee considerable hardship, harassment and liability, for if it is established that there was no sale and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws a proposal to assess forms part and parcel of the machinery of assessment and thus understood, the service of notice to assess and calling upon the petitioner to explain has given rise to a cause of action as is popularly and legally understood and the machinery of assessment has been set in motion and the impact of that motion is felt by the petitioners within the territorial limits of this State. We have therefore no hesitation in holding that a part of the cause of action has arisen in the State of Tamil Nadu. One other contention which is substantial is that the impugned notice cannot be proceeded with and no action thereunder can be taken because the petitioners were originally an association of persons and as they were dissolved on 9th June, 1965, the notice under consideration dated 2nd January, 1967, is without jurisdiction and cannot be pursued. It is common ground that beyond sections 18 and 19 of the Bombay Sales Tax Act, 1959, there is no express provision in the Act which would enable the revenue to proceed against a dissolved firm or a dissolved association of persons. "Dealer" has been defined In section 2(11) of the Act as meaning any person who for commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dissolution. It is this last expression in this sub-section which is very strongly relied upon. On a fair reading of this sub-section we are unable to conclude that this by itself is sufficient to infer an express power in the statutory authority to assess an association of persons after dissolution. This sub-section is only declaratory of the liabilities of the erstwhile members of an association of individuals, but it does not proprio vigore give an indication that a dissolved firm or association of individuals could be taxed notwithstanding dissolution. Under the Madras Act there was no such provision originally, but now a new section has been introduced as 19-A. Sub-clause (a) of section 19-A of the Madras General Sales Tax Act expressly provides for such tax liability on a dissolved association of persons even after dissolution, but for the pre-dissolution period as if no such dissolution had taken place. Clause (b) of section 19-A of the Madras General Sales Tax Act is in pari materia with sub-clause (3) of section 19 of the Bombay Sales Tax Act, 1959. We shall presently consider the necessity for the introduction of section 19-A in the Madras General Sales Tax Act, 1959, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h ceases to have a legal existence. There cannot be a distinction on principle between an assessment made on a firm under a proceeding initiated before its dissolution and one made in a proceeding started after the dissolution. In either case, unless there is an express provision, no assessment can be made on a firm which has lost its character as an assessable entity." The above decision was the primary cause for the introduction of the new section 19-A in the Madras General Sales Tax Act. Reference was also rightly made by the learned counsel for the petitioners to the provisions of the Income-tax Act only to sustain his argument that there should be a specific provision in a fiscal enactment enabling the assessing authority to assess a dissolved firm and bring to tax its dealings during its pre-dissolution period. Though an argument was hesitatingly raised by the counsel for the respondent that a father and a minor son cannot form an association of persons within the meaning of the Bombay Sales Tax Act, 1959, yet this was not seriously pressed in view of the ratio in M.M. Ipoh v. Commissioner of Income-tax[1962] 46 I.T.R. 301., which was confirmed later by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion can be exercised, there must exist circumstances which in the opinion of the authority suggest what has been set out in sub-clauses (i), (ii) or (iii). If it is shown that the circumstances do not exist or that they are such that it is impossible for any one to form an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute." With respect we restate the rule to suit the facts of this case as follows: Before a proposed notice of assessment on the best judgment formula can be issued, the fiscal authority should establish that there exist circumstances which in its opinion suggest that there has been a sale or a purchase by a dealer under the Bombay Sales Tax Act, 1959. But if it is shown that circumstances do not exist or that they are such that it is impossible for a reasonable and a prudent and well instructed person to form an opinion therefrom suggestive of a sale under the Sales Tax Act, then the opinion and the consequential action is challengeable on the ground of non-application of mind or on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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