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TMI Blog1998 (12) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... ho in their turn sell those sheets to manufacturers having plant and machinery to manufacture various goods. The sheets are used in packing after cutting them into required size and shapes and making necessary holes for being fitted in the pipe or nuts and bolts of machinery so as to see that no leakage of any gas, or air, or fluid required in the machinery may take place. In other words, the sheet is used as accessory of machineries as washers. After obtaining it from the seller the required size is cut from the whole sheet and processed through other activity by creating a hole of required size by the user. The sales of this article in the hands of the assessee had been taxed as accessory of machinery covered under entry 36 of notification under section 49(2) of the Act at the rate of 6 per cent or 7 per cent as the rate was prescribed from time to time during the period in question from 1990-91 to 1994-95. As the order, annexure A/2 suggests, the dealer has paid sales tax at the rate of 6 per cent to 7 per cent for this period in question instead of making payment of tax under entry 13 of Schedule III appended to the Act. Power under section 59(4) as well as under section 44 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation under section 49(2) was justified. When the audit query was replied to by the assessing authority, the directions were sent to another officer who in turn directed the jurisdictional authority to take action and thus impugned acts have come into existence. In the face of two orders under section 62 determining rate applicable on the goods sold by the assessee determining rate of tax applicable for the purposes of Act and attending circumstances the reasons disclosed by the assessing authority for initiating proceedings are mere pretence and on non-existent material. 4.. In the first instance, the reply affidavit dated August 27, 1998 was filed in which allegation as to initiation of reassessment proceedings and seizure proceedings on account of the audit of the Office of the Accountant-General and the fact about dropping the idea of reassessing in spite of objection having been raised by the Office of the Accountant-General and that it was only on account of subsequent insistence of the Accountant-General office that the respondent had issued said notices was outrightly denied. It had been urged that the decisions under section 62 ipso facto and per se did not apply in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed article is traded or such article is ultimately put to use. The question whether the petitioner trades in the article in question as an accessory of machine or as any other ordinarily marketable commodity is a question of fact liable to be determined on inquiry and has not in effect been determined by the two orders. 6.. We shall first examine the issue of seizure of accounts, etc. The facts being not in dispute as stated above, we shall take a look at the provision concerned, viz., sub-section (4) of section 59 which has been pressed into service by the respondents. Section 59(4) reads: (4) If the Commissioner has reason to believe that any dealer has evaded or is attempting to evade the payment of any tax due from him he may, for reasons to be recorded in writing, seize such accounts, registers documents of the dealer as may be necessary, and shall grant a receipt for the same, and shall retain the same for so long as may be necessary, in connection with any proceeding under this Act or for a prosecution. The preamble of the provision unfolds the conditions in which power under sub-section (4) can be exercised by the Commissioner or his delegate. He must have reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore action under section 59(4) can take place. The reasons which lead to the formation of belief and ultimate action of seizing accounts, registers, etc., must have nexus with the question of dealer s act that has resulted in evasion of payment of tax in past or must have nexus to an act which can be described as attempt to evade payment of tax in presenti. If that connection is missing from the reasons recorded with any act of assessee and the belief held by the concerned officer, the writing of words of statute that I have reason to believe , will merely be a pretence without such belief actually existing. In such event the order of seizure will be ultra vires and cannot be sustained. The fact that the assessee is manufacturing rubber insertion sheets or rubber insertion packing sheets, the fact that the two orders under section 62 are operative since 1976 and 1982 and that the Sales Tax Officer had applied the rate of tax by holding that those orders are applicable to the assessee s case and that the assessing officer still holds that the levy of tax at the rate in the original assessment was right as per the determination made under section 62, one finds it difficult to imag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notices under section 44, we find, what gives jurisdiction for reassessment of turnover is that the Commissioner must have reason to believe that any turnover of sales or turnover of specified sales or turnover of purchases of any goods chargeable to tax under this Act has escaped assessment or has been underassessed or assessed at a lower rate in respect of any period. No reasons have been recorded on file before or after issuance of notice in this case. This was so stated by learned counsel for the respondents when specifically asked. It was urged that law does not require recording of reasons in writing. Thus we are to consider this question on the basis of affidavits. The belief which is disclosed, at the first instance, is that the income has escaped assessment because of the underassessment at a lower rate in respect of the periods in question. As has been noticed in the order, annexure A/2, while exercising power of seizure of account books under section 59(4) it has been alleged that seizure of books is for the purpose of reassessing the dealer at the rate under entry 13 of Schedule III as against the levy of tax at 6 to 7 per cent. That order does not disclose any conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on account of the audit of the office of the Accountant-General which is not an authority under the Act. As a matter of fact, the respondent had dropped the idea of reassessing the petitioner, in spite of the objection raised by the office of the Accountant-General. It is only on account of the subsequent insistence of the Accountant-General Office, the respondent has issued such apparently illegal notices and passed apparently illegal order by initiating the reassessment proceedings and seizure proceedings without any belief on his part but only on account of the belief of the Accountant-General which is not an authority under the Act. The impugned order, annexure A/2, and the notices, annexure A/3, are also ultra vires and without jurisdiction on this Court alone and they are liable to be set aside and quashed. (14) The petitioner respectfully submits that the impugned notices, annexure A/3, have been issued not for any legitimate purpose for which they are issued but for the purpose of making fishing inquiries and to review the previous orders of assessment made in the case of the petitioner by following the orders under section 62 of the Act as referred to in para 3 above a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Tribunal ( the Tribunal ) against the said decision of the Deputy Commissioner and sought to lead evidence before the Tribunal. The Tribunal did not permit the applicant to lead evidence but remanded the matter to the Deputy Commissioner. After the remand the applicant lead evidence in the form of statements of 14 dealers including the manufacturers and on the basis of such evidence rendered the aforementioned decision. Likewise the decision in the case of M/s. Kamdar Oil Mill Gin Stores is also rendered in the light of the evidence produced therein. I crave liberty to refer to the said decisions when produced. I say and submit that the said decisions do not ipso facto and per se apply in the case of the petitioner. I say that the petitioner has paid tax on the footing that the goods manufactured and sold by it are parts or accessories of machinery which is lower than the rate of tax which would be applicable under the residuary entry. I say and submit that I had reason to believe that the petitioner had evaded tax warranting actions under section 59(4) of the Act (annexure A/2) or the notices issued under section 44 of the Act (annexure A/3) are without jurisdiction or that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment was proper. Thereafter in the audit note it was pointed out that most of the sales were made to Mayur Trading, Bombay, and other traders who were dealing in hardwares, stores, valves, cocks and sanitary fittings, etc., and that there was no evidence on record to show that the articles were specially designed for machinery parts and used as machinery parts. The audit note was sent to the Deputy Commissioner. Thereafter, the Deputy Commissioner made the order dated March 7, 1998 referred to hereinabove (annexure No. 1 hereto). Pursuant to the said order I searched the business premises of the petitioner on March 9, 1998 and seized certain books of accounts and other documents. The petitioners have annexed as annexure A-2 to the petition what purports to be a translation in English of the said order, original of which is in the Gujarat language and character. I say that in the said translation, some vital words (which, rendered in English mean, for the reasons mentioned below ) have been omitted. A copy of the said order in Gujarati is annexed hereto and marked annexure No. 2. When any action is taken by a Sales Tax Officer under section 59 of the Act, further proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to Deputy Commissioner resulted in order of Deputy Commissioner dated March 7, 1998 directing the assessing officer to carry search. About reason to issue notices his only assertion is that on the grounds mentioned in order dated March 9, 1998 he has reason to believe that turnover of the assessee had been assessed at lower rate. In these circumstances, irresistible conclusion is that belief, if any, on the basis of audit note and the information that was transmitted to Deputy Commissioner was held by auditors or the Deputy Commissioner but it cannot be of the assessing officer inasmuch as the audit note, after he has transmitted his satisfaction about correctness of his earlier orders, has never again addressed to assessing authority disclosing any new material to him nor he was ever called upon to revise or review his earlier opinion, but he was simply acting in direction of Deputy Commissioner. It cannot be gainsaid that reason to believe envisaged under section 44 must be belief of the authority initiating the reassessment proceedings not of any other officer howsoever high he may be. Notice is to be served by the person who holds the belief and has jurisdiction over the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or incorrect supply of information is there, either in order dated March 7, 1998, or March 9, 1998 or in reply affidavits. Nor there is any allegation that assessee did not maintain or produce, or kept open the relevant accounts, registers or documents or other information when sought, which may require resort to sub-sections (4) and (5) of section 59 of the Act. Even now there is no allegation ever of suspicion that turnover has not been correctly disclosed or particulars about sales have been incorrectly disclosed. For the purpose of correct levy of tax at the rate prescribed under entry 13 of Schedule III instead of under entry 36 in notification under section 49 on the same turnover, why resort to section 59 was felt necessary is difficult to understand. 19.. Be that as it may, the reason which has ultimately been pressed into service to sustain the notices is that the decision in Natwarlal Co. and Kamdar Oil Mills Gin Stores under section 62 does not ipso facto and per se apply in the case of the petitioner. The question which calls for consideration is whether on the date when the impugned notices were issued, on a fair construction of the two orders, about the validity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the two cases was with reference to a particular assessee depending on any such inquiry about the special designing of the article or use by the purchasers. The order dated August 25, 1976 was about whether single insertion sheet was an accessory of machinery falling under entry 36 inserted by notification under section 49(2) or not. In the first instance, the Deputy Commissioner has held that the article fell under entry 13 of Schedule III of the said Act and taxable as such as it was not an accessory of machinery. On appeal, the Tribunal held that there was no difficulty in holding that the packings are undoubtedly accessory of machinery. The Tribunal also did not agree with the Deputy Commissioner s conclusion that the concerned article may be accessory of part of machinery or accessory of machine but by itself not an accessory of machinery. The Tribunal, therefore, set aside the order of the Deputy Commissioner that the rubber insertion sheet is covered under entry 13 of Schedule III. However, it felt that whether the rubber insertion sheet can be considered as packing material so as to be termed as accessory of machine, the matter was remanded back to the Deputy Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l designing or any end use by the purchaser in question. 23.. In this connection, both the orders under section 62 have referred to decision of the Supreme Court in Annapurna Carbon Industries Co. v. State of Andhra Pradesh [1976] 37 STC 378, for the purpose of finding whether an article can be used for more than one purposes and may fall in more than one entry in which entry it is to be classified for the purpose of levy of sales tax. The apex Court was concerned with an article known as arc carbons. The court found that arc carbons are mainly used for production of powerful light used in projectors in cinemas and are known as cinema arc carbons in the market. The fact that arc carbons can also be used for searchlights, signalling, stagelighting, or where powerful lighting for photography or other purposes may be required, could not detract from the classification to which the carbon arcs belong. Here, the entry has specifically mentioned the classification with reference to its use as it was expressed required for use therewith. Both the orders applied this principle by adhering to the principle that the article which is likely to be used in more than one way should be clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are purported to have been issued on the ground that the respondent had reason to believe that the petitioner had concealed the sales or purchases or any material particulars relevant thereto or had knowingly furnished incorrect declarations or not, which could give the officer jurisdiction to initiate reassessment proceedings beyond five years from the end of financial years. No reply to these averments have been made. In two affidavits filed in reply one by Mr. M.G. Patel, the officer who is currently, holding charge of assessing authority and another by Mr. M.G. Memon, the officer who had actually issued notices, nowhere state that proceedings have been initiated because of any such reason. 26.. Section 44 reads as under: 44. Reassessment of turnover escaping assessment.-If the Commissioner has reason to believe that any turnover of sales or turnover of specified sales or turnover of purchases of any goods chargeable to tax under this Act has escaped assessment or has been under-assessed or assessed at a lower rate in respect of any period in an order of assessment made under section 41, or if the Commissioner has reason to believe that any deduction has been wrongly give ..... X X X X Extracts X X X X X X X X Extracts X X X X
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