Nithiya Rice and Sago Factory vs Deputy Commercial Tax Officer

S. Tamiilvanan, J.—This writ petition has been filed under article 226 of the Constitution of India seeking an order in the nature of writ of certiorari calling for the records relating to order dated February 28, 2006 made in TNGST No. 3261145/2003-04 and quash the same and pass such further or other order as this court deem fit and proper in the circumstances of the case. It is seen that the impugned order of assessment in form 19 has been passed u/s 12 of the Tamil Nadu General Sales Tax Act, 1959. As per the impugned order, it is seen that the respondent has fixed tax on the basis of consumption of electric energy and accordingly, calculated the value of sago products manufactured and accordingly determined the total turnover at Rs. 74,24,951 and computed the taxable turnover at Rs. 3,79,055. In the impugned order, the respondent has stated the name of the assessee Tvl. Nithiya Rice and Sago Factor)'', nature of business sago and starch at Valayamadevi, the total turnover reported was Rs. 70,51,151 and the taxable turnover reported was at Rs. 5,255. In addition to that the respondent has stated in page 3 of the proceeding that the value of 219 bags of starch produced by way of excess consumption of electricity however the same was not reflected in the accounts and it was calculated at Rs. 1,000 per bag which comes to Rs. 2,19,000 at four percent. Similarly, the value of 129 bags of sago produced by way of excess consumption of electricity not reflected in the accounts at Rs. 1,200 per bag was calculated at Rs. 1,54,800 at four percent and further stated that purchase turnover liable u/s 7A of the Act is Rs. 370 at 12 percent. The order reads that the returns filed by the petitioner were found to be incorrect, hence it is proposed to levy penalty u/s 12(3)(b) of the Act at the appropriate slab rate.

The impugned order reveals that in reply to the notice, the dealers have stated that there had been no discrepancy in their accounts and also listed out the machineries stating that the capacity of the machine comes to 168 H.P. Further, they have quoted certain decisions holding that the estimation of the electricity consumption was not valid and penalty u/s 12(3)(b) could not be made for the estimated turnover and finally requested to drop the proposals.

The order reads that the respondent after carefully examining the objections of the petitioner, passed the following order:

The objections are carefully examined. The dealers have not filed any evidences for the lesser consumption in support of their plea. The machine less listed out to a capacity of 168 H.P. were the various machine less record for the manufacturing activity. There were no reasons adduced as to why this list of machine less was given in the letter of objections. As per the statistical survey 9.63 and 5.46 units of electricity for the manufacturing of sago and starch required is quite reasonable. The production of sago and starch and sale value recorded in the accounts clearly exhibited the actual suppression. In the decisions reported in Chand Oil Mill Vs. Commissioner of Sales Tax, , it is held that since the consumption of electricity was accepted the estimation of turnover should have been made on the basis of such consumption only. In the case of Shanmuga Oil Mills Vs. Commissioner of Commercial Taxes in Karnataka, , it is held that if the consumption of electricity is more the end-product must also increase.

I find no tangible reasons in their objections. Hence, the proposals are therefore confirmed.

The dealer had effected purchases of tapioca roots from agriculturists directly, produced sago and starch and sold it locally. Sales through sago serve was also made. Check of accounts disclosed the following sales:

The impugned order further reads that the actual consumption of electricity was 35,790 units and according to the respondents, the normal consumption for 2,167 bags of starch produced at the rate of 5.46 units per bag which comes to 11,832 units, 2,235 bags of sago produced at the rate of 9.63 units per bag which comes to 21,523 units, hence the total is 33,355 units, excess consumption is 2,435 units, actual excess consumption for which the corresponding production not reflected in the accounts is 2,435 units, percentage of productions: Starch 49 percent and sago 51 percent, for production of starch at 5.46 units per bag not reflected in the accounts is 219 bags, production of sago at 9.63 units per bag not reflected in the accounts for 129 bags.

Hence, on the estimated calculation of the respondents, the aforesaid 348 bags of starch is stated as produced and sold off the records and further stated that the accounts disclosed that the dealer has effected purchases of roller sheet, grease, jute, gunny bags for Rs. 5,255 from unregistered dealer and therefore, it was proposed to levy tax on the purchase value, u/s 7A of the Act. As per the assessment order, the respondent has taken a view that the defects and irregularities were noticed from the petitioner''s incorrect accounts. Section 7A of the Tamil Nadu General Sales Tax Act, 1959 deals with levy of purchase tax, which reads as under:

7A. Levy of purchase tax.--(1) Subject to the provisions of sub-. section (1) of section 3, every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable u/s 3 or 4, as the case may be, (not being a circumstance in which goods liable to tax under sub-section (2), (2A) or (2C) of section 3 or section 4, were purchased at a point other than the taxable point specified in the First (the Fifth, the Eleventh) or the Second Schedule) (respectively) and either,--

(a) consumes or uses such goods in or for the manufacture of other goods for sale or otherwise, or

(b) disposes of such goods in any manner or other than by way of sale in the State,

(c) dispatches or carries them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, or

(d) installs and uses such goods in the factory for the manufacture of any goods,

shall pay tax on the turnover relating to the purchase as aforesaid at the rate mentioned in section 3 or 4, as the case may be.

(2) Notwithstanding anything contained in sub-section (1), the provisions of section 7 shall apply to a dealer referred to in subsection (1) who purchases goods the sale of which is liable to tax under sub-section (1) of section 3 and whose total turnover for a year is not less than one lakh of rupees but not more than two lakhs of rupees and such a dealer may, at his option, instead of paying the tax in accordance with the provisions of sub-section (1), pay tax at the rates mentioned in sub-section (1) of section 7:

Provided that this sub-section shall not apply to the purchases made on or after the 1st day of April, 1990.

(3) Every dealer liable to pay purchase tax under sub-section (1), shall, for the purposes of this Act, be deemed to be a registered dealer.

In the impugned order, the respondent has specifically stated that there were certain defects and irregularities in the maintenance of accounts by the petitioner herein. Hence, it was found that an excess of 219 bags of starch produced by way of excess consumption of electricity and sold not reflected in the accounts. It was accordingly assessed and the penalty u/s 12(3)(b) of the Act, was imposed.

As per section 12(3), in addition to tax assessed under sub-sections (1) or (2), the assessing authority shall, in the same order of assessment decide under sub-section (1) or (2) or by a separate order, direct the dealer to pay amount by way of penalty:

(a) which shall be, in the case of failure to submit return, one hundred and fifty percent of the tax assessed on final assessment; and

(b) which shall be, in the case of submission of incorrect or incomplete return,

(i) twenty-five percent of the difference of the tax assessed and the tax paid as per the return, if the tax paid as per the return falls short of the tax assessed on final assessment by not more than five percent;

(i-a) fifty percent of the difference of the tax assessed and the tax paid as per return, if the tax paid as per return falls short of the tax assessed on final assessment by more than five percent but not more than fifteen percent;

(ii) seventy-five percent of the difference of the tax assessed and the tax paid as per the return, if the tax paid as per the return, falls short of the tax assessed on final assessment by more than fifteen percent but not more than twenty-five percent;

(iii) one hundred percent of the difference of the tax assessed and the tax paid as per return, if the tax paid as per the return, falls short of the tax assessed on final assessment by more than twenty-five percent but not more than fifty percent;

(iv) one hundred and twenty-five percent of the difference of the tax assessed and the tax paid as per the return, if the tax paid as per the return, falls short of the tax assessed on the final assessment by more than fifty percent, but not more than seventy-five percent;

(v) one hundred and fifty percent of the difference of the tax assessed and the tax paid as per the return, if the tax paid as per the return, falls short of the tax assessed on the final assessment by more than seventy-five percent;

In this regard, learned counsel for the petitioner drew the attention of this court to the following decisions:

(1) Ponni Sago Factory Vs. The Deputy Commercial Tax Officer, The Salem Starch and Sago Manufacturers Service Industrial Co-operative Society Limited and The State of Tamil Nadu,

(2) Kalyani Oil Mills Vs. The State of Madras,

(3) Madurai Soft Drinks (Private) Limited Vs. The State of Tamil Nadu,

The learned counsel for the petitioner argued that as per the decisions referred to above the impugned orders therein, were set aside on account of the improper procedure being followed and the orders passed by the authorities were held not sustainable in law.

Relying on the abovesaid decision of Ponni Sago Factory Vs. The Deputy Commercial Tax Officer, The Salem Starch and Sago Manufacturers Service Industrial Co-operative Society Limited and The State of Tamil Nadu, , learned counsel for the petitioner submitted that the impugned proceeding was erroneous and hence the same has to be set aside as against law, placing reliance on the decisions contended that the impugned proceeding is against the law laid down by the honourable apex court and this court. Granting liberty to the assessing officers to pass fresh orders in accordance with law, the impugned orders therein were set aside by allowing the writ petition.

Having gone through the decisions rendered in Ponni Sago Factory Vs. The Deputy Commercial Tax Officer, The Salem Starch and Sago Manufacturers Service Industrial Co-operative Society Limited and The State of Tamil Nadu, , this court is of the view that the decision cited is directly applicable to the facts of the present case. It is seen that in the assessment order, alleged excess production has been estimated, based on the consumption of energy. The respondent has calculated the production which is an estimated production, only on the basis of assumption of electric power. This court, in Ponni Sago Factory Vs. The Deputy Commercial Tax Officer, The Salem Starch and Sago Manufacturers Service Industrial Co-operative Society Limited and The State of Tamil Nadu, , has given certain guidelines, which are as follows (page 227 in 5 VST):

(i) The assessing authority should have material to doubt the correctness or genuineness of the entries in the account books before proceeding to make the best judgment assessment, taking the electricity consumption as the basis for making an estimate.

(ii) Actual test check should be done in the assessee''s own factory.

(iii) The assessing authority should gather comparable data from other similar oil mills.

(iv) In the absence of actual test check, adopting a particular rate of consumption for estimation would be an arbitrary basis and therefore a best judgment assessment based on such arbitrary figure cannot legally be upheld.

Even in case of any dealer taking steps to evade proper payment of sales tax, the authority should adopt only scientific methods to assess the sales tax payable to Government, which cannot be decided arbitrarily based on electrical consumption charges. As contended by the learned counsel appearing for the petitioner, the power consumption and payment of electric charges could not be the basis for computing the production. Electric power consumption of the factory for the purpose of maintaining the factory and their office or rest room of the officials would not lead to the inference that the factory could have produced sago products based on the total consumption of electric energy. It is made clear that for deciding the tax, imaginary figures cannot be arrived at for the purpose of computing the production and deciding sales tax.

Having considered the facts and circumstance of the case and in the light of the decisions referred to above, this court is of the view that the assessment was not made by the respondent according to law. In fact the respondent could have verified the purchase registers relating to raw-materials, sales register, stock register and other registers to decide the output of sago products. Surprise check could have been done in order to decide the output of sago products so as to assess the tax properly by the respondent. The assessing authority should have gathered comparable datas from the other mills which are dealing with sago products.

As contended by the learned counsel for the petitioner, the assessing officer has not compared any data with the production of similar mills dealing with sago products. Without conducting any actual test check, the assessing officer has determined the turnover and the taxable amount on the basis of the power consumed for production of the sago and starch products produced in the petitioner''s factory. The assessment order passed on the assumption stated above is not correct as there is no legal basis for computing the same. On the aforesaid circumstance, I find it just and reasonable to allow the writ petition and set aside the impugned order, giving liberty to the respondent to pass the assessment order afresh by following the procedures known to law. In the result, the writ petition is allowed and the impugned order passed by the respondent is set aside. However, it is made clear that the assessing authority is at liberty to pass revised assessment orders in accordance with law, in the light of the decisions rendered by the honourable apex court and this court referred to above. Consequently, the connected miscellaneous petition is closed. No order as to costs.