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Judgment
In this tax case filed by the State, the view taken by the Tribunal is that in respect of a turnover chargeable u/s 7-A of the Tamil Nadu General
Sales Tax Act, there cannot be any best judgment assessment and that no estimate of the turnover could be made u/s 12(2) in respect of the
turnover under that section.
The assessee in this case is running a non-vegetarian hotel under the name and style of Sri Sampoorni Vilas Non-Vegetarian Hotel at Salem. For
the year 1975-76, it declared a taxable turnover of Rs. 69,920.50 in its A1 return submitted on 25th March, 1976. The assessing authority after a
check of the accounts found that the sales were not supported by bills, that 50 per cent. of the provisions purchased during the year were not
supported by bills and that the gross profit as per the accounts was only 17 per cent. which was considered to be low in a non-vegetarian hotel.
The assessing authority took note of the fact that there were certain purchase omissions in respect of rice, tamarind, coconuts and chillies. Hence
the assessing authority rejected the accounts of the assessee as incorrect and incomplete and estimated a sales turnover of Rs. 3,55,568 and a
purchase turnover of Rs. 51,940 u/s 7-A of the Act for the assessment year 1974-75.
There was an appeal to the Appellate Assistant Commissioner who reduced the taxable turnover to Rs. 1,57,321.20. Not satisfied with the
relief granted by the Appellant Assistant Commissioner, the assessee went before the Tribunal. The Tribunal found that the turnover as estimated
by the Appellate Assistant Commissioner was a little bit excessive and that the correct estimate should be taken as Rs. 1,39,841 which is to be
taxed at 4 per cent. u/s 3(1).
Coming to purchase turnover, the Tribunal found that the purchase turnover as per the books as estimated by the Appellate Assistant
Commissioner was only Rs. 5,145 as against the estimate of Rs. 11,576.25 u/s 7-A of the Act and that since an estimate cannot be made in
respect of the turnover liable to tax u/s 7-A, the order of the Appellate Assistant Commissioner in so far as it related to the estimate of the turnover
taxable u/s 7-A cannot be sustained and tax has to be levied only on the book turnover of Rs. 5,145. According to the Tribunal, the turnover u/s
7-A cannot be the subject-matter of an estimate and there cannot be a best judgment assessment in relation to such turnover. The Tribunal has not,
however, given any reason for taking that view. Presumably, the Tribunal has proceeded on the basis that section 7-A is not a charging section and
therefore, the turnover taxable under that section cannot be the subject-matter of an estimate of best judgment assessment u/s 12(2).
A conjoint reading of sections 3, 4, 5, 7-A and 12(2) would clearly indicate that section 7-A should also be equated to sections 3, 4 and 5 and
as sections 3, 4 and 5 are admittedly charging sections, section 7-A also should be taken as the charging section. The Tribunal has taken the view
that there is no provision to estimate the turnover u/s 7-A and section 12(2) which applies to the other provisions of the Act like sections 3, 4 and
5 cannot apply to section 7-A. A perusal of section 12(2) would clearly indicate that it is in general terms and it would apply to all the charging
sections and not only sections 3, 4 and 5. Section 12(1) says that the assessment of a dealer shall be on the basis of the prescribed return relating
to his turnover submitted in the prescribed manner within the prescribed period and section 12(2) says that if no return is submitted by the dealer
under sub-section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incomplete or
incorrect, the assessing authority shall, after making such enquiry as it may consider necessary, assess the dealer to the best of its judgment.
Section 12(1) enjoins a dealer to submit a return in the prescribed form in relation to his turnover. According to section 12(2), if no return is
submitted relating to the dealer''s turnover or if the return submitted is found to be incomplete or incorrect, then a best judgment assessment has to
be made. The expression ""turnover"" occurring in section 12(1) refers to the turnover of the dealer taxable either under sections 3, 4, 5 or 7-A.
Therefore, the Tribunal does not appear to be right in holding that section 12 will apply only to the turnover of a dealer in respect of the tax which
is payable under sections 3, 4 or 5. In our view, the expression ""turnover"" of a dealer occurring in section 12 will apply also to the taxable turnover
of a dealer u/s 7-A which is also a charging section.
The scope and ambit of section 7-A came up for consideration before the Supreme Court in The State of Tamil Nadu Vs. M.K. Kandaswami
and Others, . The Supreme Court took the view that the definition of ""dealer"" in section 2(g) of the Act includes not only a person who carries on
the business of ""selling, supplying or distributing goods"" but also one who carries on the business of buying only, that section 7-A deals with
particular kind of goods and provides for levy of purchase tax in respect of certain goods under particular situations, that the focal point in the
expression ""goods, the sale or purchase of which is liable to tax under the Act"" in section 7-A of the Act is the character and class of goods in
relation to their exigibility to tax, that section 7-A should, therefore, be taken as a charging as well as a remedial provision and that section 7-A
provides for a particular situation and makes the purchase of such goods taxable in the hands of the purchasing dealer on his purchase turnover if
any of the ingredients set out in sub-section (1) of section 7-A is satisfied. The Supreme Court also pointed out that the main object of section 7-A
is to plug leakage and prevent evasion of tax and that in interpreting such a provision, a construction which would defeat its purpose and, in effect,
obliterate it from the statute book should be eschewed.
In this case, the Tribunal has proceeded on the basis that the turnover taxable u/s 7-A cannot be estimated and this practically defeats the object
of bringing in section 7-A, i.e., to prevent evasion of tax. The Tribunal''s view that so far as the turnover taxable u/s 7-A is concerned, it is only the
book turnover that is to be take into account and the assessing authority cannot make any estimate u/s 12(2) will be inconsistent with the object
sought to be achieved by bringing in section 7-A by the Legislature. We cannot, therefore, accept the view of the Tribunal in this case that in
relation to turnover taxable u/s 7-A there cannot be any estimate as correct. We have already held that the turnover taxable u/s 7-A is also
covered by section 12 and, therefore, if the assessee''s account books are incorrect or incomplete, then the best judgment assessment could be
made u/s 12(2) and the turnover taxable u/s 7-A can be estimated under that section. In this view, we set aside the order of the Tribunal and
restore the order of the Appellate Assistant Commissioner so far as the turnover taxable u/s 7-A is concerned. There will be no order as to costs.