THE COMMISSIONER OF SALES TAX, U.P. vs. MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW

CIVIL APPEAL No. 2032/1969Supreme Court[1973] 2 S.C.R. 62510 October 1972Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA11 pages
AI SummaryAllowed

What were the facts?

For the assessment year 1957-58, the assessee, Bhagwan Industries (P) Ltd., was assessed to sales tax on an estimated turnover of Rs. 46,00,000, which included Rs. 43,00,000 for its flour mill. This assessment was ex-parte. The Sales Tax Officer, noting the assessee's turnover for 1955-56 (over Rs. 58 lakhs) and 1958-59 (over Rs. 75 lakhs), and considering the fixed wheat quota for the flour mill, believed that some turnover for 1957-58 had escaped assessment. He issued notices in September 1961 and March 1962 requesting account books, threatening action under Section 21 if not produced. The assessee did not produce the books. A notice under Section 21 was issued on March 24, 1962, served on March 26, 1962. The reassessment order was passed on March 19, 1963. The High Court held that the initial notices were not under Section 21 and that the assessing officer lacked 'reason to believe' escaped turnover.

What did the Supreme Court hold?

The Supreme Court held that the High Court was correct in its finding that the initial notices dated September 13, 1961, and March 13, 1962, were preliminary in nature and did not constitute notices under Section 21 of the Act. These notices merely called for account books and threatened action under Section 21 if not produced. The Court affirmed that the actual notice under Section 21 was issued on March 24, 1962, and served on March 26, 1962. Since the reassessment order was passed on March 19, 1963, it was within one year of the service of the Section 21 notice, and therefore, not barred by limitation. Regarding the 'reason to believe', the Court found the High Court to be in error. It clarified that 'reason to believe' requires reasonable grounds germane to the belief of escaped assessment, held in good faith, and not a pretence. The sufficiency of reasons is not justiciable, but the existence of belief can be challenged if the grounds are extraneous. The Court found that the assessing authority had valid grounds, including the significant difference in turnover figures for different years and the non-production of account books, to form a good faith belief that turnover had escaped assessment. The Court also held that Section 21 does not preclude initiation of reassessment proceedings in cases of ex-parte assessments, as doing so would reward contumacy. The appeal was allowed, and the High Court's answer to the first question was discharged, with the question answered in the affirmative in favour of the department.

What were the issues?

1. Whether the assessing officer had an honest belief that the turnover had partially escaped taxation, thereby justifying proceedings under Section 21 of the U.P. Sales Tax Act? 2. Whether the preliminary notices issued for the production of account books could be considered notices under Section 21, thus affecting the limitation period for reassessment? Assessee's arguments: The assessee contended that the initial notices were not under Section 21, and since the reassessment was completed more than one year after their service, it was barred by limitation. The assessee also argued that the assessing officer did not have a genuine 'reason to believe' that turnover had escaped assessment, particularly in the context of an ex-parte assessment. Revenue's arguments: The revenue argued that the initial notices were preliminary and that the notice under Section 21 was indeed issued on March 24, 1962. They contended that the 'reason to believe' was based on relevant material, including the disparity in turnover figures and the non-production of account books, and that reassessment proceedings could be initiated even in cases of ex-parte assessments.

Which sections of the Income-tax Act were involved?

Section 21

AI-generated summary — verify with the full judgment below

A B c • D E F G H 625 THE COMMISSIONER OF SALES TAX, U.P. v. MIS. BHAGWAN INDUSTRIES (P) LTD. LUCKNOW October 10, 1972 [K. S. HEGIJE, P. JAGANMOHAN REDDY AND H. ),?.. KIIANNA, JJ.] U.P. Sales Tax Act and Rules, s. 21--Ex-oarte assessment-Notice· for assessment of escaped turnover-When can be issued-'Reason to believe•, scope of.

For the assessment year 1957-58, the assessee (respondent) was assess- ed to mies tax, under the U.P. Sales Tax Act and Rules, on 'a turnover which included the turnover of a flour mill of the assessee. The assess- ment was made ex-oarte. On account of food shortage the Government had fixed a quota for the flour mill in 1953 on the basis of the average grinding do.ne during the previous three years.

In view of the turnover according to the account books of the assessee for the years 1955-56 and 1958-59, the sales-tax officer thought that the turnover· for the year 1957-58 was underestimated and that ·some turnover had escaped assess- ment.

He accordingly issued a notice in September 1961 and a memo· randum on 13th March 1962 calling upon the asse'5ee to produtje the account books but no account books were produced. On 24th March

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 21

All 35 judgments and leading authorities on Section 21 →

Latest GST High Court judgments

Search GST case law →