Gujarat High Court
Natraj Rubbers And Anr. vs Sales Tax Officer, Division-3, ... on 21 December, 1998
Author: A.R. Dave
Bench: A.R. Dave
JUDGMENT R. Balia, J.
1. The petitioner challenges by way of this special civil application order, annexure A/2 dated March 9, 1998 passed by the Sales Tax Officer, Division 2, Bhavnagar under section 59(4) of the Gujarat Sales Tax Act seizing the books of accounts and annexures A/3(1) to A/3(5) notices under section 44 of the Gujarat Sales Tax Act, 1969 for reassessing turnover of sales or purchases alleged to have escaped assessment for the period 1990-91, 1991-92, 1992-93, 1993-94 and 1994-95 respectively. The challenge is on the ground that in respect of both the actions of the Sales Tax Officer the condition for exercise of such power under the statute did not exist in the facts and circumstances of the case.
2. The business of the petitioner is to manufacture rubber insertion sheets also known as rubber insertion packing sheets. This product is claimed to be accessory of machinery by the assessee. Selling is through distributors who 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 Ill appended to the Act. Power under section 59(4) as well as under section 44 has been exercised for making the impugned order, annexure A/2 and issuing impugned notices annexures A/3(1) to A/3(5).
3. According to the petitioner, for the purposes of the Act rate of tax applicable to rubber insertion sheet or rubber insertion packing sheet has been determined by the Commissioner in exercise of his powers under section 62 of the Act by his orders dated August 25, 1976 and February 26, 1982 which have been followed by the authorities under the Sales Tax Act in the State since then. Under the two orders, the rubber insertion packing sheet or single insertion sheet has been classified as accessory to machinery and admissible for benefit of reduced rate of taxation as per entry 36 of notification issued under section 49 of the Act. The contention of the learned counsel for the petitioner goes further that since the assessment order conform to the' determination of rate of tax by the Commissioner of Sales Tax under section, 62, neither the Commissioner can have reason to believe that any dealer has evaded or is attempting to evade payment of any tax due from him so as to invoke power under sub-section (4) of section 59 the order of seizure of books of account of the petitioner nor can he have reason to believe that the turnover has escaped assessment within the meaning of section 44 of the Act so as to issue notices for reassessment inasmuch as the order under section 62, until revised or set aside in appeal is pending, a subordinate officer, while implementing the Act as such determination by the Commissioner is for the purposes of the Act. Therefore, even if orders under section 62 are now revised or modified, they cannot affect already completed assessments but could affect future assessments as any new order which may come into existence will operate prospectively. It is also the case of the petitioner that belief for exercising jurisdiction under the respective provisions must be that of the jurisdictional authority and not the belief of some other authority or a belief foisted on him. It was urged that the entire proceedings have been taken at the behest of audit authority notwithstanding that the audit objection was replied to by the assessing authority and has refused to agree with that by referring to two orders under section 62 and pointing out to the audit authorities that the levy of tax at the rate as per entry 36 of the notification 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 case of petitioner because decisions in the case of Kamdar Oil Mill Gin Stores and M/s. Natwarlal & Co. were rendered in the light of evidence produced in those cases.
5. In affidavit-in-rejoinder to this reply, when the petitioner pointed out that, as a matter of fact, on account of audit objection of the Accountant-General the respondent had issued notice in form 45 to petitioner to remain present in his office to meet with the audit objection which the petitioner has replied through his advocate vide letters dated October 16, 1995 and December 13, 1995. A further affidavit-in-reply was filed giving details how the matter has proceeded further disclosing that the office of the Accountant-General had raised objection in the course of audit of assessment order for 1992-93, that on sales of rubber sheets tax had been collected at the rate of 7 per cent instead of 14 per cent under the residuary entry and such mis-classification has resulted in short levy of tax. To this query the Sales Tax Officer had replied by stating that the petitioner was manufacturing rubber insertion packing sheets which were used in textile machinery and according to the decision in the case of Kamdar Oil Mills Gin Stores and M/s. Natwarlal & Co. and under section 62 of the Act the article is considered machinery part and the assessment was proper. Thereafter in response to this it was pointed out that most of the sales were made to M/s. Mayur Trading and other traders who were dealing in hardware stores, valves, cocks and sanitary fittings, etc., and that there was no evidence on record to show that the articles were specifically designed for machinery parts and used as machinery parts. This response was not to assessing officer who had replied to audit objections but was sent to the Deputy Commissioner and it was in pursuance of this letter that the Deputy Commissioner, vide his order dated March 7, 1998, had directed the Sales Tax Officer to conduct search of the premises in exercise of powers under sections 59 and 80 of the Act which has resulted in the impugned orders as a result of that search. With this background it is contended by the learned counsel for the respondent that the two orders referred to by the petitioner under section 62 had been ipso facto applied to the petitioner's case and the rate of tax must depend on inquiry in each case for what purpose the manufactured 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 believe that any dealer has evaded or is attempting to evade the payment of any tax due from him, such reasons are to be recorded in writing before seizing such accounts, registers, etc. The belief must be in respect of any evasion which has been attributed to dealer or an attempt on the part of the dealer to evade the payment of tax. The question of evasion is directly related to some act or omission on the part of the dealer. If no act or omission on the part of dealer is shown to exist in furtherance of evasion or attempt to evade, the provision cannot be invoked. The word "evade" clearly denotes some overt or covert act on the part of the dealer in furtherance of avoiding or to evade the tax. We are not here considering the distinction between avoidance and evasion inasmuch as in both a deliberate act on the part of the dealer to bring about a desired result is essential.
7. In its ordinary dictionary meaning or the meaning emanating from words referred to in their judicial interpretation, the term "evade" or "evasion" has been used with reference to an act, endeavour on the part of a person to escape from the effect of any law, particularly in the field of taxing law.
8. The word "evade" has been defined in Concise Oxford Dictionary in its ordinary expression "escape from, avoid, esp. by guile or trickery". With reference to taxing laws the dictionary says "avoid paying (tax) by illegitimate presentation of one's finances". In the noun form of word "evade", the term "evasion" has been defined "an act of evading", "a subterfuge or,prevaricating excuse". "Evasion" has been described in Black's Law Dictionary as, "an act of eluding, dodging, or avoiding or avoidance by artifice; a subtle endeavouring to set aside truth or to escape the punishment of the law".
9. No such act or omission on the part of assessee which could be tenned as an act of eluding subterfuge or artifice to avoid the infliction of law has been alleged in the order of seizure or even in the affidavit.
10. Not only that the Commissioner must hold a belief that the dealer evaded or is attempting to evade payment of any tax due from him, he is under an obligation to record reasons for holding such belief in writing, as a safeguard against any arbitrary action or the abuse of the power under the guise of exercise of authority under section 59(4). These are conditions precedent before 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 presents. 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 vines 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 imagine on what premise the levying of tax at lower rate in the present case can at all be said to be an act of evasion on the part of dealer or an attempt on the part of the dealer to evade the payment of tax requiring recourse to extraordinary step of seizure. If the putting forth of a claim by any dealer to a provision of law inviting lesser amount of tax is to be considered an act of evasion, it would tantamount to denying even the fundamental liberty to the taxpayer to question and ask for proper determination of his tax liability in accordance with law which, according to him, applies to him. Such an act cannot in any sense of term be called an act of evasion or attempt to evade. No person can hold belief merely on the basis of facts admitted in this case that there has been any such act which can be said to be an act of assessee to evade or an attempt to evade the payment of any tax when the tax has been paid after due determination in accordance with the provisions of law which both the petitioner as well as the Sales Tax Officer believed applies to the facts of the case. No tax that has been determined is stated to be outstanding. There is no allegation of use of any artifice or prevaricating excuse by the assessee at any stage.
11. Reasons recorded in the order which are necessary precondition for invoking jurisdiction under sub-section (4) of section 59 do not disclose that necessary precondition under sub-section (4) of section 59 did exist in the present case. The assessing officer in his order nowhere records his satisfaction that he has reason to believe that dealer has evaded or attempted to evade payment of any tax. In fact, the order of seizure only records that the tax has been levied at 6 per cent to 7 per cent for the years in question which is applicable to the machinery parts and accessories. Instead of this, for the purposes of reassessment under entry 13 of Schedule Ill, the sales tax officer decides to seize the accounts of the business by giving separate receipt, that is to say, the seizure has been effected for the purpose of initiating proceedings for the purpose of reassessment but not on the satisfaction about any act on the part of the dealer to evade the payment of tax. The order, on the face of it, to us, appears to be ultra vires the provisions of section 59(4) and deserves to be quashed.
12. Coming to the challenge to 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 Ill as against the levy of tax at 6 to 7 per cent. That order does not disclose any connection between the belief about under-assessment and reason to hold such belief. The very fact that the Commissioner must have reason to believe is something more than that the Commissioner has reason to suspect. The requirement of reason to believe lends some objectivity of process of reasoning through which the Commissioner acquires jurisdiction to issue notice by holding belief about escapement of assessment or about underassessment at a lower rate, that is to say, there must be some linking chain, howsoever tenuous it may be, between the arrival at the belief and the process with which the belief is justified. In other words, the belief must exist on some material which has some nexus with the holding of belief about escapement of assessment or underassessment.
13. As it is not required by statute to record reasons in writing before issuance of notice as required in some of the provisions under other statutes or as required under,section 59(4) before seizing account books, mere failure to record reasons may not vitiate the issuance of notice. In such an event, if the non-existence of necessary requirement for initiating action is alleged, the authority whose decision is under challenge can always satisfy the court by material that the material requisite to hold a satisfaction which is precondition for exercise of jurisdiction did exist. A reference in this connection may be made to the principle laid in Swadeshi Cotton Mills Co. Ltd. v. State Industrial Tribunal, UP. AIR 1961 SC 1381.
14. One thing may be noticed that order, annexure A/2, was dated March 9, 1998. On that date the order recites that the account books are seized for reassessment. One is not very sure whether on March 9, 1998 the assessing officer had already held the belief about underassessment and the seizure was for the purpose of carrying out reassessment actually or the seizure of books was for the purpose of examining whether it is a case of reassessment. It is only left to the guess work because the AO says tax has been levied at 6 to 7 per cent instead of under entry 13 of the Third Schedule.
15. Challenging the notices, annexures A/3(1) to A/3(5), for all the five years following grounds were raised in writ petition :
"(13) It is also evident from the facts stated in para 5 of annexure A/4 that the reassessment proceedings and seizure proceedings have been initiated 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 and in the circumstances, this Honourable court may be pleased to admit the writ petition in view of the principles laid down by the Supreme Court in the case of Madhya Pradesh Industries Ltd. v. Income-tax Officer [1965] 56 ITR SN 18 (SC).
(15) The petitioner also states that if the operation of the impugned notices, annexure A/3, is not stayed by the interim order, the respondent shall reassess the petitioner heavily in terms of these notices so as to thrust upon the petitioner heavy liability of tax, interest and penalty running into several lakhs of rupees to the detriment of the petitioner."
In the reply affidavit of Mr. M. G. Patel a clean denial of averments in para 13 of the petition was made. Reasons for issuing notices were disclosed in Mr. Patel's affidavit which reads as under in para (3) of the reply affidavit :
"(3) 1 say that the petitioner is a partnership firm engaged in the business of manufacturing and dealing in rubber sheets. It is the case of the petitioner that the goods manufactured and sold by it are known as 'rubber insertion packaging sheets' and are used as accessories of machinery. The petitioner claims that such goods were liable to be assessed, in respect of the period prior to Ist April, 1992, under entry 16 in Part A of Schedule 11 to the Act as it stood prior to the aforementioned date and, in respect of the period after 31st March, 1992 under entry 55 in Part A of Schedule 11 as it stood with effect from Ist April, 1998. The petitioner has sought to deliver support for its claim from two decisions rendered by the Deputy Commissioner of Sales Tax under section 62 of the Act in the cases of M/s. Natverlal & Co. and M/s. Kamdar Oil Mill Gin Stores. 1 say and submit that the said decisions were rendered. In the case of Mls. Natverlal & Co. the Deputy Commissioner held in the light of evidence lead that the article single insertion sheet; Steer Brand Draft 1/8' as per the invoice January 1, 1974 is an accessory of machinery and that therefore it is covered by entry 13 of Schedule Ill of the Act and it is admissible for benefit of notification issue under section 49 of the Act. 1 submit that it would be pertinent to note the facts and circumstances of that case. Initially the Deputy Commissioner had rejected the claim of the applicant, M/s. Natverial & Co. The said applicant preferred an appeal to the Gujarat Sales 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. 1 crave liberty to refer to the said decisions when produced. 1 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. 1 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 the said order or the notices are illegal or mala fide or ultra vires. I deny that the said order is violative of articles 14, 19(1)(g), 265 or 300A of the Constitution or any of them."
16. Obviously, Mr. Patel could not have made any affidavit in regard to reason which led the assessing officer to belief about escapement of tax and for issuing notice inasmuch as no reasons were recorded in writing for holding such belief by the officer issuing notice. Thus, reasons for holding belief were in the mind of assessing officer only and not part of any record which could not be asserted by anyone else. Mr. Patel could not have stated anything except what has been stated in the order dated March 8, 1998 under section 59(4) of the Act on the basis of record.
17. When the petitioner drew attention to the record of proceedings which took place as a result of audit objections in its rejoinder affidavit, 2nd affidavit of Mr. M. G. Memon the officer who issued the notice was filed. He in his affidavit, after giving how he was vested with power to exercise jurisdiction under section 44 of the Act, has this to say :
"(3) In paragraph 13 of the petition the petitioners have averred that the reassessment proceedings and search proceedings have been initiated on account of audit by the Accountant-General, that the respondent had dropped the idea of reassessing the petitioner inspite of audit objection and that such action has been taken only on account of subsequent insistence by the Accountant-General. 1 respectfully submit that the said averments are misleading. 1 say that audit of assessment orders is made by the office of the Accountant-General in ordinary course and if any inaccuracy is found it is brought to the notice of the concerned authorities. The office of the Accountant-General had, in the course of audit of the assessment order for 1992-93, raised a query that tax on sales of rubber sheets had been collected at the rate of 7 per cent instead of 14 per cent under the residuary entry and such misclassification had resulted in short levy of tax, interest and penalty. The Sales Tax Officer had replied by stating that the petitioner was manufacturing rubber insertion packing sheets which were used in textile machinery and according to the decision in the case of M/s. Kamdar Mill Gin Stores under section 62 of the Act the article is considered machinery part and 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 tile 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 1 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. 1 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 proceedings in consequence thereof are taken by him. Accordingly, I issued the notices dated March 29, 1998 (annexure A/3 to the petition). I say that on the grounds mentioned in the aforesaid order dated March 9, 1998 I had reason to believe that the turnover of sales made by the petitioner had been assessed of a lower rate. I further say and submit that at the time of the original assessments the petitioner had concealed that the sales made by it were mostly to Mayur Trading of Bombay and other dealers in hardwares, stores, sanitary fittings, etc., and not to dealers in machinery or machinery parts."
This coupled with averments made in rejoinder affidavit and annexures A 6/1 and A 6/2 replies of the petitioner dated October 16, 1995 and December 13, 1995 respectively clearly establish that audit objection to levy of tax at the rate fixed in pursuance of order under section 62 was raised as early as at least prior to October, 1995 in relation to financial period 1992-93. The assessing officer in that connection directed his enquiry to the assessees-petitioners and their replies were obtained in 1995 and Sales Tax Officer was satisfied that notwithstanding audit objection tax was correctly levied at the rate laid down in order under section 62 in Kamdar Mill Gin Store's case. Thereafter, the affidavit nowhere states whether any further objection was directed to assessing officer or he applied his mind to such objection at any stage. The affidavit clearly says that after the concerned Sales Tax Officer has conveyed his satisfaction about correct levy of tax at the rate as per order in Kamdar Mill Gin Store's case, response thereto was sent to another Deputy Commissioner and the Sales Tax Officer concerned has received instructions to search the premises of the assessee. That is to say the search itself was not as a result of any belief held by the assessing officer. The affidavit says about audit report that sales were made to Mayur Trading Co., and his likes who were dealing in hardware stores, valves, cocks and sanitary fittings and that there was no evidence on record to show that the articles specifically designed for machinery parts and used as machinery parts, but the deponent nowhere asserts that on receipt of such information he was satisfied or had reason to believe about under-assessment or assessment at lower rate. It only says that audit note which was 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 lie 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 assessee and not by anyone else. The person who has jurisdiction over the assessee cannot act on the basis of belief held by someone else. If any outside agency has any such opinion, at best it may he transmitted to concerned authority and thereafter it is for such authority having jurisdiction to reach his own satisfaction on application of mind to such information. If he on such information on his own reaches satisfaction about underassessment or levy of tax at lower rate, the exercise of jurisdiction cannot be affected merely because source of information has emanated from audit.
18. In the present case, it is clearly perceivable that when the information about opinion of audit relating to alleged under-assessment on account of levy of tax at lower rate was conveyed to the Sales Tax Officer concerned, he after notice to assessee and receiving his reply was satisfied with correct levy of rate and did not hold belief that tax has been levied at lower rate way back in 1995. In fact thereafter assessments up to 1994-95 has been done on the same basis. Nothing has been shown or ever asserted that thereafter he was ever given to review his earlier opinion on any other material. On the contrary clear indication is that he had acted on direction contained in letter of Deputy Commissioner dated March 7, 1998. As a matter of fact in the facts and circumstances disclosed in the reply affidavits leads us to conclude that resort to section 59(4) was an abuse of power. Sub-section (5) of section 59 empowers Commissioner to enter and search any place of business of a dealer. Sub-section (1) empowers Commissioner to require a dealer to provide him any account and documents or furnish any information relating to stock of goods of or to sales, purchases and delivery of goods relating to business necessary for the purpose of the Act. Sub-section (2) obliges the assessee to keep at reasonable time all relevant accounts, registers and documents open to inspection by Commissioner. As notices above sub-section (4) empowers in case Commissioner has for reasons to be recorded in writing belief that dealer has evaded or is attempting to evade payment of tax, to seize that account registers or documents. Nothing except that rate of tax has been levied at a rate lower than what the audit thought to be, correct rate of tax leviable, there is no whispering about any concealment of 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 Ill 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 of which there is no dispute, the Sales Tax Officer could reasonably hold a belief that the same are not applicable to the petitioner and whether such reason was held by the AO bona fade and was not a pretence foisted upon him by an outside agency, or superior authority. We may clarify that law is well-settled in this regard that where initiation of reassessment proceedings depends upon reason to believe and not on reason to suspect, it is a subjective satisfaction founded on existing material which has some nexus to the formation of belief by the authority having jurisdiction to initiate proceedings in the case of any dealer that turnover has escaped assessment and there has been underassessment of turnover or tax has been levied at too low a rate and that belief must be an honest belief and not merely a pretence held by the competent officer himself and not the belief of any one else.
20. The only reason the audit department has suggested and the AO has reiterated in his additional reply is that the sales have been made to a party known as Mayur Trading 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 specifically designed for machinery parts and used as machinery parts.
21. From the perusal of two affidavits filed in reply which are the only source of knowing the reasons which led to formation of belief on the part of the assessing officer to issue notice, the position that emerges is that there is no dispute about binding natures of two orders under section 62 dated August 25, 1976 and.February 26, 1982. Both deal with rubber insertion packing sheets, that the petitioner has sold rubber insertion sheets to the dealers dealing in hardware stores,'valves, cocks and sanitary fittings, etc. The doubt about applicability of these two orders is founded on the fact that there was no evidence on record to show that the articles were specifically designed for machinery parts and used as machinery parts. Thus, one must look at the two orders to find whether this doubt about applicability of the two orders to the present petitioner can reasonably be entertained by any person on the basis of non-inquiry into the special designing of the article or its use later on.
22. Having read the two orders, we do not find any suggestion that the 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 Ill 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 111. 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 Commissioner. The Deputy Commissioner put before him three questions, (i) whether the article in question is known in popular parlance as accessory of machinery, (ii) whether it is capable of being put to any other use, and if so, what is the principal and primary use, and (iii) whether the article in question is stocked and sold by the applicant as accessory of machinery and purchases by his consumers as such. On the basis of material placed before the Deputy Commissioner by way of affidavits from manufacturers as well as purchasers, that is to say, by gathering evidence from the field of persons transacting in the article in question that the article in question is used as accessory of machinery, it is sold and stocked also as accessory and that it adds to the efficiency of machinery and came back to the conclusion that generally it falls under entry 13 of Schedule Ill of the Gujarat Sales Tax Act but it admissible for benefit of reduced rate as per entry 36 of notification issued under section 49 of the said Act. The finding that the rubber insertion sheets are accessory of machinery as a packing material and it adds to the efficiency of machinery and in general sold and stocked also as accessory, was not founded on any inquiry in particular about the special type of the rubber insertion sheet for the purpose of its user as packing material or its being actual end use by the consumer. Again, when the matter came up before the Deputy Commissioner in the case of Kamdar Oil Mill Gin Stores, which was specifically referred by Sales Tax Officer in reiterating levy of tax under entry 36 under section 46 as correct, the question was again of the rubber insertion packing sheet or rubber insertion sheet. It was found that the rubber insertion sheets are primarily used in valves, cocks and pipes wherever they are used in factory or mills for carrying water for the object of stopping leakage therein. It was also found therein that there are two types of rubber insertion packing, one is of general use which is called commercial quality and another specially used for textile mills is called steam quality but in either case it does not lose its identity as packing material and generally it is used in the packing of valves, cocks and pipes wherever they are used. This order also does not speak about extension of benefit of entry under .section 49 on the basis of any special 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 are 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 classified according to principal use to which it is being put. Both the orders have on evidence found that the primary use of rubber insertion sheets is by way of packing; it has not been found in either of the case that it cannot be used for other purposes but that has not been found sufficient to classify to take it out from the benefit of notification under section 19.
24. With these premises, it is difficult to understand on what basis one could entertain a doubt about applicability of the two orders to the rubber insertion sheets which have been admittedly sold to dealers dealing in hardware stores, valves, cocks and sanitary fittings. There is a direct nexus with these facts with the order dated February 26, 1982 in Kamdar's case wherein rubber insertion sheets used in connection with valves, cocks and pipes have been found to be packing material eligible for benefit under entry 36 notified under section 49(2) as accessory of machinery. We fail to see when the note of the audit also reveals that the sales have been made to a dealer dealing with valves, cocks and sanitary fittings and the order under section 62 dated February 26, 1982 spoke about rubber insertion sheets are used as packing material for valves, cocks and pipes to stop leakage and is an accessory of machinery needed for carrying water wherever they so fitted, where could be a room for entertaining a doubt that without evidence the petitioner has been given benefit of entry 36 under section 49(2) by wrongly relying on the determination of rate applicable to rubber insertion sheets for the purposes of the Act under section 62. The holding of reason, in our opinion, by the assessing officer was nothing more than a pretence which the background of the case suggests has been foisted on him by the repeated efforts of the audit department not accepting position of law that assessing officer is bound by decision under section 62 and where it had no gumption to even allege that determination under section 62 was erroneous.
25. Additional ground has been raised in respect of initiation of proceedings under section 44 relating to financial years 1990-91 and 1991-92. In para 11 of the petition the petitioner has specifically averred about notices under section 44 relating to financial years 1990-91 and 1991-92 are barred by time inasmuch as there is no specific reference that the impugned notices 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 given or any drawbacks, set-off or refund has been wrongly granted in any order of assessment so made then the Commissioner may -
(a) where he has reason to believe that the dealer has concealed such sales or specified sales or purchases or any material particulars relating thereto, or has knowingly furnished incorrect declaration or returns, at any time within eight years, and
(b) in any other case, at any time within five years, of the end of the period to which such turnover relates, serve on the dealer liable to pay tax in respect of such turnover, a notice containing all or any of the requisitions which may be included in a notice in the prescribed manner and assess, not later than three years from the date of service of the notice, the amount of tax due from such dealer to the best of his judgment :
Provided that the amount of tax shall be assessed at the rates at which it would have been liable to tax had there been no escapement of assessment but after making deductions (if any) permitted from time to time by or under this Act :
Provided further that where in respect of such assessment, proceedings are pending in appeal or revision, the appropriate appellate or revisional authority under this Act may, on its own motion or on the report of the Commissioner after giving the dealer concerned a reasonable opportunity of being heard, pass such order as it deems fit :
Provided further that the provisions of all provisos to sub-section (1) of section 42 shall mutatis mutandis apply to assessment proceedings under this section."
27. A bare perusal of the provision makes it clear that in the face of undisputed facts and in the light of averments, clause (a) of section 44 is not attracted and at best the case may come under clause (b). Reassessment proceedings for financial years 1990-91 and 1991-92 initiated after expiry of five years from the end of these periods on March 20, 1998 is without jurisdiction also on the ground that the same are barred by time.
28. As a result of the aforesaid conclusion, we have no hesitation in upholding the challenge to the impugned notices [annexures A/3(1) to A/3(5)] respectively.
29. Accordingly this petition succeeds. The impugned order under section 59(4) (annexure A/2) dated March 9, 1998 and impugned notices [annexures A/3(1) to A/3(5)l dated March 20, 1998 for the assessment periods 1990-91 to 1994-95 are quashed. Rule is made absolute.
30. In the facts and circumstances of the case, there shall be no order as to costs.
31. Petition allowed.