Madras High Court
Appollo Saline Pharmaceuticals (P) ... vs Commercial Tax Officer (Fac) And Ors. on 1 October, 2001
Equivalent citations: [2002]125STC505(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, A.K. Rajan
ORDER R. Jayasimha Babu, J.
1. The assesses has challenged the order of the Tribunal, which has upheld the imposition of penalty. The assessee has also questioned his liability to purchase tax on the bottles in which I.V. fluids manufactured by the assessee are packed and sold.
2. This Court in the case of Appollo Saline Pharmaceuticals (P) Ltd. See page 500 Supra, concerning the same assessee has held in the judgment dated September 14, 2001, that the sale of I.V. fluid in bottles is a composite sale and that the turnover relating to the bottles have to be, by virtue of the provisions contained in Section 3(7) of the Tamil Nadu General Sales Tax Act, 1959, treated as the turnover relating to the I.V. fluids itself and in those circumstances, the bottles will have to be regarded as having been disposed of in a manner which would attract the levy of purchase tax, the bottles having been purchased from unregistered dealers and no tax having been paid on that purchase either by the seller or by the buyer. While so holding, this Court followed the law laid down by the Supreme Court in the case of Premier Breweries v. State of Kerala . The purchase tax therefore is payable by the petitioner.
3. Between December 3, 1979 and May 27, 1993 Sub-sections (4) and (5) of Section 12 were on the statute book which permitted levy of penalty even in cases of assessment under Section 12(1). The penalty under Section 12(3) could be levied only in cases of best judgment assessment. This Court in State of Tamil Nadu v. Indian Silk Traders [1994] 94 STC 157 [App], has held that the bona fides of the person, who is alleged to have withheld the tax is also a factor which the assessing authority must consider even in case where the tax is found to have been withheld. In so far as the assessments made under Section 12(1) between December 3, 1979 to May 27, 1993, the levy of penalty being discretionary having regard to the use of the word "may" in Section 12(4), that discretion is required to be exercised having regard to all the circumstances of the case including the bona fides of the assessee.
4. In so far as the assessee's assessments for the years 1993-94 and 1994-95 are concerned, they are assessments made under Section 12(1) as they are made on the basis of the return filed by the assessee and the accounts maintained by the assessee. The assessing authority has accepted the value of the bottles purchased and without making any further enquiry has merely included the turnover relating to the bottles in the taxable turnover for the I.V. fluids and has levied tax on the purchase of bottles under Section 7-A.
5. The Supreme Court in the case of State of Madras v. Jayaraj Nadar & Sons after extracting Section 12(2) of the Tamil Nadu General Sales Tax Act, 1959 which remains in the same form even now, observed thus :
"The question is whether penalty can be levied while making the assessment under Sub-section (2) of the above section merely because an incorrect return has been filed. The High Court was of the view that it is only if the assessment has to be made to the best of the judgment of the assessing authority that penalty can be levied. It seems to us that the High Court came to the correct conclusion because Sub-sections (2) and (3) have to be read together. Sub-section (2) empowers the assessing authority to assess the dealer to the best of its judgment in two events : (i) if no return has been submitted by the dealer under Sub-section (1) within the prescribed period, and (ii) if the return submitted by him appears to be incomplete or incorrect. Sub-section (3) empowers the assessing authority to levy the penalty only when it makes an assessment under Sub-section (2). In other words, when the assessing authority has made the assessment to the best of its judgment, it can levy a penalty. It is well-known that the best judgment assessment has to be on an estimate which the assessing authority has to make not capriciously but on settled and recognised principles of justice. An element of guess-work is bound to be present in best judgment assessment but it must have a reasonable nexus to the available material and the circumstances of each case : [see State of Kerala v. C.Velukutty . Where account books are accepted along with other records there can be no ground for making a best judgment assessment."
6. The law so declared that the best judgment assessment is based on an estimate and is not one based solely on the account books was reiterated by the Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali H.M. Abdulali .
7. Though other sub-sections of Section 12 were amended by the State Legislature subsequent to the date of the judgment in the case of Jayaraj Nadar & Sons , Sections 12(1) and 12(2) have remained in the same form. The legislative intention therefore, except during the period December 3, 1979 to May 27, 1993 and on and after April 1, 1996 must be taken to be to, permit the levy of penalty only in case where the assessment is a best judgment assessment made on an estimate and not by relying solely on the accounts furnished by the assessee in the prescribed return. On and after April 1, 1996 an explanation has been added below Section 12(3) which requires the turnover relating to the tax assessed on the basis of the accounts of the assessee, to be disregarded, while determining the turnover on which the penalty is to be levied under Section 12(3).
8. The assessments for the assessment years 1993-94 and 1994-95 which were assessments made on the basis of the accounts, and not based on any other material and were not estimates, have therefore, to be regarded as assessments made under Section 12(1) to which the penal provisions of Section 12(3) are not attracted. The levy of penalty for those two assessment years is set aside.
9. The assessing authorities have not applied their mind as to whether in respect of those assessments to which Section 12(4) and 12(5) which have since been deleted, would apply, the assessee had failed to disclose any bona fides for not having paid the tax earlier. It is the case of the assessee that the law regarding the taxability of the turnover relating to the bottles was uncertain till this Court resolved the matter finally in W.P. No. 120 of 2000 on September 14, 2001 [Appollo Saline Pharmaceuticals (P.) Limited v. Deputy Commercial Tax Officer] See page 500 supra. The earlier judgments of this Court had taken the view that the bottles being a distinct commodity and not having been consumed in the manufacture of I.V. fluids, there was a separate sale of the bottles and therefore, Section 7-A providing for levy of purchase tax was not attracted.
10. In respect of assessments which were properly made by way of best judgment assessment, and in which penalty has been levied, it was submitted that the authority has failed to consider the bona fides of the petitioner. It was submitted that the turnover had been disclosed in full, but a part of it had not been regarded as part of the taxable turnover by reason of bona fide belief that the assessee had entertained having regard to the earlier judgments of this Court, and therefore, penalty levied was wholly unwarranted. The levy of penalty without considering the bona fides of the petitioner cannot be sustained.
11. We, therefore, set aside the order of the Tribunal to the extent it upholds levy of penalty for these years namely, 1987-88, 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93. The assessing authorities shall now hear the assessee with regard to the question of penalty in relation to assessment for these years and thereafter proceed to make appropriate orders in the light of what has been stated in this order, and in the light of the law otherwise applicable. The writ petitions are partly allowed.