Best Judgment Assessment and Penalty u/s 12(3) of TNGST Act can’t be passed on ground of Debatable Issues: Madras HC [Read Judgment]

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The High Court of Madras held that the Assessing Officer cannot pass the best judgment assessment on the ground of best judgment assessment and the penalty under Section 12(3) of the Tamil Nadu General Sales Tax (TNGST) Act, 1959.

The assessee, Mr. K.A.Parthasarathi was engaged in the export and received the cash incentives from the export. The assessing officer has made a demand and penalty invoking Section 12(3) of the Tamil Nadu General Sales Tax (TNGST) Act, 1959 on the grounds that cash incentives received from the export are attracted additional tax and the same was not paid by the assessee.

Aggrieved by the order, the assessee moved to the Income Tax Appellate Tribunal (ITAT), wherein the Tribunal upheld the order and said, “the Assessing Officer imposes a penalty on the dealer under Section 12(3)(b) in relation to the modified balance of tax payable, that will be arrived in the order by giving effect to the Appellate Assistant Commissioner’s findings in regard to the turnovers in dispute. He will undertake the exercise of re-fixing the exact quantum of penalty payable by the Assessee and pass orders accordingly.”

Consequently, the assessee filed the writ petition and contended that the assessing authority imposed an additional tax on the sales made by the Assessee, which were not supported by the declaration in ‘C’ Forms and secondly on the Cash Incentives received by the Assessee on the Exports made by it was held to be part of taxable turnover, which was not so. According to the assessee, the imposition of additional tax, however, has not been done as a result of  ‘Best Judgment Assessment’ under Section 12(2) of the TNGST Act, upon which only the penalty under Section 12(3)(b) of the Act is attracted.

The division bench consisting of Justice Vineet Kothari and Justice Suresh Kumar allowed the appeal by the assessee and held that the additional tax cannot be imposed on case incentives on exports and no penalty is applicable under Section 12(2) of the Tamil Nadu General Sales Tax (TNGST) Act, 1959.

“Section 12(3)(b) provides for the imposition of penalty in case of submission of incorrect or incomplete return by the Assessee. Both the grounds given above for the imposition of additional tax on the Assessee did not, in our opinion, result in Best Judgment Assessment against the Assessee and it cannot amount to filing of incorrect or incomplete return by the Assessee. On debatable issues, even if the addition in taxable turnover is made by the Assessing Officer, it does not amount to Best Judgment Assessment, which can be passed, only if the regular books of accounts and the return filed by the Assessee are rejected for given reasons. Therefore, the learned Tribunal has erred in relying upon the insertion of the Explanation in Section 12(3) of the Act at a later date with effect from 01.04.1996 to uphold such penalty in the year 1993-94. In our opinion, the Explanation to Section 12(3) does not get attracted to the facts of the present case at all.” the division bench said.

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