Assessment of liability for purchase tax based on the shortfall in the stock of paddy and the importance of the principal's measurement in determining tax liability.

JUDGMENT

MISRA, C.J. - At the instance of the assessee this Court under an application under section 24(2)(b) of the Orissa Sales Tax Act, 1947 (hereinafter referred to as the "Act"), required the Member, Sales Tax Tribunal, to state a case and refer the following question for opinion of the court :

"Whether, on the facts and in the circumstances of the case, there is sufficient material for holding that the assessee is liable for the tax demand raised against him ?"

2. The assessee is a rice miller in Kalahandi District. In 1969-70 the assessee was a purchasing agent of the Food Corporation in India for paddy. He sold 4,410 pieces of gunny bags to the corporation at the total rate of Rs. 12,127.50. No sales tax was paid on this amount. The Revenue Officer and the Sub-Divisional Officer had verified the stock held by the assessee on two different dates and had found a huge shortage though their findings were different regarding quantity. The assessing officer found that the assessee has not paid tax on the sales turnover of gunny bags as also the shortage in the stock of paddy. He took notice of the feature that it was the practice of the assessee to pay purchase tax on paddy by calculating backwards on the basis of the sale of rice. Accordingly, demand was raised by treating the deficit as the turnover of purchase of paddy without payment of tax.

3. In the course of the assessment proceedings the assessee relied upon a verification of the stock by the officer of the Food Corporation of India and contended that the other two measurements were not appropriate and there was really no physical verification, while the verification made by the principal, i.e., the Food Corporation of India, was done thoroughly.

4. On reference to the records, we find that the measurement was made by the revenue officials by using a tape, which means that the entire thing was verified not physically but by a sampling method. A sampling method of verification may be useful for certain purposes but cannot be utilised as the basis for imposition of tax. On the other hand, the principal's measurement on the basis of which payment should have been made should be given greater importance. According to the verification made by the principal's representatives, the shortfall was 61 quintals only. Mr. Agarwalla does not dispute the statement of the learned standing counsel that it was the practice of the petitioner to pay purchase tax by following the back calculation method. Since there was a shortfall of 61 quintals of paddy, it must be assumed that the paddy had been purchased but for some reason or other was not available to be converted into rice and there was ultimately no supply or sale of rice to the corporation. In this position, it must be assumed that on 61 quintals no purchase tax has really been paid. Mr. Agarwalla accepts this position. We would accordingly hold that in the facts and circumstances of the case the assessee was liable to pay purchase tax on 61 quintals of paddy. Effect may be given to raise a demand of purchase tax against the assessee on the turnover of 61 quintals of paddy.

There would be no order for costs.

BEHERA, J. - I agree with may Lord the Chief Justice.

Reference answered accordingly.