ORDER V. K. SINGHAL, J. - Petitioner-company is a manufacturer of aluminium extrusions and is registered as dealer under the provisions of Karnataka Sales Tax Act, 1957 as well as Central Sales Tax Act, 1956. The assessment file is being dealt with by Deputy Commissioner of Commercial Taxes (Assessment-I), Fast Track. Annual returns for the period 1996-97 and 1997-98 in form No. 4 were filed. Notice for assessment year 1996-97 and 1997-98 were issued. Books of accounts and relevant documents were produced for both the years. Proposition notice in form 31-A (annexure B) was issued for the year 1997-98 under the KST Act mainly on the basis of the annual report as understood by the assessing authority after verification of the books of account. Assessment under section 12(3) of the KST Act read with rule 18(3) of the KST Rules was finalised on December 31, 1998. Beside various other items, addition was mainly in respect of the following three heads : "The taxable turnover arrived at due to the over-valuation of closing stock as illustrated in detail at Sl. No. 1 of the proposition notice. The taxable turnover arrived at due to the under-valuation of raw materials consumed as illustrated in Sl. No. 2 of proposition notice. The taxable turnover of Rs. 30,82,744 arrived at in respect of the work-in-progress account, as illustrated at Sl. No. 8 of the proposition notice." Demand of Rs. 3,84,39,134 was created. A request was made to defer the assessment since declarations in form 37 were not received. It is also stated that the endorsement for the year 1997-98 have not been issued and assessment order creating huge liability was issued against the principles of natural justice. The order is stated to be arbitrary, vindictive, capricious and subjective in nature. 2. Under section 12(3) of the KST Act read with rule 18(3) of the KST Rules, it is contended that the assessing authority has to issue a notice in form 31-A. Pro forma of the said notice has contemplated specification of gross and taxable turnover. The proposition notice which has been issued lacks mandatory requirement. Even in the notice exact details of evasion detected has to be worked out on the basis of the inspection conducted by the Intelligence Wing of Commercial Taxes Department. The proposition notice which has been issued lacks mandatory requirement. Even in the notice exact details of evasion detected has to be worked out on the basis of the inspection conducted by the Intelligence Wing of Commercial Taxes Department. Thereafter neither any information regarding details of the inspection of company conducted by the Intelligence Wing of Commercial Taxes Department were communicated nor the petitioner was given the details on the basis of which assessment is proposed. Under CST Act for the same period time was granted for preliminary objections and furnishing documents. It is submitted that in the assessment order reference is made to the news report dated April 1, 1998 published in "Statesman" on the basis of which it was observed that the return illustrates the fact that the transaction declared by the dealer-company are not true reflection of its actual transactions, as even during the earlier periods the dealer-company was resorting to suppression of actual production and sales figures and in the light of these facts the proposal put forth in the proposition notice seems to be fair and justified. It is stated that this observation itself is against the principles of natural justice as attention of the petitioner-company was not drawn towards the news report which is inadmissible and based on incorrect facts. Whether writ petition against assessment order is maintainable ? Observations in the following judgments are relevant In Instalment Supply Ltd. v. Sales Tax Officer [1974] 34 STC 65, the apex Court relying on the judgment in the case of Ujjam Bai v. State of Uttar Pradesh AIR 1962 SC 1621 ; [1963] 1 SCR 778, it was held that where the action taken is procedurally ultra vires, as where a quasi-judicial authority under an obligation to act judicially passes an order in violation of the principles of natural justice, such action is liable to be assailed by preferring petition under article 226 of the Constitution. In Coffee Board v. Joint Commercial Tax Officer, Madras [1970] 25 STC 528 (SC), it was observed that in case of any demand for tax arising out of orders passed in breach of the principles of natural justice, the aggrieved party is not compelled to wait or go through the lengthy procedure of appeals, revisions, etc. In Keveyan & Co. In Coffee Board v. Joint Commercial Tax Officer, Madras [1970] 25 STC 528 (SC), it was observed that in case of any demand for tax arising out of orders passed in breach of the principles of natural justice, the aggrieved party is not compelled to wait or go through the lengthy procedure of appeals, revisions, etc. In Keveyan & Co. v. G. S. Bagehel [1988] 71 STC 222 (SC) the assessment order and penalty were quashed with the following observations : "After hearing learned counsel for the parties, we allow the appeal, set aside the assessment orders and penalty orders and direct fresh assessments to be made after reasonable opportunity is afforded to the appellant to adduce evidence and to be heard in the matter. It is pointed out by the learned counsel for the appellant that a sum of rupees five lakhs twenty-eight thousand has already been paid by the appellant to the Sales Tax Department towards the liability assessed hitherto, and it is prayed that an order be made releasing the bank accounts and other properties from attachment. We direct that the attachment will continue for a period of four months from today, during which period the Sales Tax Department should complete the fresh assessments. Liberty is granted, however, to the appellant to apply to the Sales Tax Department for release of the bank accounts from attachment. The appeal is disposed of accordingly. There will be no order as to costs. Appeal allowed." In Mysore Cements Limited v. Deputy Commissioner of Commercial Taxes [1994] 93 STC 464 (Kar) the order was found against the principles of natural justice or against the accepted rules of procedure it was held that such action is amenable to judicial review under article 226. There will be no order as to costs. Appeal allowed." In Mysore Cements Limited v. Deputy Commissioner of Commercial Taxes [1994] 93 STC 464 (Kar) the order was found against the principles of natural justice or against the accepted rules of procedure it was held that such action is amenable to judicial review under article 226. The Division Bench of this Court in the case of Karnataka State Road Transport Corporation v. Karnataka State Transport Authority AIR 1984 Kar 4 observed : "Even where an equally efficacious alternative remedy exists, where, however, fundamental rights are affected where rules of natural justice are violated, or where there is a failure on the part of the authority concerned to confine itself within the bounds of its legitimate jurisdiction or where there is a failure to exercise a jurisdiction vested in it or where there is an error of law apparent on the face of the record, a person aggrieved can invoke the extraordinary jurisdiction of this Court under article 226 without reference to any remedy however equally efficacious it be. The existence of an alternative remedy does not oust the jurisdiction of the High Court 'under article 226. The rule that the court does not entertain a petition under article 226 when there is an equally efficacious alternative remedy is not a rule of law, but is a principle the courts have evolved for the guidance of their own discretion." In the case of A. V. Venkateswaran, Collector of Customs, Bombay v. Ramchand Sobhraj Wadhwani AIR 1961 SC 1506 it was observed as under : "8. The only point, therefore requiring to be considered is whether the High Court should have rejected the writ petition of the respondent in limine because he had not exhausted all the statutory remedies open to him for having his grievance redressed. The contention of the learned Solicitor-General was that the existence of an alternative remedy was a bar to the entertainment of a petition under article 226 of the Constitution unless (1) there was a complete lack of jurisdiction in the officer or authority to take the action impugned, or (2) where the order prejudicial to the writ petitioner has been passed in violation of the principles of natural justice and could, therefore, be treated as void or non est. In all other cases, he submitted, courts should not entertain petitions under article 226, or in any event not grant any relief to such petitioners. In the present case, he urged, the High Court in appeal had expressly dissented from the reasoning of the learned single Judge as regards the lack of jurisdiction of the customs officers to adjudicate regarding the item under which the article imported fell and the duty leviable thereon. Nor was there any complaint in this case that the order had been passed without an opportunity to the importer to be heard, so as to be in violation of the principles of natural justice. The learned Solicitor-General questioned the correctness of the reasoning of the learned Chief Justice in condoning the conduct of the respondent in not moving the Government in revision by taking into account the time that had elapsed between the date of the impugned order and that on which the appeal was heard. The submission was that if this were a proper test, the rule as to a petitioner under article 226 having to exhaust his remedies before he approached the court would be practically a dead letter because in most cases by the date the petition comes on for hearing, the time for appealing or for applying in revision to the departmental authorities would have lapsed. 9. We see considerable force in the argument of the learned Solicitor-General. We must, however, point out that the rule that the party who applies for the issue of a high prerogative writ should, before he approaches the court, have exhausted other remedies open to him under the law, is not one which bars the jurisdiction of the High Court to entertain the petition or to deal with it, but is rather a rule which courts have laid down for the exercise of their discretion. The law on this matter has been enunciated in several decisions of this Court but it is sufficient to refer to two cases : In Union of India v. T. R. Varma [1958] SCR 499 at pages 503-504 : [(S) AIR 1957 SC 882 at page 884], Venkatarama Ayyar speaking for the court said : 'It is well-settled that when an alternative and equally efficacious remedy is open to a litigant, he should be required to pursue that remedy and not invoke the special jurisdiction of the High Court to issue a prerogative writ. It is true that the existence of another remedy does not affect the jurisdiction of the court to issue a writ; but, as observed by this Court in Rashid Ahmed v. Municipal Board, Kairana AIR 1950 SC 163 , "the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs". Vide also K. S. Rashid and Son v. Income-tax Investigation Commission AIR 1954 SC 207 . And where such remedy exists, it will be a sound exercise of discretion to refuse to interfere in a petition under article 226, unless there are good grounds therefor.'" In the case of State of U. P. v. Mohammad Nooh AIR 1958 SC 86 the apex Court observed as under : "...... there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. Provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute. The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior courts subordinate to it and ordinarily the superior court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law' The superior court will readily issue a certiorari in a case where there has been a denial of natural justice before a court of summary jurisdiction. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law' The superior court will readily issue a certiorari in a case where there has been a denial of natural justice before a court of summary jurisdiction. If therefore, the existence of other adequate legal remedies is not per se a bar to the issue of a writ of certiorari and if in a proper case it may be the duty of the superior court to issue a writ of certiorari to correct the errors of an inferior court or Tribunal called upon to exercise judicial or quasi-judicial functions and not to relegate the petitioner to other legal remedies available to him and if the superior court can in a proper case exercise its jurisdiction in favour of a petitioner who has allowed the time to appeal to expire or has not perfected his appeal, e.g., by furnishing security required by the statute, it cannot then be laid down as an inflexible rule of law that the superior court must deny the writ when an inferior court or Tribunal by discarding all principles of natural justice and all accepted rules of procedure arrived at a conclusion which shocks the sense of justice and fair play merely because such decision has been upheld by another inferior court or Tribunal on appeal or revision." In the case of J. J. Spinners Ltd. v. Commissioner of Commercial Taxes, Orissa [1998] 109 STC 289 (Orissa) it was observed that where the statute provide a complete machinery for obtaining relief in respect of an allegedly improper order passed by the authorities, the affected persons cannot be permitted not to resort to that machinery and to invoke the extraordinary jurisdiction of the High Court under article 226 of the Constitution. There are certain exceptions to the general rule that a person must exhaust statutory remedies before seeking issuance of a writ. One of such exceptions is where there has been violation of principles of natural justice. In the case of M. S. Jewellery v. Assistant Commissioner (Assessment) [1995] 97 STC 455 (Ker) it was observed as follows : "It is true that the assessee has an alternative remedy under the statute, to file an appeal against exhibit P6. One of such exceptions is where there has been violation of principles of natural justice. In the case of M. S. Jewellery v. Assistant Commissioner (Assessment) [1995] 97 STC 455 (Ker) it was observed as follows : "It is true that the assessee has an alternative remedy under the statute, to file an appeal against exhibit P6. Normally, availability of such an alternative remedy will dissuade this Court from exercising the jurisdiction under article 226 of the Constitution of India. Indeed, the learned single Judge has declined to exercise the jurisdiction on that ground. In appeal, normally, the exercise of such a discretion will not be interfered with. But, in this case, keeping in view exhibits P3 and P5, we are satisfied that exhibit P6 was passed in undue haste, and in violation of the principles of natural justice. On facts, we are of the view that no due care and caution was bestowed in exercising the statutory power in passing exhibit P6. It is 'mala fide' in law. This vital aspect has been ignored by the learned single Judge. The order assailed in the original petition is patently unreasonable and infirm. It is also unfair. The learned single Judge ignored the vitiating factors aforesaid. We are constrained to hold that the learned single Judge was wrong and unreasonable in dismissing the original petition by relegating the party to pursue the statutory remedy in the facts and circumstances of this case. He has not exercised the discretion vested in him in accordance with law and was wrong in declining jurisdiction. We set aside the judgment of the learned single Judge." In the case, of Assistant Commissioner (Assessment), Sales Tax, Special Circle v. Duroflex Coir Industries Pvt. Ltd. [1992] 85 STC 150 (Ker) it was observed thus : "It is true that the availability of an alternate remedy is no bar for the exercise of jurisdiction under article 226 of the Constitution by this Court but that is a very cogent and relevant factor to be looked into, in considering whether the discretionary power should be exercised or not. Since the assessee (petitioner) has got an efficacious remedy from the provisional assessment orders, by way of revisions, before the statutory authority, we see no reason as to why this Court should, in the exercise of extraordinary jurisdiction under article 226 of the Constitution of India, scrutinise the legality of the provisional assessment orders. There are no extraordinary circumstances in this case. The respondent (assessee) has no case that the revisional authorities are incompetent in law to construe the impact of the notifications or that there was any denial of natural justice by the assessing authority before passing the provisional assessments. In such cases, the respondent (assessee) should pursue the statutory remedy by way of revision and was not justified in invoking the extraordinary discretionary jurisdiction of this Court under article 226 of the Constitution of India." In the case of State of West Bengal v. North Adjai Coal Co. Ltd. [1971] 27 STC 268 (SC) it was observed that in appropriate cases, the High Court can entertain a petition under article 226 of the Constitution of India and grant the relief even though the petitioner has not exhausted the remedies available under the statute before the departmental authorities. Similar view has been taken in Beharilal Shyamsunder v. Sales Tax Officer, Cuttack [1966] 17 STC 508 (SC) that if the assessment is on the ground that it is without authority of law or ultra vires the statute or Rules, the writ cannot be dismissed. In the case of State of U.P. v. Mohammad Nooh AIR 1958 SC 86 it was observed as under : "...... where the error, irregularity or illegality touching jurisdiction or procedure committed by an inferior court or Tribunal of first instance is so patent and loudly obtrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision. where the error, irregularity or illegality touching jurisdiction or procedure committed by an inferior court or Tribunal of first instance is so patent and loudly obtrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision. If an inferior court or Tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fair play the superior court may, we think, quite properly exercise its power to issue the prerogative writ of certiorari to correct the error of the court or Tribunal of first instance, even if an appeal to another inferior court or Tribunal was available and recourse was not had to it or if recourse was had to it, it confirmed what ex facie was a nullity for reasons aforementioned." In Nuwood Pvt. Ltd., Madras v. Superintendent of Central Excise (1981) ELT 184 (Mad), it was observed that it is equally well-settled that a void order is destitute of legal effect and the same can be ignored with impunity. Its validity can be attacked in collateral proceedings as well. It is for these reasons courts have taken the view that in cases where an order or a decision is vitiated by a failure to comply with the principles of natural justice, the jurisdiction of High Courts under article 226 of the Constitution of India could be invoked, even without exhausting the alternative remedies of appeal, 2. Arguments of learned counsel for the parties have been heard about the maintainability of the writ petition. Normally, an assessee cannot be allowed to by-pass the statutory remedy provided under the Act, but; in a case where the order is passed contrary to or in violation of the principles of natural justice or suffers from mistake apparent from law, this Court in appropriate cases could interfere. Even in a case where the alternative remedy is dilatory in giving the relief which the citizen is entitled, resulting in irreparable prejudice or lengthy proceedings or unnecessary harassment, this Court can interfere in its extraordinary jurisdiction which is not seriously disputed by the learned Government Advocate. Even in a case where the alternative remedy is dilatory in giving the relief which the citizen is entitled, resulting in irreparable prejudice or lengthy proceedings or unnecessary harassment, this Court can interfere in its extraordinary jurisdiction which is not seriously disputed by the learned Government Advocate. The alternative remedy is onerous, may result in palpable injustice and inordinate delay. Therefore the arguments on merits were heard. 3. On February 11, 1999, when the matter was heard, learned counsel for the respondent was directed to bring any specific instance of sale which is not recorded in the books of account. From the perusal of the assessment order it is evident that there is no such incidence cited. In Commissioner of Income-tax v. Simon Carves Ltd. [1976] 105 ITR 212 it was observed that the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. It is stated that high pitched assessments are framed contrary to the established principles of law and in an erroneous manner without realizing that such heavy demand not supported by any evidence on record may result in closure of business or its working. 3A. In the proposition notice, following notice was given to the petitioner : "1. The 29th annual report 1997-98 was scrutinised and in the auditors; report at serial No. 6 page 10 it is certified that the valuation of stocks is fair and proper in accordance with the normally accepted accounting principles and is on the same basis as in the previous year. In the light of this certification the valuation of closing stock for the years 1996-97 and 1997-98 was verified and it was noticed that during the year 1996-97 the selling price of aluminium extrusions works out to Rs. 1,06,256.31 PMT and the price per tonne of the closing stock of aluminium extrusions works out to Rs. 78,698.20 PMT. Since the dealer-company declares that the valuation of stocks is on the same basis as in the previous year, then for the year' 1997-98 when the selling price of aluminium extrusions works out to Rs. 1,06,256.31 PMT and the price per tonne of the closing stock of aluminium extrusions works out to Rs. 78,698.20 PMT. Since the dealer-company declares that the valuation of stocks is on the same basis as in the previous year, then for the year' 1997-98 when the selling price of aluminium extrusions works out to Rs. 1,06,016.85 PMT which is almost equal to the previous years price except for a minuscule difference of 0.22 per cent the valuation of closing stock should also have been at the rate of Rs. 78,698.20 PMT. But, on the other hand, the rate of the closing stock for the year 1997-98 has been declared at Rs. 87,336.26 PMT thereby bloating up the closing stock resulting in short accounting of the sales turnover. To put it graphically. 1997-98 1996-97 1. Sales of A1 186,06.092 MT 82,68.273 MT extrusions = Rs. 197,25,59,304 Rs. 87,85,56,183 2. Selling rate = Rs. 1,06,016.85 Rs. 1,06,256.31 per MT 3. Closing stock 519.624 MT 99.670 MT = Rs. 4,53,82,018 = Rs. 78,43,850 4. Rate per MT Rs. 87,336.26 PMT Rs. 78,698.20 of closing stock 5. Artificial increase Rs. 87,336.26 ... 1997-98 PMT of closing Rs. 78,698.20 ... 1996-97 stock for 1997-98 Rs. 8,638.06 Thus the closing stock has been increased by Rs. 8,638.06 PMT., resulting in a relative decrease in the sales turnover and the sales turnover escaping tax is proposed to be arrived at as under : Rate of closing stock over-valued by ... Rs. 8,638.00 PMT Total quantity of closing stock declared 519.624 MT Over-valuation of the entire Rs. 5.19.62 x 8 ------------------ closing stock by 44,88,512 The over-valuation arrived at Rs. 44,88,512 is proposed to be added to the taxable turnover : Taxable turnover proposed to be increased due to over-valuation of closing stock by Rs. 44,88,512 Tax effect at 10% Rs. 4,48,851 2. Similarly at serial No. 3 of page 2, of the directors report, it is categorically stated as : .... However, profit has not increased proportionately due to increase in the cost of raw material and reduction in the selling prices. In the background of this revelation, a comparison of the rates of major raw materials consumed during the years 1996-97 and 1997-98 reveals the following details as per statements at page 25 of annual report. Raw materials consumed in manufacture ---------------------------------------------------------------------- Sl. No. Raw materials consumed 1997-98 1996-97 ---------------------------------------------------------------------- 1 Aluminium Rs. 68,764.35 PMT Rs. In the background of this revelation, a comparison of the rates of major raw materials consumed during the years 1996-97 and 1997-98 reveals the following details as per statements at page 25 of annual report. Raw materials consumed in manufacture ---------------------------------------------------------------------- Sl. No. Raw materials consumed 1997-98 1996-97 ---------------------------------------------------------------------- 1 Aluminium Rs. 68,764.35 PMT Rs. 65,399.04 PMT 2 Magnesium Rs.1,18,158.10 PMT Rs. 1,55,859.48 PMT 3 Silicon Rs. 52,059.08 PMT Rs. 63,611.46 PMT 4 Average rate Rs. 79,660.51 PMT Rs. 94,956.66 PMT PMT of raw materials ---------------------------------------------------------------------- Even though it is declared that there has been an increase in the cost of raw material, the above details prove that the average raw materials costs during the year 1997-98 work out far lesser than the average cost of raw materials for the year 1996-97. Average cost of raw material consumed : (a) 1996-97 ...... Rs. 94,956.66 (b) 1997-98 ...... Rs. 79,660.51 --------------- Difference Rs. 15,296.15 PMT --------------- Thus a conclusion can be drawn that the cost of raw materials consumed is intentionally under-valued resulting in a relative decrease in sales turnover. This deficiency of Rs. 15,296.15 PMT is proposed to be added to the taxable turnover as shown, Total quantity of major raw materials consumed : (i) Aluminium .... 19,495.834 MT (ii) Magnesium .... 80.821 MT (iii) Silicon .... 84.000 MT Total .... 19,660.655 MT (a) Total quantity of major raw materials consumed 19,660.655 (b) Average under-valuation PMT of raw materials consumed as compared to 1996-97 Rs. 15,296.15 Assuming that the increase in raw materials rates over the year 1996-97 as proclaimed in the Directors' report, to be around 10 per cent the average under-valuation PMT of raw materials would be, Under-valuation of raw materials PMT as compared to 1996-97 .... Rs. 15,296.15 PMT Add : 10% towards inflation and declared increase in cost including normal growth over the previous year .... Rs. 1,529.61 PMT Actual under-valuation of raw materials ----------------- PMT during 1997-98 .... Rs. 16,825.76 ----------------- Total under-valuation of raw materials consumed : = 19660.655 x 16825.76 = Rs. 33,08,05,462.00 The total under-valuation which works out to Rs. 33,08,05,462 is proposed to be added on to the taxable turnover and subjected to tax at the regular rate, Turnover proposed to be added to the .... Rs. 33,08,05,462 taxable turnover. Extra tax effect .... Rs. 3,30,80,546 3. 33,08,05,462.00 The total under-valuation which works out to Rs. 33,08,05,462 is proposed to be added on to the taxable turnover and subjected to tax at the regular rate, Turnover proposed to be added to the .... Rs. 33,08,05,462 taxable turnover. Extra tax effect .... Rs. 3,30,80,546 3. On verification of the total energy consumption and energy consumed per unit of production, the following details are found to be furnished at page 4 of the annual report : (1) Electricity (a) Purchased : (i) Units ... 56,10,840 unit (ii) Total amount ... Rs. 2,22,12,367 (iii) rate per unit ... Rs. 3.96 (iv) No. of units consumed per unit production of aluminium extrusions ... PMT 421 units To put it more succinctly, for producing one MT of aluminium extrusions, 421 units are required. In this background the total production of aluminium extrusions could be worked out as under Total units consumed (a) Electricity .... 5,610,840 units (b) Ben generation .... 1,190,000 units (c) Diesel generation .... 1,214,472 units --------------- Total units of electricity consumed 8,015,312 units --------------- 421 units being required for production of one MT of aluminium extrusions, the total quantity of finished goods obtained from 8,015,312 units would work out as under : 8,015,312 units = 1-9,038,74 MT The production of the finished goods thus works out to 19038.74 MT as against the declared quantity of 18606.092 showing a short declaration of 432.653 MTs. (a) Sales of finished goods as worked out on the basis of units consumed 19038.745 MT (b) Sales turnover of finished goods declared at page 24 of the 29th annual report 18606.092 MT ------------ 432.653 ------------ Price of finished goods at Rs. 1,06,016.85 PMT Total value of finished goods short accounted = 432.653 x 106016.85 = 4,58,68,508 Tax effect at 4% on Rs. 4,58,68,508 = Rs. 18,34,740 It is proposed to add on the above short accounting of 432.653 MT of finished goods to the taxable turnover and effect the computation of. 8. Considering the fact that the 'work-in-progress' is reported to be valued at estimated cost vis-a-vis the stage of completion, there is a scope for error due to the assumption that all batches of the 'stock-in-process' are just at the middle point of their process period at the time of valuation. 8. Considering the fact that the 'work-in-progress' is reported to be valued at estimated cost vis-a-vis the stage of completion, there is a scope for error due to the assumption that all batches of the 'stock-in-process' are just at the middle point of their process period at the time of valuation. This will lead to a gross under-valuation of the sales turnover as many of the batches may have further traversed a good distance in the production line and may have approached the final stages of the completion. Keeping in view the fact that the holding period of the manufacturing process or in other words the period of quarantine for goods is very low, it is proposed to disallow 20% of the turnover declared in respect of the work-in-progress as shown, (a) Work-in-progress declared at page 20 of annual report Rs. 1,54,13,720 (b) 20% disallowed and proposed to be added on to the taxable turnover Rs. 30,82,744 taxable at the regular rate as local sales of extrusions." 4. Action was proposed on the basis of consumption of electricity in the proposed notice. 432.653 MT was sought to be added considering the consumption of units taking the average of 421 units PMT. But in the final assessment order, it was not added on account of the other three additions. In reply to the proposition notice various objections were taken with the prayer that final notice may be issued so that the reply may be submitted. Power of best judgment assessment : 5. In order to see as to whether the principles laid down for best judgment assessment have been followed or not it would be relevant to refer the following decisions : (a) Commissioner of Income-tax v. Laxminarain Badridas [1937] 5 ITR 170. It was observed by the Privy Council that the officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, vindictively, or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must take into consideration the local knowledge and repute circumstances of the assessee as well. He must not act dishonestly, vindictively, or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must take into consideration the local knowledge and repute circumstances of the assessee as well. (b) In Commissioner of Sales Tax v. H. M. Esufali H. M. Abdulali [1973] 32 STC 77 (SC); [1973] 90 ITR 271 (SC), it was observed that the assessing authority while making the best judgment assessment, no doubt should arrive at its conclusion without bias and on rational basis. The authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not of any one else. (c) In State of Orissa v. Maharaja Shri B. P. Singh Deo [1970] 76 ITR 690 (SC) it was observed that "the mere fact the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order, it is an assessment on the basis of his best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities." (d) In State of Kerala v. Velukutty [1966] 17 STC 465 (SC); 11966/60 ITR 239 (SC), it was observed that the limits of the power of the assessing officer are implicit in the expression "best of his judgment". Judgment is a faculty to decide matters with wisdom, truly and legally. Judgment does not depend on the arbitrary caprice of judge, but on settled and invariable principles of justice. Though there may be an element of guess-work in a best judgment assessment, it should not be wild one but should have a reasonable nexus to the available material and the circumstances of each case. Judgment does not depend on the arbitrary caprice of judge, but on settled and invariable principles of justice. Though there may be an element of guess-work in a best judgment assessment, it should not be wild one but should have a reasonable nexus to the available material and the circumstances of each case. (e) In Raghubar Mandal Harihar Mandal v. State of Bihar [1957] 8 STC 770 (SC) it was observed that when the assessing authority has to reject the books of account and to proceed to estimate the turnover, he cannot arbitrarily delete any figure, the figure should be on some basis and must be based on some evidence and material on record and must not be a pure guess of work. 6. From the various decisions, cited above it is evident that the best judgment assessment has to be framed on rules of reason and justice and not on conjectures or suspicion. It may be a guess, work but it must be the honest guess-work based on material on record. The determination must be guided by dictates of fair play. 7. Judgment is considered to be a faculty to decide the matter judiciously with wisdom, truly and legally on settled principles of justice. The quantum has to be based on relevant admissible and adequate material. Though the provisions of Evidence Act are not applicable, the principles thereof have to be complied with. The best judgment assessment must not be punitive. The liability must be fixed by a speaking and well reasoned order after giving a reasonable opportunity of hearing. The assessment must be honest and fair having reasonable nexus to the material. 8. On behalf of the respondent in the statement of objections filed it is stated that the opportunity required to be afforded to he assessee before concluding the assessment under section 12(3) of the Act read with rule 18(3) of the Rules have been given by issuing a proposition notice in form 31A on November 10, 1998 giving the reasons of the proposed assessment to be made. Gross and taxable turnover in the format of proposition notice is only a broad guideline for the assessing authority and it is the taxable turnover which computes the liability to tax which if added to the declared taxable turnover compliance of rule 18(3) of the Karnataka Sales Tax Rules would be considered. Gross and taxable turnover in the format of proposition notice is only a broad guideline for the assessing authority and it is the taxable turnover which computes the liability to tax which if added to the declared taxable turnover compliance of rule 18(3) of the Karnataka Sales Tax Rules would be considered. In Khanna Scooters v. Assistant Sales Tax Officer [1988] 69 STC 103, it was held by the Madhya Pradesh High Court that the assessment order in the prescribed form is a mandatory requirement (sic). Defect or irregularity in this will not invalidate the proceeding unless it is shown that the dealer has not been granted the reasonable opportunity of being heard before the assessment is concluded as held in Kunjilal v. Assistant Sales Tax Officer [1970] 26 STC 542 (MP). Since the objections to the proposition notices were filed the assessment order have been passed and there is no violation of principles of natural justice. Detailed objections are stated to have been filed on December 17, 1998 wherein request was made for issuance of another final proposition notice which is not contemplated under law. The explanation given by the assessee were duly considered and principles of natural justice have been complied and is not referable to fatness of stake but to the demands of the situation as held in Jain Exports (P) Ltd. v. Union of India [1988] 71 STC 173 (SC). Details of tax evaded under inter-State sales beside the tit-bits published in Excise Law Times evasion of payment of excise duty as published in (1998) 99 ELT A125 have also been placed on record. 9. It is stated that the cost of raw material are on lower side compared to value of the raw material in previous year and when there is increase in the cost of raw material it has resulted in under-valuing and decrease in sales turnover. Extracts from the book of Sri. C. R. Rao. "Balance sheet and Practical Methods of Window Dressing" has also been reproduced, - "Raw material appearing as closing stock in the balance sheet may be valued differently depending on the two usual circumstances prevailing in the company. They are : (i) Closing stock of raw material may be valued at invoice price related to each batch of purchases. The profit will fuel no impact since the same amount will also be debited to the purchases. They are : (i) Closing stock of raw material may be valued at invoice price related to each batch of purchases. The profit will fuel no impact since the same amount will also be debited to the purchases. (ii) It is possible that the material purchased by a company may be such that may be stored all together instead of in physically distinguishable batches according as they were purchased at different times. It is in the second circumstances that the creative accountant will have before him a choice to adopt any of the well-known methods, namely : 1. First in first out (FIFO) 2. Last in first out (LIFO) 3. Average cost 4. Last cost 5. The base stock system 6. Standard cost 7. Adjusted selling price." It is stated that the enquiries were conducted on February 18, 1999 in respect of the market price of aluminium alloy ingots during the period 1997-98 and it was stated to be Rs. 73,500 per metric tonne. Copy of the invoice dated June 6, 1997 of M/s. Fareed Sons Aluminium, Pvt., Ltd., is also submitted. Addition of 10 per cent over the previous year average cost of raw material is supported by the decision given by the West Bengal Taxation Tribunal in the case of Presidency Kid Leather (Pvt.) Ltd. v. Commercial Tax Officer, Ballygunge [1991] 80 STC 338. 10. At the end it is conceded that the assessment be quashed for framing the reassessment afresh. 11. I have considered over the matter. In spite of the opportunity being given to point out any instance of sale effected outside the books of account either detected by the intelligence wing or by the assessing authority, nothing has come on record and on contrary it is submitted that the evasion of tax is in respect of inter-State sales. Even that contention has no substance because according to the petitioners the transfers to branch/depot/agent were considered as inter-State sales. It is a matter of interpretation as to whether a particular transaction is an inter-State sale or a transfer not liable to tax under CST Act. Appeals are stated to be pending before the Tribunal. Even that contention has no substance because according to the petitioners the transfers to branch/depot/agent were considered as inter-State sales. It is a matter of interpretation as to whether a particular transaction is an inter-State sale or a transfer not liable to tax under CST Act. Appeals are stated to be pending before the Tribunal. If there is any change with regard to the classification of a particular type of transaction as shown in the books of account then prima facie it cannot be considered to be evasion of tax and that too pertains to CST Act but under the KST Act either in this year or for any previous it has not been brought on record that the petitioner-company was indulging in evasion of tax. 12. At this stage, it may also be observed that the news as published in "Statesman" or, in Excise Law Times though used against the petitioner but his attention was not invited. News published cannot be considered to be an evidence as they are not proved in the eyes of law. It is an inadmissible document. Mind was effected on the basis of such news resulting in best judgment assessment which cannot be supported by law. It is against the principles of natural justice to use any material against the assessee of which opportunity has not been given. In the statement of objections even the best judgment assessment is sought to be justified on the basis of sale invoice issued by M/s. Fareed Sons Aluminium Pvt. Ltd., showing that the price according to the invoice issued by them was Rs. 73.50 per kg. This document prima facie is inadmissible. Because neither the petitioner was given any opportunity in the proposition notice and secondly the assessment order is not based on the market price or on the basis of the sale invoice of NVs. Fareed Sons Aluminium Pvt. Ltd., and that the sale price of commodity differs company to company for various reasons including the composition of contents of articles in an alloy. The sale price was of the aluminium alloy ingot. Reliance on the sale invoice of M/s. Fareed Sons Aluminium Pvt. Ltd., therefore is not relevant. 13. Fareed Sons Aluminium Pvt. Ltd., and that the sale price of commodity differs company to company for various reasons including the composition of contents of articles in an alloy. The sale price was of the aluminium alloy ingot. Reliance on the sale invoice of M/s. Fareed Sons Aluminium Pvt. Ltd., therefore is not relevant. 13. Best judgment assessment was made on the basis of the following three points : Valuation of stock : Since the basis of valuation closing of stock is taken as that of previous year, the assessing authority came to the conclusion that the selling price of 1996-97 was similar to that of 1997-98. The closing stock for the year 1996-97 was taken at Rs. 78,698.20 per metric tonne while for the year 1997-98 it was taken at Rs. 87,336.26 per metric tonnes. The turnover of Rs. 44,88,512 has been increased on the allegation of over-valuation of entire stock. Learned counsel for the respondent duly assisted by the assessing authority could not point out as to whether the purchase price of the raw material for the year 1997-98 was taken into consideration. If there is an increase in the purchase price the value of closing stock is bound to increase. Petitioner is maintaining the stock register and other regular books which have not been rejected and no defect has been pointed out in them. It is strange without understanding the accounting principles the assessing authority has come to the conclusion of over-valuation of closing stock. The value of closing stock is bound to increase if there is increase in the cost of raw material. In para 2 of the proposition notice itself it is mentioned that there is increase in the cost of raw material. The addition in the first para on account of valuation of stock therefore prima facie based on misunderstanding of accounting principles and suffers from mistake apparent from record as the directors' report that due to increase in cost of raw material and reduction in selling price the profit is not increased is not denied by the assessing authority. The directors' report cannot be interpreted to mean that the value of closing stock shall be the same as of the previous year or that because of the average sale price was just similar to the previous year, the valuation of stock will be as that of previous year. The directors' report cannot be interpreted to mean that the value of closing stock shall be the same as of the previous year or that because of the average sale price was just similar to the previous year, the valuation of stock will be as that of previous year. It is only the basis which has been adopted of the previous year. The basis here mean the method/principles which are well-known in accountancy and not the sale value as that of previous year. Even otherwise if the selling price of finished products is similar in two years still the cost of closing stock can never be the same unless the purchase price is also similar. Even labour charges affect the valuation of closing stock. Assessing authority has not considered the purchase price and labour element while considering the undervaluation of raw material consumed. He himself has given the figures of purchase price of raw material of two years which shows that cost of raw material was more in 1997-98 as compared to previous year as such the closing stock is bound to be at more value than the previous year. No explanation has been given by the assessing authority in this regard. The addition is not sustainable, there is neither decrease of sales nor over-valuation of closing stock. Under-valuation of raw material consumed : Learned Government Pleader, admitted that a mistake has been committed in averaging the price of aluminium, magnesium and silicon. Component of aluminium is stated to be 95 per cent and that of magnesium and silicon is 5 per cent. Average cost of raw material consumed in 1996-97 and 1997-98 is stated to be under-valued resulting in decrease in sales turnover is based on imaginary ideas and calculations. The assessing authority himself has mentioned that the aluminium consumed was 19495.834 MT, magnesium 80.821 MT, and silicon 84.000 MT. When these figures were available then why the average was taken. It has not been pointed out that the figure of raw material consumed in metric tonnes was not reliable. The stock register maintained by the petitioner were not found unreliable nor any discrepancy was pointed out. When the comparison of the raw material consumed is made from the previous year, then it is not the average value but the actual value which has to be considered. Average cost of raw material for 1997-98 was taken at Rs. The stock register maintained by the petitioner were not found unreliable nor any discrepancy was pointed out. When the comparison of the raw material consumed is made from the previous year, then it is not the average value but the actual value which has to be considered. Average cost of raw material for 1997-98 was taken at Rs. 79,660 per metric tonne while that of 1996-97 at Rs. 94,956 per metric tonne by considering average consumption of all the raw material. Where the consumption of aluminium was more 99 per cent and the components less than 1 per cent then for taking average cost of raw material the percentage of price should have been considered. Admittedly from the figures received by the assessing authority average cost of aluminium was higher in 1997-98 as in 1996-97 it was Rs. 65,399 per metric tonne while in 1997-98 it was Rs. 68,764 per metric tonne therefore average cost of raw material consumed could not be lesser in 1997-98 than that of previous year. A blunder is committed. It is admitted that in 1997-98 there was increase in cost of raw material consumed and not decreased. Under-valuation of raw material resulting in decrease in sales figure is based on complete misunderstanding of the accounting books and principles on accountancy. No addition on this ground was justified. Even the argument that aluminium component in one ton is 95 per cent and other material is 5 per cent is based on misunderstanding of mathematics. Total raw material is stated to be 19660 MT for which aluminium is 19495 MT and magnesium 80 MT and silicon 84 MT. The total of magnesium and silicon is 164 MT. which is even less than 1 per cent. No additions have been made on account of unit consumed of electricity per metric tonne. Consumption of electricity could be a ground for making an enquiry but itself is not a sufficient ground for increasing the turnover without there being evidence of the sales being effected outside the books of account. It may also be observed that the burden to prove the sale is on the assessing authority. The assessment of sales though of best judgment assessment could be in set of circumstances but here it is a wild guess which has been made. It may also be observed that the burden to prove the sale is on the assessing authority. The assessment of sales though of best judgment assessment could be in set of circumstances but here it is a wild guess which has been made. Work-in-progress : On account of work-in-progress 20 per cent amount has been disallowed and added to the taxable turnover on the alleged gross under-valuation considering that there is a scope for error due to assumption that all batches of stock-in-process are just at the middle point of their process period at the time of valuation. This action is based on an assumption without any examination of books or material evidence on record or finding any mistake in the figures adopted in balance sheet. There was no justification in making the addition on this ground. In Schedule 16 of balance sheet figures of work-in-progress are given. Work-in-progress in 1996-97 was Rs. 1,54,13,720 while in 1997-98 it is taken as nil. The figures which the assessing authority has taken is of 1996-97 and not of 1997-98. Whatever the valuation was done in previous year would not result in disallowing 20 per cent in this year for any reason as it is not the case of assessing authority that by under-valuing work-in-progress some sales out of books have been effected in this year. Even under-valuation of work-in-progress in previous year is not established. The disallowance is purely imaginary and not sustainable in law. Petitioner has not submitted the reply but by letter dated December 17, 1998, request was made to issue the final notice as it was mentioned that the details of evasion detected by the intelligence wing or other department are under scrutiny. Neither any notice was issued nor the details of evasion detected by the intelligence wing or other department have been provided to the petitioner and they have also not been brought on record in reply before this Court therefore it is presumed that it is only because of treating certain transfers as inter-State sale under the CST Act that this action was taken. Though any error in the issue of proposition notice will not affect the jurisdiction of the assessing authority to proceed for assessment or even making best judgment assessment, but in this case it does not appear that the petitioner had adopted any dilatory tactics. Though any error in the issue of proposition notice will not affect the jurisdiction of the assessing authority to proceed for assessment or even making best judgment assessment, but in this case it does not appear that the petitioner had adopted any dilatory tactics. When request was made to issue another notice the assessing authority could have informed that notice already issued is final and no further notice will be issued and still if the assessed failed to furnish the reply, then adverse inference could have been drawn or best judgment assessment order could have been passed. 14. It is submitted that the assessing authority acted in a biased manner and therefore the file may be directed to be transferred to some other assessing authority. This Court while exercising the power under article 226 of the Constitution cannot exercise that power. The contention that assessment order was framed in biased manner appears to be prima facie correct as stated above. It is for the petitioner to move the Commissioner for transfer of file. It may also be observed that the books maintained in the regular course of business are the prima facie proof unless they are proved false by any other evidence on record. The assessment cannot be made on the basis of personal opinion. There was no proper appreciation of the annual report and it was based entirely on misunderstanding of the accounting principles by the assessing authority. Past history is also relevant while best judgment assessment is made. No case has been brought on record that there was any evasion in the past by the assessee. The assessment order being contrary to the principles of natural justice as the news published in "Statesman" was referred in the assessment order without confronting to the petitioner and contrary to the principles of natural justice enunciated by article 265 of the Constitution of India. Levy of tax being without the authority of law and based on no evidence is liable to be quashed. Annexure F assessment order and annexure G demand notice are accordingly quashed. The assessing authority shall frame fresh assessment keeping in mind the observations made above after providing proper opportunity to the petitioner. Assessment order has been passed in undue haste in violation of principles of natural justice without understanding the accounts or accounting principles. Annexure F assessment order and annexure G demand notice are accordingly quashed. The assessing authority shall frame fresh assessment keeping in mind the observations made above after providing proper opportunity to the petitioner. Assessment order has been passed in undue haste in violation of principles of natural justice without understanding the accounts or accounting principles. Copy of this order be sent to the Commissioner of Commercial Taxes to issue proper instruction to the assessing authority that frivolous demand as has been created in this case just for the sake of creating the demand is not done. Department is entitled to realize what is due and just and not to act in an arbitrary manner. Creating a huge demand which is not supported by any evidence may affect the business of a dealer and the assessing authority has to be careful while exercising the power of best judgment assessment. It should be done only on the basis of established principles of law and not at the whim and caprice of the officer.