Judgment:
1. These four appeals which have been preferred by the appellant under S. 82 of the Employees' State Insurance Act, 1984 (hereinafter called 'the Act') have raised the question of interpretation of S. 45-A of the Act which deals with what is known as 'best judgment assessment' in respect of the contribution payable by the employers. Having regard to the procedure that is being adopted by the E.S.I. Corporation in this batch of appeals and other cases of similar nature, it has become necessary to deal with the question in some detail.
2. For the purpose of understanding the questions arising in these appeals it is necessary to state the following facts. C.M.A. No. 255/84 arises out of E.I. Case No. 45/82 and the contribution assessed is a sum of Rs. 85,394-40. Though it is stated in the judgment under appeal that the period covered by the said case is from 31st January 1977 to 30th June 1978, now it is stated that the period covered by the said case is right from 30th March 1975 up to 30th June 1978. C.M.A. No. 256/84 arises out of E.I. Case No. 46/82 and the contribution levied in that case is a sum of Rs. 19.301-05 covering the period from June, 1980 to Nov. 1980. C.M.A. No. 257/84 arises out of E.I. Case No. 47/82 and the contribution levied is a sum of Rs. 6,724-08 covering the period from August, 1980 to January 1981. The last case C.M.A. No. 259/84 arises out of E.I. Case No. 49/82 and the contribution levied is a sum of Rs. 42,658-52 covering the period from 1st April 1979 to March 1980. Under the common judgment delivered by the E.S.I. Court on 18th August 1983 the above said four E.I. Cases as well as two other cases viz., E.I. Cases Nos. 50 and 51 of 82, were also dealt with. In this batch of appeals we are not concerned with E.I. Cases Nos. 50 and 51 of 1982.
3. All the assessment made by the Employees' State Insurance Corporation (hereinafter called 'the Corporation') are under S. 45-A of the Act. The procedure envisaged in that Section can be described generally as the 'best judgment method' that is followed in cases where the employer does not cooperate with the Corporation in determining the contribution. In all these cases, the Corporation purported to exercise the powers under S. 45-A, levied the contribution and recovered the same by sending a certificate to the concerned District Collector for recovery of the amounts by way of attachment etc., under the Revenue Recovery Act as stated in S. 45B of the Act.
4. The main grievance of the learned counsel for the appellant, Sri Koka Satyanarayana Rao, is that the appellant-employer cannot be said to have non-cooperated with the Corporation and therefore there is no occasion for invoking the provisions of S. 45-A of the Act. He also contended that the general principles of making 'best judgment assessment' have not been followed in the present case, in as much as no prior notice was given that such action was being taken, that the material which is the basis of the assessment has not been furnished to the appellant, that, in certain cases, no final orders of assessment have been served, and that the details or the method of computation in arriving at the demand have not been specified. He also pointed out that the procedure of issuing a show cause notice under S. 45-A and inviting objections and appending thereto a 'draft order' after exercising powers under S. 45-A amounts to a total pre-judgment of the issues involved and that, therefore, there is a clear violation of principles of natural justice.
5. On the other hand, it is contended by the learned counsel for the Corporation, Sri. I. A. Naidu, that the relevant principles of natural justice have been followed and that the procedure adopted in all the cases is valid and that the appellant, being a defaulter, cannot be shown any indulgence.
6. During the course of arguments when the learned counsel for the appellant, Sri K. Satyanarayana Rao, complained that the basis of the assessment has not been specified, the learned counsel for the respondent-Corporation filed a statement showing the mode of calculation. It disclosed that while making the assessment, the Corporation relied upon certain guidelines issued by the Central Government for the purpose of making the best judgment assessment. The learned counsel for the appellant then contended that assessments made solely on the basis of the above guidelines of the Central Government are invalid and also that the amounts arrived at by the Inspector for various periods do not tally with the amounts demanded by the Corporation in its communications to the District Collector for recovery under the Revenue Recovery Act.
7. On the basis of the above contentions of the respective counsel the following points arise for consideration :
(1) What are the conditions necessary for invoking powers under S. 45-A of the Act and whether prior notice regarding proposed action under S. 45-A should be issued to employer and whether on the facts of the present case there was justification in invoking S. 45-A
(2) Whether the Corporation could have based its assessment on the basis of the guidelines issued by the Central Government
(3) Whether the appellant has been given an opportunity before passing a final order in respect of the material relied upon for making the assessment
(4) Whether it is not obligatory to pass a final order of assessment containing reasons and the mode of computation of contribution so that the employer can have an opportunity to know these details and if necessary question them under S. 75 before the E.S.I. Court or on appeal under S. 75
(5) Whether the procedure of communicating the show cause notice before initiating S. 45-A proceedings with a draft order appended to it and without passing any final order later is valid
8. For the purpose of appreciating the above contentions, it is necessary to refer to certain important provisions of the Act. Section 39 deals with the contributions payable by the employer and by the employees while S. 40 mentions that the principal employer is to pay contributions in the first instance and S. 41 mentions the method by which the principal employer can recover the same on the immediate employer. Section 42 refers to the general provisions as to payment of contributions, while Section 43 deals with the method of payment of contributions. Under Section 44 employers are to furnish returns and maintain registers in certain cases while under S. 45 the functions and duties of the Inspectors are mentioned. Section 45-A which deals with best judgment assessment of the contribution reads as follows :-
'S. 45-A :- Determination of contribution in certain cases :
(1) Where in respect of a factory or establishment no returns, particulars, registers or records are submitted, furnished or maintained in accordance with the provisions of S. 44 or any Inspector or other official of the Corporation referred to in sub-section (2) of S. 45 is obstructed by the principal or immediate employer or any other person, in exercising such functions or discharging his duties under S. 45, the Corporation may, on the basis of information available to it, by order determine the amount of contributions payable in respect of employees of that factory or establishment.
(2) An order made by the Corporation under sub-section (1) shall be sufficient proof of the claim of the Corporation under S. 75 or for recovery of the amount determined by such order as an arrear of land revenue under S. 45B.
Section 45B deals with the recovery of contributions and provides that any contribution payable under the Act may be recovered as an arrear of land revenue.
9. The Employees State Insurance (General) Regulations, 1950 deal with certain details. Regulation 26 provides for the return of contributions to be sent to the appropriate office, Regn. 27 deals with issue of certificate of contributions, while Regn. 32 deals with register of employees to be maintained in Form No. 7.
10. I shall then refer to certain facts relating to these four cases before adverting to the above points. There was an earlier dispute between the appellant and the respondent-Corporation which came up before the lower Court in E.I.C. No. 95/77. There the Corporation issued certain notices to the appellant to pay contribution for the period from 1st May 1975 to 28th May 1977 alleging that the appellant was covered by the Act. Thereafter the Corporation initiated recovery proceedings and sent a letter to the Collector, Guntur. At that stage the appellant filed a petition under S. 75 of the Act before the Court contending that the appellant's unit in question did not come within the purview of the Act and that the demand for contribution made by the Corporation in its letter dated 2nd December 1977 was illegal and without jurisdiction. In the above said case the Court decided that the appellant was covered by the Act. It also held that the ad hoc assessment made under S. 45 of the Act was provisionally correct but that the amount which the appellant will have to pay can be determined on scrutiny of the relevant registers. While therefore upholding the demand the Court directed the appellant to produce the relevant registers for the relevant period before the Corporation or make them available for scrutiny if the Inspector of the Corporation visited the appellant's office, so that the correct amount payable by the appellant could be arrived at. For this purpose one month time was granted from the date of the said judgment viz., 20th October 1978. Thereafter the appellant kept quiet for some time and ultimately addressed a letter dated 13th September 1979 to the Corporation requesting it to inspect the records of the appellant. Consequently the Inspector of the respondent Corporation visited the establishment of the appellant on 23rd October 1979 and 27th December 1980 and submitted two reports. The said reports are on record.
11. The reported dated 23rd October 1979 in From No. C-10 shows that the inspection revealed that there were 246 employees, that a demand notice was issued earlier under Form C-19 up to January 1978, that regular registers are not maintained by the appellant. The report further stated that for the period from February 1978 to September 1979 the salary/wages paid for the period from February 1978 to September 1979 came to Rs. 4,76,508-77 upon which contributions, on ad hoc basis worked out to Rs. 33,375-61 and he stated that the said amount may be claimed from the appellant. He also stated that there was total default on the part of appellant by not filing returns etc., and by not maintaining the relevant records. In the same report he also stated that the employer has not so far worked out the contributions payable for the period from 30th March 1975 onwards and that as per the ledgers/balance sheets produced, the total amount of salaries/wages paid for the period 30th March 1975 to 31st January 1978 worked out to Rs. 5,73,359-71. The other report of the Inspector dated 24th October 1979 wherein it is stated that while working out the total amount of wages in the previous report certain amounts paid towards sick leave wages etc., were not totalled up for the years 1975 to 1979 by over sight and that certain amounts have to be added thereto. On that basis the sum of Rs. 4,76,508.77 above referred to is increased to Rs. 5,10,732.27 and the contribution is also increased to Rs. 35,751.26. Likewise the amount of Rs. 5,73,359-71 is corrected as Rs. 6,28,360-30 and the contribution payable is assessed at Rs. 43,985-23. When we come to C.M.A. No. 255/84 covered by E.I.C. No. 45/82 the period, as already mentioned, is 30th March 1975 to 30th June 1978. As per the statement of account now filed by the learned counsel for the Corporation before me it is clear that the contributions payable for the period are in three parts (i) 30th March 1975 to 27th September 1975 which are assessed at Rs. 10,920/- for 112 employees for 26 weeks at a minimum wage of Rs. 300/-. (ii) The second part relates to the period from 1st June 1975 to 28th May 1977 resulting in a contribution of Rs. 48,776.00 on the basis that the employees are 112, the minimum wage for certain period is Rs. 300/- and thereafter Rs. 350/-. (iii) The third part is for the period from 30th January 1977 to 28th January 1978 and the contribution is Rs. 25,698.40 on the basis that the employees are 112 and the minimum wage is Rs. 350/-. The total of Rs. 10,920 + 48,776 + 25,698.40 comes to Rs. 85,394.40. In fact it is for this sum that a demand notice is sent to the District Collector and an attachment notice is issued.
12. It is argued by the learned counsel for the appellant that this demand covering the period from 30th March 1975 to 30th January 1978 of Rs. 85,394.40 does not tally with the demand of Rs. 43,985.23 alone stated by the Inspector in his inspection report dated 23rd October 1979. In my view there is considerable force in this submission. The above is the example cited by the appellant's counsel only to show that there is no correlation between the demand notice issued and the reports of the Inspector submitted to the Corporation after verifying the records of the appellant. Likewise it is pointed out that there are other mistakes in the demand made in the other cases and that at any rate the appellant has not been furnished with the actual method of computation. It is with the background of these facts that the points that arise for consideration in these appeals have to be considered.
13. Point No. 1 :- In as much as there is considerable evidence that the appellant has not complied with the provisions of the Act for filing the necessary returns and that the appellant has also not complied with the request of the Corporation for production of the relevant registers, it was, in my opinion, competent for the Corporation to initiate proceedings under S. 45-A of the Act by way of best judgment assessment. The contention of the learned counsel for the appellant that the conditions necessary for invoking S. 45A have not been complied with, cannot be countenanced.
14. A question has been argued that before issuing a notice under S. 45-A the Corporation should have issued a show cause notice informing the appellant that it proposed to proceed under S. 45-A. From the records produced before me through the lower Court I find that a show cause notice was issued to the appellant only in regard to E.I.C. No. 46/82 and E.I.C. No. 47/82. No such show cause notices were issued in E.I.C. Nos. 45/82 and 49/82. Of course, the show cause notices issued in E.I. Nos. 46/82 and 47/82 are annexed with ad hoc assessment order under S. 45-A. The correctness of the procedure that is being followed by the Corporation will be gone into by me under point No. 5 above mentioned. I may here state that for the purpose of making best judgment assessment, it is not necessary that the Corporation should give a prior show cause notice. The earlier defaults made by the appellant-company either by not filing returns or not maintaining registers or in non co-operating with the Corporation in holding the assessment are sufficient for taking action under S. 45-A. Before initiating proceedings under S. 45-A, no notice, therefore, is contemplated by the Act.
15. In this context, it is necessary to refer to the opposite views taken by the Bombay and Delhi High Courts. In the Delhi High Court in E.S.I. Corpn. v. Masco Pvt. Ltd. (1982) Lab. IC 833 a Division Bench has taken the view that in view of the earlier defaults on the part of the employer, it was not necessary to issue any notice before the initiation of proceedings under S. 45-A. I am in entire agreement with this view. On the other hand, a Division Bench of the Bombay High Court in B.M.K. Industries v. E.S.I. Corpn., (1979) Lab IC 942 has observed while dealing with the validity of S. 45-A, that such notice is contemplated by the statute before initiation of proceedings under S. 45-A. I am not in agreement with this view. Once the conditions mentioned in the Section for initiating proceedings under S. 45-A are in existence, it is permissible for the Corporation to take action under S. 45-A without issuing any prior notice in that behalf. The learned counsel for the appellant has, however, relied upon a decision of the Supreme Court in State of Kerala v. Shaduli Yusuf ( : AIR1977SC1627 but I may point out that the decision is clearly distinguishable. There the particular provision in the statute relating to taxation required a notice to be issued even before the initiation of the proceedings by way of best judgment assessment. The decision of the Supreme Court that the statute contemplated two opportunities, one before the initiation of best judgment proceedings and one during the course of assessment are based upon the special provisions of that statute which was considered in that case. That decision is clearly distinguishable. In the present batch, it may be noted that with regard to E.I.C. Nos. 46/82 and 47/82 prior show cause notices were, in fact, issued though such notices were not issued in E.S.I. Nos. 45/82 and 49/82. As I stated above, the issuance of such prior show cause notices before initiating proceedings under S. 45-A is not obligatory. It is, however, optional to the Corporation to give such notices. The absence of any such notice so far as E.I.C. Nos. 45/82 and 49/82 are concerned does not, therefore, vitiate the proceedings. Point No. 1 is held accordingly.
16. Point No. 2 :- The question is whether the Corporation could have based its assessment on the basis of the guidelines issued by the Central Government, in relation to best judgment assessments. I may point out, that the Corporation did not give out the actual basis of those assessments earlier or even in the counter filed in the lower court. It only referred in the counter to the several reports of the Inspector and the amounts ascertained by him. As pointed out by me, the draft orders were issued only in E.I.C. No. 46 of 1982 and E.I.C. No. 47 of 1982. Even these draft orders do not specify the reasons or the basis for the assessment. During the course of hearing of these appeals, I have asked the standing counsel for the Corporation to place before me the basis adopted by the Corporation in arriving at the various demands, in the sum of more than Rs. 1,50,000/- in all the four cases. In response thereto, the learned counsel for the Corporation filed an explanatory note dated 14th August 1987, which states that the Corporation has made the assessment as per the Government of India notification. In particular it is stated that the guidelines are in three respects, which read as follows :- (a) Where the employer fails to submit any return/record before the Inspector, the Corporation may assess the contributions on the number of employees available as per Corporation records, taking into account the minimum wages fixed by the Government for this purpose. (b) Where the employer submits the record and not paid the contributions as per schedule I, the Corporation may assesses the contributions at 7% on the total wage bill of the employer. (c) Where the employer has calculated the contributions as per Schedule I basing on his own records, but not paid the contributions, accordingly, the Corporation may ask the employer to pay the contributions as assessed by him. This is called actual basis. It is pointed out in the explanatory note that in E.I.C. No. 45 of 1982 the procedure under (a) above must follow for the purpose of arriving at the best judgment assessment, and that in E.I.C. No. 46 of 1982 the procedure mentioned in (b) above was applied, while in E.I.C. No. 47 of 1982 the procedures-under (a) and (b) were arrived it.
17. On the other hand, the learned counsel for the appellant has filed another explanatory note dated 17th August 1987 pointing out the serious discrepanicies in figures between those arrived at by the Inspector as found from the record and those arrived at by the Corporation as per the letters to the District Collector under S. 45B raising demands under the Revenue Recovery Act. He points out that in E.I.C. No. 45 of 1982 the Corporation assessed a sum of Rs. 85,394.40 ps. for the period from 30th March 1975 to 31st January 1978, while the Inspector has estimated a demand of Rs. 43,985.23 Ps. for the period from 30th March 1975 to 31st January 1978, on the basis that the total wage paid to the employees was Rs. 6,28,360. The learned counsel for the appellant points out that the guidelines issued by the Central Government should not have been made the sole basis for the assessment, and that in any event, he should have been given an opportunity during the best judgment assessment, for submitting his objections.
18. The Supreme Court of India had occasion to deal with notification of the Central Government issued under S. 99A of the Act, and it pointed out that in order to overcome the difficulty in determining the wages of employees, under S. 45-A, the Central Government had issued a notification describing certain guidelines. The Supreme Court observed that it was 'doubtful' whether S. 99A which deals with the power to remove difficulties could be availed of by the Central Government for the purpose of supplying a defect or difficulty in the 'adjudication of disputes' for which the Employees Insurance Court is given ample powers. Moreover, the Corporation has itself to collect the information initially and make a provisional demand on the basis of that information. The Supreme Court further observed that the Central Government 'cannot be expected' to overcome the difficulty in the assessment under S. 45-A, by issuing orders or directions under S. 99A of the Act. It was pointed out in that very case that the Division Bench of the Madhya Pradesh High Court while invalidating the notification under S. 99A of the Act was wrong in not giving a direction that the Employees Insurance Court should itself perform its duties. In E.S.I. Corpn. v. Masco Pvt. Ltd., (supra) a Division Bench of the Delhi High Court also observed that there could not be any determination of the contribution on the basis of any set formula laid down by the Central Government. The determination must be on the basis of the information available with the Corporation concerning each individual employer. There cannot be any universal formal applicable mechanically to each case. From the aforesaid observations of the Supreme Court, it is clear, that it is not permissible for the Corporation or even for the Court to adopt the basis mentioned in the notification issued by the Central Government as pointed out by the Supreme Court. The Corporation has to obtain information as provided in S. 45-A and if it has failed to do so, the Employees Insurance Court can and has to exercise its powers to have the information collected and it can direct the Corporation to make a provisional assessment and then a final assessment on the basis of the said information. I hold on point No. 2 that the assessment made, on the basis of the guidelines issued by the Central Government under S. 99A, are illegal. The point No. 2 is decided accordingly.
19. Point No. 3 :- The question in this point is as to whether during the course of enquiry under S. 45-A, it is not obligatory on the Corporation to give an opportunity to the employer to file his objections to such information, or material, sought to be relied on by the Corporation for making the best judgment assessment under S. 45-A.
20. In D.C. Mills Ltd., v. Commr. of I.T.W.B. (AIR) 1955 SC 65 the Supreme Court pointed out under S. 23(3) of the Income-tax Act that though the I.T.O. is not fettered by technical rules of evidence pleadings and is entitled to act on material which may not be accepted as evidence in a court of law, it was equally clear that in making the assessment he should not make a pure guess nor make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under S. 23(3). It is also pointed out that it was the duty of the I.T.O. to disclose to the assessee what information had been supplied to him and ask the assessee to rebut the material furnished by the officer to the assessee. The officer is not also entitled to decline to take any material that the assessee may want to produce in support of the case. The supreme Court approved the views expressed by the Full Bench of the Lahore High Court in Gurmikh Singh v. Commr. of Income-tax, Punjab (Lahore) (AIR) 1944 Lah. 353(2). In the Lahore case it was pointed out that the officer should, in all fairness, disclose to the assesse the material on which he is going to found the estimate and in case he proposes to use any information obtained by private enquiries, he must communicate to the assessee the substance of the said information so proposed to be utilised to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further be given ample opportunity to meet it. A similar question arose in Raghubarmandal Harihar Mandal v. State of Bihar : [1958]1SCR37 . The Supreme Court pointed out that when the returns and the books of account of the assessee are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material, and it must be something more than mere suspicion. 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 such materials as the assessing officer has before him, including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. Their Lordships referred to the decision of the Privy Council in Commr. of Income-tax v. Badridas Ramarai Shops, Akola (AIR) 1937 PC 133. Recently the Supreme Court considered the question of best judgment assessment in Commr. of Sales-Tax v. H. M. Esufali H. M. Abdul Ali : [1973]90ITR271(SC) . It was held that there was a distinction between the best judgment assessment and assessment based on the accounts submitted by an assessee. Where there are some mistakes in the accounts, and the department proceeds to reject the said entries and make an assessment, the said assessment is not a best judgment assessment but falls under the ordinary category of assessment. If, however, the assessing officer comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, and proceeds to assess on the basis of his best judgment, it becomes a best judgment assessment. In assessment on best judgment he may take such assistance as the assessee's accounts may offer; he may also rely on other information gathered by him as well as the surrounding circumstances of the case. In such assessments, so long as the estimate is not found to be arbitrary and as long as a nexus to the facts existing is discovered, the same cannot be questioned. In S. M. Hasan, S.T.O. v. New Gramophone House (AIR) 1977 SC 1978 the Supreme Court held that a Tax Officer who makes a best judgment assessment should make an intelligent and well-grounded estimate rather than launch upon pure surmises. In State of Kerala v. C. Velukutty : [1966]60ITR239(SC) the Supreme Court observed that though there is an element of guess work in best judgment assessment, it shall not be a wild one, but shall have reasonable nexus to the available material and the circumstances of each. In N. V. Subba Rao v. Commr. of I.T. (AIR) 1957 Andhra Pradesh 147, a Division Bench consisting of Subba Rao, C.J. Jaganmohan Reddy, J. (as he then was) pointed out that while making an assessment under S. 23(3) of the Income-tax Act, it was the duty of the assessing officer to furnish an opportunity to the assessee to rebut the material or the information received by him. In Padmavati Paddy & Rice Company v. Asst. Commr. of Commercial Tax (1971 Tax LR 249) (Andh Pra) a Division Bench consisting of Chinnappa Reddy and Madhava Reddy, JJ. (as they then were) held that while making a best judgment assessment, the Commercial Tax Officer cannot act arbitrarily. He must make genuine effort to estimate to the best of his judgment, what the actual turnover of the assessee might have been. The Section requires him to make an enquiry which necessarily postulates that he must take all the relevant factors into consideration in determining the turnover. Further, it was held that in such enquiry, the assessee must be given a reasonable opportunity to satisfy the officer in respect of the material gathered or sought to be used against the assessee. Likewise in G.R. & Co. v. I.T.O. Hyderabad (1974) Tax LR 364 (Andh Pra) Ramachandra Rao, J. (as he then was) held that the L.T.O. while making the best judgment assessment must furnish the information obtained by him to the assessee before making the assessment.
21. The argument for the Corporation that the appellant is a defaulter and that the opportunities given before initiating proceedings under S. 45-A are sufficient cannot be accepted. It is not open to say that the appellant did not have anything to say even if notices were given. Further along with the show cause notice, the material or information gathered must be furnished.
22. It is, therefore, clear that though the E.S.I. Corporation is not obliged to give a prior show cause notice before initiating proceeding under S. 45-A, still it was obligatory, after deciding to make an assessment under S. 45-A to observe principles of natural justice during the inquiry under S. 45-A. The Corporation has to furnish the material information and the method of assessment proposed and ask the employer to meet the same. In case the employer furnished any material in rebuttal, it has to consider the same and pass an order (giving reasons). Point No. 3 is decided accordingly.
23. Point No. 4 : The point is whether it is not obligatory on the Corporation to pass an assessment order under S. 45-A giving reasons and also the details and mode adopted for arriving at the final figures for which recovery proceedings are initiated under S. 45B.
24. The Act contemplates that the assessment is to be subject to judicial review under S. 75 before the E.S.I. Court. There is a further appeal provided to the High Court under S. 82 of the Act, provided the substantial question of laws are made out. It is clear that in view of these statutory limitations on the power exercisable under S. 45-A, it is absolutely necessary for the Corporation to pass a reasoned order giving the method of computation of the best judgment assessment made under S. 45-A. While dealing with. Point No. 3, I have mentioned that the assessment should not be arbitrary and should not be a more guess but should be rational and based on material. If that be the position, there cannot be any difficulty for giving reasons or furnishing mode of calculation or assessment. In State of Orissa v. Maharaja Shri B. P. Singh Deo : [1970]76ITR690(SC) the Supreme Court observed that while making best judgment assessment, the Assistant Collector was obliged to give reasons for enhancing the assessment. In that case, hie order did not disclose any reasons for the enhancement of the assessment. The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order. The power to levy assessment on the basis of best judgment is not an arbitrary power. It is an assessment on the basis of best judgment. In other words, the 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. In Ganga Prasad v. I.T. Commr. Bhopal (1981) Tax LR 1905 (MP), the Madhya Pradesh High Court has stated that where the basis of attachment is not disclosed in an order of best judgment assessment, the same is liable to be set aside. Again in Oceanic Industries (India) Pvt. Ltd. v. C.T.O. (1974) Tax LR 2385 the Calcutta High Court has held that the tax authority should give his reasons for arriving at a particular figure of income so that the assessee may be enabled to appreciate the mental process leading to the assessment and the figure assessed. Such order being subject to appeal must be a speaking order. Again the Mysore High Court has held in Nazir Khan v. State of Mysore, (1969) 23 STC 269 that in as much as the order in question did not state the basis on which the best judgment assessment was made, the same was liable to be struck down.
25. For the aforesaid reasons, I am of the view that the assessments in all these four cases are liable to be set aside on the ground that the orders are not speaking orders and that the mode of computation of the contribution arrived at on best judgment basis has not been disclosed in the final order. I have already stated that not even a draft order of assessment has been placed before me so far as E.I.C. Nos. 45 and 49 of 1982 are concerned. Point No. 4 is decided accordingly.
26. Point No. 5 : The question here is whether the show cause notice issued by the Corporation in Form C 18 along with the draft orders as annexure A, is legally valid.
27. The procedure that is being followed by the Corporation appears to be rather peculiar. What the Corporation is doing under S. 45-A is that it is issuing a notice in Form No. C18 stating that it is proposing to exercise powers under S. 45-A for a particular period. It is stated then as follows :-
'It is accordingly proposed to assess the contributions due for the contribution periods ended on .... under S. 45-A as per draft order enclosed. Please show cause within 15 days hereof as to why assessment should not be made as proposed above. In case, you have any objections you are hereby given an opportunity to explain the same or to file a statement giving full particulars of the contributions actually payable as per your records for the above-said period/periods within the time specified above .... Please take notice than unless contributions outstanding up-to-date is paid immediately by means of submission of contribution cards or the statement as mentioned in para 4 above giving the actual dues for the periods in question is submitted, this office will be constrained to determine the amount of contributions payable by a final order under S. 45-A of the Employees State Insurance Act, and further cause the same to be recovered through the Collector along with interest as an arrear of land revenue under S. 45B of the Act without further notice.'
Along with the abovesaid notice in Form C-18, an order is appended, what is called 'a Draft Order' mentioned as Annexure-A, which reads as follows :
'Whereas the Principal Employer of the Factory .... failed to submit, furnish or maintain returns, particulars, registers or records of the periods from .... in accordance with S. 44 of the Employees' State Insurance Act .....
Now, therefore, in exercise of the powers vested in me under sub-section (1) of S. 45-A of the Employees' State Insurance Act, I hereby determine on the basis of information available the amount of contributions payable in respect of the employees of the above factory as follows :-
Period Amount of Assumed Rate Contribution Monthly Wages
28. It is curious that while giving a show cause notice asking for an explanation to be filed by the employer and while saying that a final order will be passed at a later stage, the Corporation is appending a draft order as 'Annexure-A' which states that the Corporation is exercising powers under S. 45-A and determining the amount. Even assuming that this order is to be treated as a preliminary or provisional order, still it is necessary that subsequently a final order is passed. The learned counsel for the Corporation has stated that once the show cause notice in Form C-18 and the draft order are issued and no explanation is given, no further final order need be passed and straightway the Collector can be asked to recover the amounts by way of arrears of land revenue.
29. It is, in this context, significant to notice that there is no provision in S. 45-A enabling the Corporation to treat any provisional order if not objected to as a final order. Another important fact to be noted is that the show cause notice and the Annexure draft order are printed forms and there is no provision made for giving either the details as to the information obtained by the Corporation or the details of the actual computation. It is indeed difficult upon such a printed pro forma for any employer to submit a clear explanation. It is equally difficult for the E.S.I. Court to go into the question as to whether such a draft order (treated as final order) could furnish any evidence of the mode of assessment or the reasons. Further, if a final determination of the assessment is made as stated in the Annexure-A without waiting for a reply from the employer, it will amount to a pre-determination of the questions in regard to which show cause is called for.
30. In the above context, I am of the view that the entire procedure that is being followed by the Corporation under S. 45-A requires to be overhauled and streamlined by substituting new standard forms for those in vogue, so that the procedure will be in conformity with the law as laid down by the Supreme Court and by this Court in the various judgments mentioned above, I hope and trust that the concerned higher authorities will go into this matter and see that proper legal procedures consistent with the principles of natural justice and enabling judicial review are incorporated in the various forms and administrative procedures followed by the Corporation.
31. For all the aforesaid reasons, the assessments made in the case are all set arise and consequently the demand notices are also set aside. The Corporation is directed to issue show cause notices to the appellants furnishing in detail the information upon which it proposes to make the assessments and calling for the explanation of the appellants. It shall be open to the appellants to produce the said records before the Corporation. In case such material is produced by the appellant, the same shall be considered by the Corporation. If no materials is produced, it shall be open to the Corporation to make a best judgment assessment, but it shall pass an assessment order containing reasons and showing the mode of computation so that the E.S.I. Court while exercising powers under S. 75 of the Act can go into the correctness or otherwise of the said assessments. The C.M.As. are accordingly allowed, but in the circumstances, without costs.