Rajes Kumar, J.
1. Present revision Under Section 11 of the U.P. Sales Tax Act, 1948 (hereinafter referred to as 'the Act') is directed against the order of Tribunal dated December 21, 1991 for the assessment year 1980-81.
2. Applicant was carrying on the business of palm oil and edible oil. At the time of assessment proceedings Under Section 7 read with Rule 41(7), applicant had disclosed the sales of U.P. purchased oil for Rs. 6,67,500.78 and claimed exemption on such sales on the ground that in respect of such goods, applicant was neither importer nor manufacturer. Applicant had made purchases for Rs. 6,36,270 and admittedly, a list of purchases was filed, in which name of the parties and address were mentioned. Assessing authority had passed the assessment order under Rule 41(7) on March 27, 1984 and allowed the exemption on the turnover of Rs. 6,67,500.78 on the ground that it was related to U.P. purchased goods. It appears that after passing assessment order, the assessing authority had started making the enquiry from the respective assessing authority of the seller about the genuineness of the seller party and about the sale made by them.
One of the letter No. 895 dated January 18, 1984 appeared to have been written by the assessing authority to the Sales Tax Officer (Information), Kanpur, for making enquiry about sixteen dealers relating to Kanpur from whom the applicant had disclosed to have made the purchases. Sales Tax Officer (Information), Kanpur vide letter dated February 23, 1984 informed the assessing officer of the applicant that in the absence of complete address, any action from its office was not possible. He requested to send the complete address for necessary action. It is not clear whether the assessing authority had sent any reply to the Sales Tax Officer (Information), Kanpur, against letter dated February 13, 1984. However, as per the order sheet, which is filed a annexure No. CA-1 to the counter-affidavit, filed by the respondents, a notice Under Section 21 of the Act was issued on March 27, 1984 and the applicant was asked to appear on March 31, 1984. The said notice was served on the applicant, for which there is no dispute. Perusal of the order sheet, annexure No. CA-1, shows that in the right hand side there is mention 'Srimanji Vyapari Ki ek suchana prapat hui Hai Jiska abhi Milan patravali se nahin ho pa raha hai ! Ataha uchit adesh hetu prastut hai'. In the left side there is noting that 'vayapari ki patravali se kuch suchana Sales Tax Officer suchana kha, Kanpur ko Bheji gai hai January 18, 1984 ko, chuki satyapan hokar abhi nahin aaya hai ! Ataha Dhara 21 ka notice jari kare !'
3. Before the assessing authority, applicant challenged the validity of the proceedings Under Section 21 on the ground that at the time of issue of the notice Under Section 21, on March 27, 1984 there was no material on the basis of which any information could be formed about the escaped assessment. Assessing authority, however, has not accepted the plea of the applicant. It appears that the assessing authority has made further enquiry through the respondents-officers about the seller and it was gathered that in the absence of complete address these selling parties were not traceable. Therefore, it was inferred that the parties were forged. It also appears that the assessing authority required the complete address of the sellers and when further enquiry was made it was found that such parties were not traceable on such address and therefore, it was inferred that the selling parties were forged and accordingly, the tax had been assessed on the turnover, which was, according to the applicant were relates to the goods purchased within the State of U.P. and according to the assessing authority was made from the forged parties. Applicant filed the appeal, which was allowed and case was remanded back to the assessing authority. In pursuance of the remand order, the assessing authority further passed the order Under Section 21 on May 22, 1987 and levied the tax on the amount of Rs. 6,67,500.78 on which the exemption was granted in the original assessment order and which according to the assessing authority was purchased from forged persons. Against the assessment order, applicant filed appeal before first appellate authority, which was allowed in part. Applicant as well as Commissioner of Sales Tax filed second appeals before Tribunal. Tribunal vide order dated December 21, 1991 allowed the appeal and confirmed the levy of tax on the turnover for Rs. 6,70,000. Against the said order, present revision has been filed.
4. I have heard Sri. R.R. Agrawal, learned Counsel for the applicant and Sri B.K. Pandey, learned Standing Counsel.
5. Learned Counsel for the applicant stated that on the date of issue of notice Under Section 21 of the Act, i.e., December 3, 1984 there was no material on the basis of which belief could be formed about the escaped assessment and hence, proceeding Under Section 21 of the Act was invalid. Learned Standing Counsel has filed counter- affidavit and in the counter-affidavit, it has been stated that in response to the letter by the officer of the assessing authority, the information was received from Trade Tax Officer, Kanpur vide letter dated the names and address as desired by the aforesaid letter, the said localities are not situated in Kanpur. Hence, it was further requested that complete name and office alongwith house number be made available so that that necessary proceedings can be taken. It has been further stated that vide letter dated September 18, 1984 assessing authority required the assessee to supply correct name and address of the Kanpur dealers. It has been further stated that vide letter dated March 25, 1985 Trade Tax Officer, Kanpur, informed that the matter was enquired and after enquiry it was found that the name and address of the dealer are forged and these localities do not situate in Kanpur. A report dated March 24, 1985 has also been annexed. On the basis of the aforesaid material, it has been argued that the initiation of proceeding Under Section 21 of the Act was justified. Relevant part of Section 21 of the Act is as follows:
Section 21. Assessment of tax on the turnover not assessed during the year.--(1) If the assessing authority has reason to believe that the whole or any part of the turnover of the dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under-assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions have been wrongly allowed in respect thereof, the assessing authority may, after issuing notice to the dealer and making such inquiry as it may consider necessary, assess or reassess the dealer or tax according to law:
6. The basic question for consideration is whether on December 3, 1984 when the notice Under Section 21 of the Act was issued there was any material on the basis of which belief could be formed about the escaped assessment and whether from the material which was in existence as alleged, any opinion about the escaped assessment could be formed. Admittedly, letter dated March 25, 1985 written by Sales Tax Officer, Kanpur, in which it was found that the name and address are forged and these localities do not exist in Kanpur is after the issue of the notice Under Section 21 of the Act and was not in existence at the time of issue of the notice and, therefore, this letter could not be basis for the issue of notice. At the time of issue of notice only letter dated July 13, 1984 issued by Trade Tax Officer, Kanpur was in existence. By this letter, Sales Tax Officer, Kanpur has stated as follows:
Uprokta vishaya par nivedan hai ki ukt suchi me ankit 8 vyapariyo me se 6 vyapari shiv nagar avam brahaman pur ke bataya gaye hai ! Parantu Kanpur me is nam ke koi mohalle meri jankari ke anusar nahi hai ! Atah aap se nivedan hai ki suchi me ankit vyapariyo ke purn pate makan number sahit is kaksh ko shighra bhijvane ki krapa kare ! Taki sambandhit suchana par aavashyak karyavahi ki ja sake ! Pate ke abhav me is kaksh dwara koi karyavahi sambhav nahi hai !
7. In pursuance of this letter, assessing authority vide letter dated September 18, 1984 asked the applicant to supply the correct names and addresses of the Kanpur dealers, which appear to have been supplied by the applicant and the letter appears to have been written to Sales Tax Officer for further enquiry. Without waiting for the information from Sales Tax Officer, Kanpur, Sales Tax Officer issued notice on December 3, 1984. Perusal of the letter dated July 13, 1984 shows that for the want of proper names and addresses no enquiry was made. The information of the Sales Tax Officer that there was no locality in the name of Shiv Nagar and Brahaman Pur as far his knowledge was his tentative view, which was based on no enquiry. Therefore, up to stage of issue of notice Under Section 21 of the Act there was no such material on the basis of which any definite opinion could be formed that the parties from whom, applicant had made purchases were not in existence and fake. It is settled principle of law that action Under Section 21 of the Act cannot be taken on the whims of the assessing authority by resorting to conjectures of imagination. It is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched would amount the formation of belief relating to escaped assessment. Assessing authority has to have before him the facts, which are germane to the issue and on the basis of which a rational man can have reason to believe that the turnover has escaped assessment or has been under-assessed. Letter dated July 13, 1984 was vague in which no definite information was conveyed. Sales Tax Officer, Kanpur, had asked for the complete address with house number for further enquiry. Assessing authority in pursuance of the said letter had also asked the applicant to provide the complete address of the Kanpur dealers. Therefore, up to that stage assessing authority could not form any opinion on the basis of letter dated July 13, 1984 issued by Sales Tax Officer, Kanpur, about the escaped assessment. In the circumstances, it is held that on the date of the issue of notice there was no material on the basis of which belief could be formed about the escaped assessment and hence, initiation of proceeding Under Section 21 of the Act was without jurisdiction.
8. In the case of Lit Light Company v. Commissioner of Sales Tax reported in . It was held as follows:
Section 21 confers jurisdiction on the Sales Tax Officer to issue a notice Under Section 21 only in case he has reason to believe that the turnover has escaped assessment. This means that the belief must be of a reasonable and a prudent man. It must be based on some relevant material, and not based on suspicion, gossip or rumour. See Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax, Calcutta : [1971]82ITR147(SC) and Chhugamal Rajpal v. S.P. Chaliha : [1971]79ITR603(SC) . These cases arose under the Income-tax Act, but the material provisions of Section 21 being in pan materia they have been applied to proceedings arising under the Act in the case of Mohammad Yakub & Sons v. Sales Tax Officer, Fatehgarh [1972] 30 STC 406 (All.) : 1972 UPTC 502, Judging from these principles the letter received by the Sales Tax Officer was one which would create a mere suspicion on which he may have started an inquiry. It could not form the basis of a reasonable belief required by Section 21 to initiate the proceedings. It is worthwhile noticing that similar information existed at the time of the original assessment but no action was taken thereon. The character of the information being the same, it could not on the second occasion instil a reasonable belief in the Sales Tax Officer, without further inquiry, that turnover has escaped assessment.
9. In the case of Commissioner of Sales Tax v. Tata Engineering & Locomotive Co. reported in 1980 UPTC 588, a notice Under Section 21 of the Act was issued on March 25, 1976. Learned Standing Counsel relied upon letter dated March 27, 1976 which referred to the telephonic talks and mentions 'Kuch Din Purva' which was stated to be material on the basis of which, assessment was reopened. This Court held 'The question however, is whether material of this letter was available to the Sales Tax Officer, who issued notice Under Section 21 of the Act. There is nothing on the record or in the order sheet from which it could be gathered that the Sales Tax Officer before issuing notice had information and after applying mind came to the conclusion that the turnover of the assessee has escaped assessment'. The court further held that it is settled that proceedings Under Section 21 of the Act could be reopened on material on record. In the absence of any material or anything to show that the information was conveyed between 19th March and 25th March and the Sales Tax Officer issued notice on it reopening could not be justified.
10. In the case of Vipin Kumar Vinay Kumar v. Commissioner of Sales Tax reported in [1991] 83 STC 96 (AIL) : 1990 UPTC 467, this Court held that there is settled law that jurisdiction Under Section 21 of the Act cannot be exercised by any authority merely on the basis of surmises, conjectures or on the basis of satisfaction reached by some other authority to invoke Section 21 of the Act. Assessing authority himself should have had the reason to believe and that could be possible only when he himself would have seen the record leading to the conclusion that the turnover of the assessee had escaped assessment.
11. In the case of Royal Trading Co., Saharanpur v. Trade Tax Officer, Saharanpur, reported in 2000 UPTC 642, the division Bench of this Court has held as follows:
Therefore, action Under Section 21 of the Act cannot be taken on the whims of the assessing officer by resorting to conjecture of imagination. He has to have before him the facts which are germane to the issue and on the basis of which a rational man can have reason to believe that the whole or any part of the turnover has escaped assessment or has been under-assessed. In Income-tax Officer v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) , the honourable Supreme Court while dealing with somewhat similar provision Under Section 147 of the Income-tax Act, 1961 held that the existence of reason to believe on the part of the I.T.O. was a justifiable issue and it was for the court to be satisfied whether in fact the I.T.O. had reason to believe that income had escaped assessment. In Joti Parshad v. State of Haryana : 1993CriLJ413 the honourable Supreme Court while dealing with the meaning of expression 'reason to believe' in Section 26 of the Indian Penal Code held that the reason to believe is not the same as suspicion and a person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. In Income-tax Officer v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the honourable Supreme Court held that the reasons for the formation of the belief contemplated by Section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief. The honourable Supreme Court further observed that though it is true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening the assessment yet at the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. This view was reiterated by the honourable Supreme Court while dealing with the provisions of Section 21 of the U.P. Trade Tax Act in Commissioner of Sales Tax v. Bhagwan Industries (P) Ltd. [1973] 31 STC 293 in which it was held that reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment. If the grounds are of an extraneous character, the same would not warrant initiation of proceedings under this section. If however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under this section.
12. It is further stated that the levy of tax, on the turnover of oil, which was alleged to have been purchased within the State of U.P. and the exemption was granted in the original assessment proceeding on the ground that on enquiry it was found that the alleged seller parties were not traceable and appear to be fake is not justified. Oil is liable to tax at the point of manufacture or import. Therefore, tax can only be levied when it is found that the applicant was importer in respect of the said goods. Admittedly, applicant was not manufacturer. In the proceeding Under Section 21 of the Act burden lies upon the Revenue to prove that in respect of the alleged goods, applicant was importer. No material has been placed on record to establish that in respect of the alleged goods, applicant was importer. Therefore, merely because the parties from whom the applicant, alleged to have made the purchases, on enquiry were found not traceable or fake tax could not be levied unless there is material to establish that the applicant was importer in respect of such goods. Assessment order shows that assessing authority failed to establish that applicant was importer in respect of such goods and, therefore, levy of tax on such goods is illegal on this ground also.
13. In the result, revision is allowed. The order of Tribunal dated December 21, 1991 is set aside and it is held that initiation of proceeding Under Section 21 of the Act for the assessment year 1980-81 was illegal and without jurisdiction.