SHAW WALLACE AND COMPANY LTD Vs. DEPUTY COMMISSIONER OF COMMERCIAL TAXES ASSESSMENTS 2 CITY DIVISION III

JUDGEMENT

(1.) IN these petitions, the petitioner has prayed for quashing three notices dated November 7, 1987, copies of which have been produced as annexures A1 to A3 and notice dated December 30, 1992, a copy of which has been produced as annexure A4, and three notices dated August 19, 1996, copies of which have been produced as annexures F1 to F3 and notice dated August 16, 1996, a copy of which has been produced as annexure F4.

(2.) BRIEF facts that may be relevant for disposal of these petitions may be set out as hereunder : the petitioner, in these petitions, is a public limited company engaged, inter alia, in the manufacture and sale of Indian-made foreign liquor (hereinafter referred to as "the IMFL"); chemical fertilisers and fertiliser mixtures and consumer products, etc. It is the case of the petitioner that it has its own distilleries in some of the States of Union of India; and for the assessment years 1981-82 to 1983-84, it did not have a distillery of its own in the State of karnataka and, therefore, it had entered into an agreement dated October 13, 1980 with the indian Brewery and Distillery (Private) Ltd. , (hereinafter referred to as "the IBD"), which had a distillery at Hallikhed, Bidar District, for the purpose of sale of IMFL to the petitioner under the petitioner's brand name. It is the further case of the petitioner that during the calendar years 1980 to 1982 and 1984, is respect of which the dispute has arisen in these portions, the IMFL was exigible to sales tax at the point of first sale in the State of Karnataka as provided under section 5 (3) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as "the Act") and since the ibd manufactured and sold IMFL to the petitioner, the IBD was liable to sales tax and, therefore, the petitioner paid the sales tax for the years in question to IBD, that is, for the assessment years 1980, 1981, 1982 and 1984; (which are the subject-matters of dispute in these petitions) and the assessment orders were passed by the respondent on December 16, 1983; december 31, 1983; December 23, 1983 and January 18, 1985 for the years 1980, 1981, 1982 and 1984 respectively; and in the said assessment orders, the subsequent sale of IMFL made by the petitioner in the State of Karnataka were exempted from sales tax. It is the case of the petitioner that since the petitioner was aggrieved by the said assessment orders in regard to determination of taxable turnover in respect of chemical fertiliser mixtures and in regard to liquor pertaining to the question whether the bottles were liable to be taxed at the same rate at which liquor was liable, the petitioner preferred appeals under the Act to the Deputy commissioner (Appeals) and later to the Tribunal and before this Court; and this Court, by its order dated November 4, 1992 [shaw Wallace and Co. Ltd. v. State of Karnataka [1993 ]91 STC45 (Kar )], disposed of the revision petitions and remitted the matter for fresh consideration to the assessing authority. According to the petitioner, the point that was remitted for consideration was an to whether the bottles were to be taxed at the rate different from their contents being liquor or not. It is also the case of the petitioner that on an inspection of the petitioner's premises by the Intelligence Wing of the Commercial Taxes department on May 3, 1986, a number of documents were seized and taken away by them and on the basis of the documents seized, the Intelligence authorities appear to have formed an opinion that the petitioner's sales of IMFL, which were claimed to be second sales by the petitioner in its return filed for the years referred to above and also for the assessment year 1983 and accepted by the respondent in the assessment orders, were incorrect and that the petitioner's sales were required to be construed as first sales in the State of Karnataka and as such, liable for payment of tax. Even in respect of the inter-State sales, the same view appears to have been formed. Subsequently, by means of three notices, annexures A1 to A3, dated November 7, 1987 for the assessment years 1980 to 1982 issued under section 12a of the Act, the respondent proposed to withdraw the exemption earlier allowed in the course of original assessment in respect of second sales of IMFL and to treat the petitioner as the first seller of IMFL and as such, making it liable to pay sales tax and called upon the petitioner to file its objections. For the assessment year 1984, the respondent issued a similar notice, annexure A4, dated December 31, 1992 and called upon the petitioner to file its objections, if any. In notice, annexure A4, the petitioner was also called upon to show cause why the petitioner should not be made liable to pay tax under the provisions of the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act" ). It appears, by means of letters dated November 18, 1987, the petitioner filed its objections pursuant to the notices, annexures A1 to A3, i. e. , for the assessment years 1980 to 1982, stating that it was handicapped to file its objections inasmuch as most of the related documents were in the possession of the respondent following the inspection of the petitioner's premises on May 3, 1986 and requested the respondent either to return those documents or permit the petitioner to take the xerox copies thereof and requested for a month's time to fuel objections. So far as the notice, annexure A4, is concerned, the petitioner, by its letter dated January 5, 1993 stated that since the claim of the petitioner for exemption was upheld by the Tribunal pursuant to the notice issued under section 12a of the Act for the year 1983 dealing with the identical issues, the further proceedings pursuant to the notice, annexure A4, may be dropped and in the event of the respondent disagreeing with the Tribunal's view, the petitioner could be given three weeks' time to file its objections, etc. It is also the case of the petitioner that pursuant to the request made by the petitioner for grant of time in respect of the assessment years 1980 to 1982, the respondent issued an endorsement dated November 21, 1987 granting time up to December 30, 1987 and informed the petitioner that in the event of the petitioner failing to file its objections, the respondent would conclude the reasessments as proposed; and in so far as the assessment year 1984 is concerned, the respondent, by means of its endorsement dated February 20, 1993, granted time up to April 3, 1993. When the proceedings for the years 1980 to 1982 and 1984 were pending, the respondent had taken up the reassessment proceedings for the year 1983 both under the KST Act and the CST act and passed orders on August 19, 1989 holding that the petitioner was the first seller of IMFL in the State of Karnataka and as such liable to pay tax. The appellate authority, by its order dated january 30, 1990, has substantially confirmed the order of reassessment. However, in the second appeal filed by the petitioner being aggrieved by the order of reassessment and the order made in the first appeal, the Tribunal, by means of its order dated June 25, 1991, allowed the appeals of the petitioner taking the view that the petitioner was only a second seller of IMFL in the State of karnataka and as such the sales made by the petitioner were exempt from payment of tax. Aggrieved by the said orders, the State took up the matter in S. T. R. P. Nos. 112 and 113 of 1994 before this Court [see [1998 ]110 STC506 (Kar ) supra] and the division Bench of this Court, by its order dated March 25, 1996, set aside the order passed by the Tribunal and held that the sales of IMFL made by the petitioner is the first sale and as such liable for tax both under the Act and under the CST Act. However, it is also the case of the petitioner that aggrieved by the decision of this Court made in the said petitions, it has preferred special leave petition to the Supreme Court and the same is pending consideration. The undisputed fact is that the Division Bench of this Court has held that the sale of IMFL made by the petitioner is the first sale and as such, the petitioner was liable for payment of tax under the act and also under the CST Act. The said view taken by this Court makes it clear that the exemption claimed by the petitioner in the returns submitted by it from payment of tax on the basis that the sales made by the petitioner were only second sales and such not liable for payment of tax, was erroneous in law and not justified.

(3.) IN these petitions, Sri R. N. Narasimha Murthy, learned Senior Counsel appearing along with sri K. P. Kumar for M/s. King and Partridge, challenged the validity of the notices impugned and prayed for quashing the proceedings on three grounds. Firstly, he submitted that section 12a of the Act, as it stood prior to the amendment made to the said section by means of Act No. 10 of 1983 (i. e. , with effect from April 1, 1983), did not empower the respondent to initiate proceedings under section 12a of the Act in regard to the proceedings in respect of which returns were filed and accepted by the assessing authority as the said assessments were not escaped assessments within the meaning of section 12a of the Act. Elaborating this contention, he made two ancillary submissions. Firstly, he pointed out that it is only by means of an amendment made to section 12a of the Act, the assessing authority is conferred with the power to proceed to reassess any assessment already made, if any deductions or exemptions have been wrongly allowed in the said returns already finalised and such power was not available to the assessing authority prior to the amendment made to section 12a of the Act by means of Act No. 10 of 1983. Secondly, he pointed out that prior to the amendment made to section 12a of the act, the assessing authority could have initiated proceedings for reassessment of the assessments already made in respect of the escaped assessments as provided under section 12a of the Act, at any time within a period of five years from the expiry of the year to which the tax relates and, therefore, in so far as the assessment years 1980, 1981 and 1982 are concerned, the proceedings initiated by means of notices, annexures A1 to A3 dated November 7, 1987, are totally without jurisdiction as the said notices were issued both beyond the period of limitation prescribed and also on the ground that is not permitted by section 12a of the Act, as it stood prior to the amendment made by means of Act No. 10 of 1983. He further submitted that amendment made to section 12a of the Act by means of Act No. 10 of 1983 is prospective in nature and, therefore, in respect of the rights that had accrued to the petitioner on account of the bar of limitation, the respondent has no jurisdiction to proceed under amended section 12a of the Act. Sri Narasimha murthy relied upon the decisions of this Court in the case of G. K. Chikanarasimhiah v. Assistant Commissioner of Commercial Taxes reported in [1971] 28 STC 98 and Nagaraja overseas Traders v. State of Mysore reported in [1974] 33 STC 315, in support of his submission that even if on a wrong view of the law, the assessing authority had exempted the turnover, the same cannot be treated as escaped turnover under section 12a of the Act as it stood prior to amendment by means of Act No. 10 of 1983. He also relied upon the decisions of the supreme Court in the case of Janardhan Reddy v. State AIR1951 SC 124 , [1950 ]1 SCR940 , Keshavan Madhava Menon v. State of Bombay AIR1951 SC 128 , (1951 )53 BOMLR458 , 1951 Crilj680 , [1951 ]2 SCR228 , State of Tamil nadu v. Sri Thirumagal Mills Ltd. AIR1972 SC 1148 , (1972 )1 scc176 , [1972 ]2 SCR395 , [1972 ]29 STC290 (SC ), 1972 (4 )UJ247 (SC ) and Mohd. Rashid ahmad v. State of U. P. AIR1979 SC 592 , (1979 )I LLJ146 SC , (1979)1 SCC596 , [1979 ]2 SCR826 in support of his submission that unless the legislation is made retrospective, prima facie, every legislation is prospective in nature and, therefore, the amendment made to section 12a of the Act by means of Act No. 10 of 1983 being prospective in nature, the claim of the Revenue, which was barred by limitation as against the petitioner, is not enforceable in law. Further, relying upon the decision of the Supreme Court in the case of commissioner of Income-tax, Punjab v. Kulu Valley Transport Co. (P.) Ltd. AIR1970 SC 1734 , [1970 ]77 ITR518 (SC ), (1970 )2 SCC192 , [1971 ]1 SCR452 , Sri Narasimha Murthy submitted that when two interpretations are possible, one favourable to the tax-payer must be adopted.