MADRAS RUBBER FACTORY LTD. Vs. STATE OF KERALA

JUDGEMENT

(1.) THESE tax revision cases have been referred to a Full Bench to consider the correctness of the Division Bench ruling of this Court in Kassim Kannu v. State of Kerala [1970] 26 S.T.C. 530 particularly, in view of the later Division Bench ruling in C.C. Transport Company v. State of Kerala [1977] 40 S.T.C. 444. The question involved is regarding the scope of the revisional jurisdiction under the Sales Tax Act and, whether, in exercising the same, it is open to the revisional authority to trench upon the power and jurisdiction of getting at the escaped turnover and bringing the same to tax 'or' assessment.

(2.) T .R.C. No. 12 of 1978. - -M/s. Madras Rubber Factory Limited, Kottayam, is the petitioner in this tax revision. The factory has its headquarters in Madras and its purchase depots in Kottayam and Calicut. The assessment year concerned is 1970 -71. Rubber is taxable at the last purchase point. Rubber is locally purchased from Kerala State and sold in Madras. The goods are despatched to the Madras factory along with N forms under Rule 43(B) of the Rubber Rules. These forms have been recognised by the proviso to Rule 35, Clause (13), Sub -clause (b), of the Sales Tax Rules as sufficient to operate as a delivery note for the purposes of Sub -section (2) of Section 29 of the Act. The Sales Tax Officer did not tax these transactions, as he took the view that they constituted transactions of inter -State sale not liable to be taxed under the local sales tax legislation, having regard to Section 5A of the Act, which reads as follows: 5A. Levy of purchase tax. - -(1) Every dealer who in the course of his business purchases from a registered dealer or from any other person any goods, the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under Section 5, and either - - (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of inter -State trade or commerce, shall, whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purchase for that year at the rates mentioned in Section 5. (2) Notwithstanding anything contained in Sub -section (1), a dealer (other than a casual trader or agent of a non -resident dealer) purchasing goods, the sale of which is liable to tax under Section 5, shall not be liable to pay tax under Sub -section (1) if his total turnover for a year is less than twenty thousand rupees: Provided that where the total turnover of such dealer for the year in respect of the goods mentioned in Clause (i) of Sub -section (1) of Section 5 is not less than two thousand five hundred rupees, he shall be liable to pay tax on the taxable turnover in respect of those goods. (3) Notwithstanding anything contained in the foregoing provisions of this section, a dealer referred to in Sub -section (1), who purchases goods, the sale of which is liable to tax under Clause (ii) of Sub -section (1) of Section 5, and whose total turnover for a year is not less than twenty thousand rupees but not more than twenty -five thousand rupees may, at his option, instead of paying the tax in accordance with the provisions of Sub -section (1), pay tax at the rate mentioned in Clause (i) of Sub -section (1) of Section 7 in accordance with the provisions of that section. The Deputy Commissioner issued notice dated 14th July, 1976, to show cause why the revisional powers under Section 35 of the Saks Tax Act should not be exercised to set aside the order of the Sales Tax Officer. This was objected to by the assessee by his objections dated 22nd July, 1976. The Deputy Commissioner, by his order dated 26th July, 1976, set aside the order of the Sales Tax Officer and remanded the case to the assessing authority for fresh disposal. On appeal, the Sales Tax Appellate Tribunal confirmed the order of the Deputy Commissioner. In remanding the case, the Sales Tax Appellate Tribunal, followed a Division Bench ruling of this Court in C.C. Transport Company v. State of Kerala [1977) 40 S.T.C. 444. That decision, in effect, held that the power of the assessing authority under Section 19 to assess an escaped turnover is distinct and different from the revisional power of the Deputy Commissioner under Section 35 of the Act. The Tribunal, however, held that, as the Deputy Commissioner had wrongly refused the assessee's prayer for further time before proceeding to assess the escaped income, it was necessary to direct the Deputy Commissioner to dispose of the case after affording the assessee a reasonable opportunity to produce all the records and of being heard on his objection. 2. Counsel for the assessee contended that the revisional power under Section 35 of the Act cannot be exercised for the purposes of getting at escaped income for which the remedy is provided by Section 19 of the Act; and that, in exercising the power under Section 35, it would not be permissible to trench upon the power provided under Section 19 of the Act. It was contended that this position has been well -recognised and well -settled by judicial decisions. Before examining these decisions, we shall extract the relevant sections of the Sales Tax Act, 1963: 19. Assessment of escaped turnover. - -(1) Where for any reason the whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year or has been under -assessed or has been assessed at a rate lower than the rate at which it is assessable, or any deduction has been wrongly made therefrom, the assessing authority may, at any time within four years from the expiry of the year to which the tax relates, proceed to determine to the best of its judgment the turnover which has escaped assessment to tax or has been underassessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction that has been wrongly made and assess the tax payable on such turnover after issuing a notice on the dealer and after making such enquiry as it may consider necessary: Provided that before making an assessment under this sub -section the dealer shall be given a reasonable opportunity of being heard. (2) In making an assessment under Sub -section (1), the assessing authority may, if it is satisfied that the escape from assessment is due to wilful nondisclosure of assessable turnover by the dealer, direct the dealer to pay, in addition to the tax assessed under Sub -section (1), a penalty as provided in Section 45A: Provided that no such penalty shall be imposed unless the dealer affected has had a reasonable opportunity of showing cause against such imposition. Explanation. - -Notwithstanding anything contained in the Indian Evidence Act, 1872, the burden of proving that the escape from assessment was not due to wilful non -disclosure of assessable turnover by the dealer shall be on the dealer. (3) The powers under Sub -section (1) may be exercised by the assessing authority even though the original order of assessment, if any, passed in the matter, has been the subject -matter of an appeal or revision. (4) In computing the period of limitation for the purposes of this section, the time during which the proceedings for assessment remained stayed under the order of a civil court or other competent authority shall be excluded. 35. Powers of revision of the Deputy Commissioner suo motu. - -(1) The Deputy Commissioner may, of his own motion, call for and examine any order passed or proceedings recorded under this Act by the Inspecting Assistant Commissioner or any officer or authority of rank below that of an Inspecting Assistant Commissioner and may make such enquiry or cause such enquiry to be made and, subject to the provisions of this Act, may pass such order thereon as he thinks fit. (2) The Deputy Commissioner shall not pass any order under Sub -section (1) if - - (a) the time for appeal against the order has not expired; (b) the order has been made the subject of an appeal to the Appellate Assistant Commissioner or the Appellate Tribunal or of a revision in the High Court; or (c) more than four years have expired after the passing of the order referred to therein. (3) No order under this section adversely affecting a person shall be passed unless that person has had a reasonable opportunity of being heard. It would be useful to compare these provisions with the corresponding provisions of the General Sales Tax Act, 1125, with respect to which some of the decisions were rendered. Revisional jurisdiction was provided for by Section 15(1), which reads as follows: 15. (1) The Deputy Commissioner may - - (i) suo motu, or (ii) on application, call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by any officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit: Provided that the Deputy Commissioner shall not revise any order or proceeding under this sub -section if - - (a) where an appeal against the order or proceeding lies to the Appellate Tribunal, the time within which such appeal may be made has not expired; or (b) the order or proceeding has been made the subject of an appeal to the Appellate Tribunal. Clauses (3), (4) and (5) of Section 15 are as follows: (3) In relation to an order of assessment passed under this Act, the power of the Deputy Commissioner under Clause (i) of Sub -section (1) and that of the Board of Revenue under Clause (i) of Sub -section (2) shall be exercisable only within a period of four years from the date on which the order was communicated to the assessee. (4) Every application under Sub -section (1)(ii) or (2)(ii) shall be preferred within sixty days from the date on which the order or proceeding to which the application relates was communicated to the applicant: Provided that the authority concerned may admit an application preferred after the period of sixty days aforesaid, if the authority is satisfied that the applicant had sufficient cause for not. preferring the application within that period. (5) No order shall be passed under Sub -section (1) or (2) enhancing any assessment, unless an opportunity has been given to the assessee to show cause against the proposed enhancement. Rule 33 provided for assessing escaped turnover. The relevant parts of the rule are as follows: 33. (1) If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to the tax in any year or if the licence fee has escaped levy in any year, the assessing authority or licensing authority, as the case may be, subject to the provisions of Sub -rule (2) may at any time within three years next succeeding that to which the tax or licence fee relates determine to the best of his judgment the turnover which has escaped assessment and assess the tax payable or levy the licence fee in such turnover after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.... (4) If for any reason any tax or licence fee has been assessed at too low a rate in any year, the assessing authority or the licensing authority, as the case may be, may, at any time within three years next succeeding that to which the tax or licence fee relates, revise the assessment or the licence fee after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary. (5) The powers conferred by Sub -rules (1) and (4) on the assessing authority or licensing authority may also be exercised by the appellate authority referred to in Section 14 or, as the case may be, by the revising authority referred to in Section 15, at anytime within a period of three years next succeeding that to which the tax or, as the case may be, the licence fee relates, provided that such authority shall give the dealer concerned a reasonable opportunity of being heard before passing orders under this sub -rule. The rules quoted above are the result of certain amendments introduced in 1956. It was as a result of the amendment that Sub -clause (5) of Rule 33 was added giving the power of assessing escaped income to the revisional authority. The scheme of the 1963 Act is different; under that Act, the power of assessing escaped income is conferred by Section 19 on the assessing authority; and the revisional power under Section 35 is to be exercised by the Deputy Commissioner, namely, a higher authority than the assessing authority.

(3.) AS early as in State of Orissa v. Debaki Debi A.I.R. 1964 the Supreme Court had occasion to define the scope of the revisional power. The statute there concerned was the Orissa Sales Tax Act, 1947. Section 12 of the Act provided for assessment of tax. In the first five sub -sections, the different modes in which assessment was to be made were indicated. Sub -section (7) provided for escaped assessment or under -assessment. In such a case, the Collector may call for a return within 36 months of the end of the period in question and may proceed to assess the amount of tax as indicated in Sub -section (5). Section 23(1) of the Act provided for an appeal and Section 23(3) of the Act provided for revisions. Section 23(3) of the Act read thus: 23. (3) Subject to such rules as may be prescribed and for reasons to be recorded in writing, the Collector may upon application, or of his own motion, revise any order passed under this Act or the Rules thereunder by a person appointed under Section 3 to assist him and, subject as aforesaid, the Revenue Commissioner may, in like manner, revise any order passed by the Collector. We may now quote the following observations of the Supreme Court in regard to the scope and amplitude of the two powers, namely, the power of assessing escaped income under Section 12(7) of the Act and the power of revision under Section 23(3). The court observed: Though in all these cases the impugned orders were made by the Collector of Sales Tax in the purported exercise of powers of revision under Section 23(3), the petitioners in the several petitions claim that the orders were in substance made under Section 12(7) of the Act. The High Court was of the opinion that Section 12(7) includes also the order of assessment made by the revising authority under Section 23(3) and, in that view, held that the orders of assessment passed beyond thirty -six months from the end of the period in question were barred by limitation. The first contention urged on behalf of the State of Orissa is that the High Court is wrong in holding that an order of assessment of the revising authority is necessarily one made under Section 12(7). The power of revision granted by Section 23(3) is clearly a distinct and separate power from the power to assess after calling for a return in case of under -assessment or escaped assessment. The mere (1) A.I.R. 1964 S.C. 1413. fact that in a particular case the revising authority has by a fresh order of assessment made the dealer liable for tax in respect of which he can be said to have been underassessed or to have escaped assessment does not make the two powers one and the same. We, therefore, find it difficult to agree with the High Court that Section 12(7) includes also the reassessment made by the revising authority under Section 23(3). (underlining ours) The case clearly defines the range of operation of the two powers. In State of Kerala v. Cheria Abdulla and Co. [1965] 16 S.T.C. 875 (S.C.) the Supreme Court had occasion to examine the scope of the revisional power under Section 12 of the Madras General Sales Tax Act, 1939, and the vires of Rule 14 -A of the General Sales Tax (Assessment) Rules. Section 12(2) of the Act enabled the Deputy Commissioner to revise the orders passed by his subordinate officers by examining its legality, regularity or propriety. The question that fell for examination was whether in exercise of the revisional power, the revisional authority could travel outside the records of the case. In dealing with that question, the court observed thus: The power to hold an enquiry to take additional evidence is a procedural power in aid of the exercise of the revisional jurisdiction and if the revisional jurisdiction is not restricted only to cases of arithmetical errors or as the Tribunal called it 'arithmetical aspect', there is no reason to assume that the power under Rule 14 -A to make such enquiry as the appellate or the revising authority considers it just to order or to make would be so restricted. But the power conferred by Rule 14 -A by the use of the expression 'making such enquiry as such appellate or revising authority considers necessary' must be read subject to the scheme of the Act. It would not invest the revising authority with power to launch upon enquiries at large so as either to trench upon the powers which are expressly reserved by the Act or by the Rules to other authorities or to ignore the limitations inherent in the exercise of those powers. For instance, the power to reassess escaped turnover is primarily vested by Rule 17 in the assessing officer and is to be exercised subject to certain limitations, and the revising authority will not be competent to make an enquiry for reassessing a taxpayer. Similarly, the power to make a best judgment assessment is vested by Section 9(2)(b) in the assessing authority and has to be exercised in the manner provided. It would not be open to the revising authority to assume that power. The revisional power has to be exercised for ascertaining whether the order passed is illegal or improper or the proceeding recorded is irregular and it is in aid of that power that such orders may be passed as the authority may think fit. One of the inquiries in considering the legality or propriety of the orders passed by the subordinate officer, which the revising or the appellate authority may make, is about the correctness of the tax levied and if after perusing the record the authority is prima facie satisfied about the illegality or impropriety of the order or about the irregularity of the proceeding, it may in passing its order direct an additional enquiry. Neither Section 12 nor Rule 14 -A authorises the revising authority to enter generally upon enquiries which may properly be made by the assessing authorities and to reopen assessments. It has to be noted that reference to the power of assessing escaped income was made only illustratively to define the limits of the revisional power and of travelling outside the record in exercise of the same.