DEPUTY COMMISSIONER OF COMMERCIAL TAXES TIRUCHIRAPALLI DIVISION TIRUCHIRAPALLI Vs. PANAYAPPAN LEATHER INDUSTRIES

JUDGEMENT

(1.) ALL these four tax revision cases raise a common question of law and they are disposed of by a common judgment. From one point of view, this will be sequel to our judgment dated 29th November, 1979, rendered in Bava Prima Tannery v. State of Tamil Nadu dealing with the liability to sales tax of the purchase turnover of raw hides and skins and the sales turnover of dressed hides and skins under items 7(a) and 7(b) of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Act). We are concerned in these tax revision cases with the claim for enhancement of assessment made by the State at the hearing of the appeals preferred by the assessee-respondents before the Tribunal, in each of these four cases. When the appeals preferred by the assessee-respondents were taken up for hearing, the revenue had filed petitions for enhancement of the assessment on the basis that in accordance with the judgment of the Supreme Court in V. Guruviah Naidu and Sons v. State of Tamil Nadu the assessing officer should have proceeded under item 7(a) of the Second Schedule to the Act and assessed the purchase turnover of law hides and skins, made in the State, instead of assessing the sales turnover of dressed hides and skins sold in the State. The subject-matter of Tax Case No. 449 of 1979 is the order of the Sales Tax Appellate Tribunal, Main Bench, Madras-1, dated 29th August, 1978, rendered in Tribunal Appeal No. 981 of 1977 read with Tribunal Miscellaneous Petition No. 302 of 1978. The appeal itself was preferred by the assessee-respondent. The contention that was put forward by the assessee-respondent in the appeal was against the tax at 3 per cent on closing stock of raw skins. However, the revenue filed Tribunal Miscellaneous Petition No. 302 of 1978 contending that the assessing authority had filed to assess the assessee on the entire local purchases of raw hides and skins which went into the production of tanned hides and skins and the purchase turnover was liable to tax at 3 per cent under item 7(a) of the Second Schedule to the Act and such turnover amounted to Rs. 27, 93, 138, that the last purchases of raw hides and skins in this State are assessable only under item 7(a) of the Second Schedule and this is supported by the decision of the Supreme Court in Guruviah Naidu and Sons v. State of Tamil Nadu referred to above. The Tribunal relying upon two decisions of this Court in State of Madras v. Spencer and Company Limited and State of Tamil Nadu v. K. R. and P. Shanmugavel Nadar held that it has no jurisdiction to entertain the enhancement petition at that stage, since such a contention was not put forward and was not made the subject-matter of the appeal before the Appellate Assistant Commissioner. The subject-matter of Tax Case No. 486 of 1976 is the order of the Sales Tax Appellate Tribunal, Main Bench, Madras-1, dated 9th January, 1979, made in Tribunal Appeal No. 903 of 1977, read with Tribunal Miscellaneous Petition No. 96 of 1978. That also was concerned with the liability to tax of the purchase turnover of the raw hides and skins in the State under item 7(a) of the Second Schedule to the Act. In that appeal also, the revenue filed an enhancement petition stating that the turnover of last purchase of raw hides and skins as per accounts of the assessee is Rs. 17, 29, 529, but the assessing officer assessed only Rs. 16, 21, 819 representing the proportionate last purchase of raw hides and skins attributable to export sales and inter-State sales and that in view of the decision of the Supreme Court in Guruviah Naidu and Sons v. State of Tamil Nadu the entire last purchase of raw skins have to be subjected to tax at 3 per cent and, therefore, the turnover of last purchase may be enhanced to Rs. 17, 29, 529. Dealing with this enhancement petition, the Tribunal observed : "As for the enhancement petition, we do find that the request of the State Representative is for bringing into the net of taxation a turnover which was not so far assessed by the lower authorities. In T.A. No. 981 of 1977 dated 29th August, 1978, we have that the last purchase of raw hides and skins is liable to tax in the light of the decision in the Guruviah Naidu's case However if the assessing officer had not taken advantage of the decision of the Supreme Court and fixed the turnover of last purchases at an amount proportionate to the export sales of tanned skins or inter-State sales of tenned skins, we cannot newly bring the unassessed portion of the purchase turnover to tax by invoking the provisions of section 36(3). As laid down in the decisions in State of Madras v. Spencer and Company Ltd. and State of Tamil Nadu v. K. R. and P. Shanmugavel Nadar the dispute before the Tribunal can only be in respect of matters agitated in the first appeal before the Appellate Assistant Commissioner. The claim cannot be newly brought forth before the Tribunal against an order of the assessing officer." The subject-matter of Tax Cases Nos. 1982 and 1083 of 1979 is the common order of the Sales tax Appellate Tribunal, Main Bench, Madras, dated 24th February, 1979, made in Tribunal Appeal No. 322 of 1978 read with Tribunal Miscellaneous Petition No. 443 of 1978 and Tribunal Appeal No. 554 of 1978 read with Tribunal Miscellaneous Petition No. 444 of 1978. That order also dealt with the question of assessing the purchase turnover of raw hides and skins made in the State under item 7(a). In those two appeals also, in which the assessee-respondent was common, two enhancement petitions were filed by the State putting forward the same contention. Dealing with the enhancement petitions, the Tribunal referred to its earlier ruling in Leather Industries v. State of Tamil Nadu (T.A. No. 981 of 1977 dated 29th August, 1978), wherein it had observed : "We need not be understood as saying that there is an option to the authorities in the case of raw hides locally purchased and sold locally after dressing to tax either the local purchases of raw hides at 3 per cent or the first sale of dressed hides at 1 1/2 per cent. The authorities are normally expected to tax whatever comes under item 7(a) under that item only. This will be in keeping with the well-settled principle that the liability to tax arises at the first point in the chain of taxable events. If this is the correct law, as indeed we understand it to be so, then it follows that the procedure of the assessing officer or the learned Appellate Assistant Commissioner in having chosen to tax at 1 1/2 per cent the dressed hides at the point of first sale and not the local purchase of raw hides at the point of last purchase is not totally opposed to law" and stated that taking the same view it held that there was no case for enhancing the turnover of purchase of raw skins, with the result the enhancement petitions in both the appeals were dismissed, and the dismissal of of those enhancement petitions are the subject-matter of Tax Cases Nos. 1082 and 1083 of 1979. Thus, it will be seen that in Tax Cases Nos. 449 and 486 of 1979, the Tribunal dismissed the enhancement petitions filed by the State on the ground that it had no jurisdiction to entertain the same, since the petitions themselves were not maintainable, while in Tax Cases Nos. 1082 and 1083 of 1979 the Tribunal had dismissed the enhancement petitions on merits.

(2.) FOR the purchase of considering the question that arise for consideration in these tax revision cases, it is necessary to refer to the decision of the Supreme Court in V. Guruviah Naidu and Sons v. State of Tamil Nadu which we have considered in our judgment dated 29th November, 1979, in Bava Prima Tannery v. State of Tamil Nadu represented by the Joint Commercial Tax Officer, Dindigul Assessment Circle, Dindigul (T.C. Nos. 456, 457, 475, 487, 489, 695 and 962 of 1979). Following the judgment of the Supreme Court referred to above we have held in that judgment that the duty of the assessing officer is to tax the purchase turnover under item 7(a) of the Second Schedule to the Act and to tax the sales turnover of the first sale in the State of the dressed hides and skins under item 7(b) at the appropriate rates mentioned in the Act subject to the qualification that when raw hides and skins already subjected to tax had been sold as dressed hides and skins, they would not suffer tax at the point of first sale in the State. If that be the case, the law is that it is the duty of the assessing officer to first assess the purchase turnover under item 7(a) at 3 per cent on the turnover and thereafter to assess the sales turnover under item 7(b) subject to the qualification referred to above. We have also pointed out that before the decision of the Supreme Court in the Guruviah Naidu's case the practice in this State was on the basis of the law laid down by this Court in L. M. S. Sadak Thamby & Co., Madras-1 v. Appellate Assistant Commissioner of Commercial Taxes I, Madras-13 by which the sales turnover of dressed hides and skins was taxed under item 7(b) and thereafter whatever was left out of the purchases of raw hides and skins was taxed on the purchase turnover under item 7(a).The decision of the Supreme Court referred to above was merely to declare the law as it stood from the very beginning under items 7(a) and 7(b) thereby having the effect of overruling the decision of this Court in L. M. S. Sadak Thamby & Co., Madras-1 v. Appellate Assistant Commissioner of Commercial Taxes I, Madras-13 Consequently, as had been very rightly pointed out by the Tribunal, there was no option on the part of the assessing officer either to tax the purchase turnover under item 7(a) or to tax the sales turnover under item 7(b), and the assessing officer is expected to and is obliged to tax the purchase turnover under item 7(a) and the sales turnover under item 7(b), subject to the qualifications referred to above, thereby avoiding double taxation of the same turnover, both in the raw state as well as in the dressed state. If so, what the Tribunal stated in the order in Tribunal Appeal No. 981 of 1977 dated 29th August, 1978, and followed by it in the order which is the subject-matter of Tax Cases nos. 1082 and 1083 of 1979, namely, that the procedure of the assessing officer or the Appellate Assistant Commissioner in having chosen to tax at 1 1/2 per cent the dressed hides and skins at the point of first sale and not the local purchase of raw hides at the point of last purchase was not totally opposed to law, cannot be correct. On the other hand, it will be totally apposed to law. If so, the question for consideration is what the Tribunal should have done in the present cases when the revenue filed the enhancement petitions putting forward the contention that it is the purchase turnover under item 7(a) which should have been first taxed at the rate of 3 per cent. As we have pointed out already, the Tribunal in two cases, which are the subject-matter of Tax Cases Nos. 1082 and 1083 of 1979, held on merits that there was no case for enhancement. FOR the reasons we have indicated just now the Tribunal was in error. As far as the other two cases, namely, Tax Cases Nos. 449 and 486 of 1979 are concerned, the Tribunal held that the enhancement petitions themselves were not maintainable. We shall now proceed to consider the correctness of the conclusion of the Tribunal that the enhancement petitions were not maintainable. FOR the purpose of considering this question, it is necessary to refer to and set out certain provisions of the Act. Section 12 of the Act deals with the procedure to be followed by the assessing authority. Section 13 deals with the provisional assessment to be made by the assessing authority. Section 14 deals with fresh assessment in certain cases. Section 16 deals with the assessment of escaped turnover. Section 31 is the section dealing with an appeal to the Appellate Assistant Commissioner. Section 31(1) enumerates the orders which could be the subject-matter of an appeal to the Appellate Assistant Commissioner. Sub-section (3) of section 31 deals with the scope of the power of the Appellate Assistant Commissioner in disposing of an appeal. That sub-section says : "In disposing of an appeal, the Appellate Assistant Commissioner may, after giving the appellant a reasonable opportunity of being heard, (a) in the case of an order of assessment - (i) confirm, reduce, enhance or annul the assessment or the penalty or both; (ii) set aside the assessment and direct the assessing authority to make a fresh assessment after such further inquiry as may be directed; or (iii) pass such other orders as he may think fit; or (b) in the case of any other order, confirm, cancel, or vary such order : Provided that at the hearing of any appeal against an order of the assessing authority, the assessing authority shall have the right to be heard either in person or by a representative." Section 32 deals with the special powers of the Deputy Commissioner. Sub-section (1) of section 32 says : "The Deputy Commissioner may, of his own motion, call for and examine an order passed or proceeding recorded by the appropriate authority under section 4-A, section 12, section 14, section 15, or sub-sections (1) and (2) of section 16 and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon as he thinks fit."

(3.) CERTAINLY, the above observation in the judgment of the Bench is in favour of the assessee's contention. However, if it had become necessary we would have referred it to a Full Bench. But it had not become necessary in view of two circumstances. The first circumstance is that there is no discussion in the above extract as to the legal position, and the Bench has simply stated that they accepted the submission made on behalf of the respondent. Secondly, there is already a Bench judgment of this Court dealing with the scope of the power of the Tribunal and taking the view that the Tribunal is competent to entertain such a plea to enhance before it and that decision has not been referred to and considered by the Bench in the case relied on, namely, Deputy Commissioner (C.T.) v. Sivasakthi Spinning Mills (Page 102 infra.) (T.C. No. 277 of 1974). In view of these two circumstances alone, without referring the matter to a Full Bench, we ourselves dispose of the whole matter with reference to the language of the section as well as the earlier decision of this Court. The earlier decision of this Court expounding the scope of the power of the appellate authority is the one reported in T. V. Sundaram Iyengar & Sons (P.) Ltd. v. State of Madras In that case, the turnover relating to the supply of bus-bodies constructed and fitted on to chassis provided by customers was excluded in the assessment of the assessee. However, in an appeal preferred by the assessee in respect of certain other matters, the Appellate Assistant Commissioner included the turnover in the assessable turnover. The question for consideration was whether the Appellate Assistant Commissioner had the power to include a turnover excluded by the assessing officer in an appeal preferred by the assessee. This Court upheld the order of the Appellate Assistant Commissioner and his power to do so. Since the matter is fully discussed by the Bench in that case, we are extracting in extenso the relevant passage in this behalf : "The second ground of the assessee turns on the scope and effect of the word'enhance'in clause (a)(i) of sub-section (3) of section 31 of the Madras General Sales Tax Act, 1959. That section confers appellate powers on the Appellate Assistant Commissioner, Commercial Taxes, and defines their scope. Any person objecting to an order under section 12 by the assessing authority is, by sub-section (1) of section 31, given a right within a specified period to appeal against that order, to the Appellate Assistant Commissioner. Sub-section (3) of section 31 says that in disposing of an appeal, the Appellate Assistant Commissioner may, after giving the appellant a reasonable opportunity of being heard, '(a) in the case of an order of assessment - (i) confirm, reduce, enhance or annual the assessment or the penalty or both.' A further appeal to the Tribunal from the order of the Appellate Assistant Commissioner which is objected to by a person is provided for by section 36. Sub-section (3)(a)(i) of that section uses the phraseology similar to section 31(3)(a)(i). Section 32 to 35 give to the Deputy Commissioner and the Board of Revenue powers of revision which may be exercised by them su motu and on application, and certain special powers. The special powers under sections 32 and 34 cannot be exercised by the Deputy Commissioner or the Board of Revenue, if the time for appeal against an order under section 12 has not expired or such order has been made the subject of appeal to the Appellate Assistant Commissioner, the Appellate Tribunal or of revision in the High Court under section 38. An appeal to the High Court is provided by section 37 from an order of the Board of Revenue under section 34 which is objected to. In the light of these provisions, it is contended for the assessee in this Court that as its appeals to the Appellate Assistant Commissioner were confined to that part of the order of the assessing authority in relation to certain amounts collected by way of tax under section 8-B(2) of the Madras General Sales Tax Act, 1939, and in one of the appeals, a further question as to the character of the transaction, which had been brought to tax, was alone raised, the Appellate Assistant Commissioner in dealing with those appeals has not power to travel beyond their scope, reopen the assessment order relating to bus-body-building contracts which was not objected to by the assessee in the appeals and thus enhance the assessment by taking the view that they are not works contracts but sales of goods. it is not disputed that unlike under the Madras General Sales Tax Act, 1939, the appellate powers of the Appellate Assistant Commissioner as well as the Tribunal under the Madras General Sales Tax Act, 1959, include the power to enhance the assessment in disposing of an appeal. But it is urged that the power of enhancing in appeals can only be exercised within the limits of the assessment which is the subject-matter of the assessment that is objected to by the assessee in his appeals. In our opinion, there is no justification for this narrow view of the scope of the power to enhance the assessment in disposing of an appeal. If this view is to prevail, the content of the power will be reduced to almost nothing. It is difficult to conceive of cases of enhancement of assessment confined to the limits of that part of the order which is objected to and appealed against by the assessee. The words'enhance the assessment'in section 31(3)(a)(i) should, as it appears to us, be given their full scope. Section 31(1) does not speak of an assessment but of an order which is objected to, the word'assessment'means the full process of assessment and covers the entire assessment, not merely that part of it which is objected to by the assessee in his appeal. There is indication in sub-section (3)(a) itself to that effect, for clause (ii) to sub-section (3)(a) speaker of the power of the appellate authority to set aside the assessment and direct the assessing authority to make a fresh assessment; and that cannot possibly mean a part of the assessment that had been objected to by the assessee in the appeal. Likewise, the word'enhance'should receive its full meaning and in relation to the assessment, the scope of the power to enhance should extend to the entire assessment. This view appears to receive support from sections 32(2)(a) and (b) and 34(2)(a) and (b). The special power of the Deputy Commissioner and the Board of Revenue, as is evident from those two provisions, cannot be exercised if the time for appeal against the order under section 12 has not expired or such 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. If the intention of the legislature is to confine the power of enhancing the assessment in disposing of appeals to only that part of the order under section 12 that is objected to by the assessee, the limitation to the special powers of the Deputy Commissioner and the Board of Revenue under sections 32 and 34 would have been differently worded in sub-section (2) of each of those sections. The language of sections 32(2)(a) and (b) and 34(2)(a) and (b) is consistent with the view that the power of enhancing the assessment under section 31 extends to the entire range of assessment. Though the Income-tax Act, 1922, adopts a different scheme, and decisions thereunder may not always be apposite to the construction of other fiscal enactments like the Madras General Sales Tax Act, 1959, yet it appears that the phraseology of sub-section (3)(a)(i) of section 31 of the Madras General Sales Tax Act, 1959, has been reproduced word for word from sub-section (3)(a) of section 31 of the Income-tax Act, 1922. Sections 32(2)(a) and (b) of the Madras General Sales Tax Act, 1959, substantially follow the pattern of clauses (a) and (b) to the proviso to section 33-A of the Income-tax Act, 1922."