KHOSLA RICE MILLS Vs. STATE OF PUNJAB

JUDGEMENT

(1.) THE petitioner is a partnership firm working under the name and style of Messrs Khosla Rice Mills. It is registered as a dealer under the Punjab General Sales Tax Act (46 of 1948) (hereinafter called as the Act) and is running a rice sheller at Sarna in the District Gurdaspur for the last several years. A penalty to the tune of Rs. 1,25,000. 00 was imposed on the petitioner by the Assessing Authority on 14th February, 1969, under Section 10 (7) of the Act, vide annexure B, for having allegedly furnished a false return with a view to suppressing purchases of goods for which purchase tax was leviable. An appeal by the petitioner was dismissed by the Deputy Excise and Taxation Commissioner, Jullundur Division, on 4th August, 1969, vide order, annexure C. A further appeal to the Sales Tax Tribunal, Punjab, respondent 2, met with this much success that the amount of penalty was reduced to Rs. 20,000. 00 only whereas findings of the Assessing Authority, as affirmed by the Appellate Authority, were maintained. A copy of the order of the Tribunal is annexure D to the petition. It is in these circumstances that this court was moved under articles 226 and 227 of the Constitution to get the impugned orders, annexures B, C and D quashed. A few facts necessary for the disposal of the writ petition may be stated. The petitioner has been purchasing paddy regularly at different intervals from various dealers for use in the rice mill. Schedule C to the Act gives a list of goods, the acquisition whereof for consideration amounts to a purchase within the meaning of the Act. Rice and paddy are shown as two distinct commodities at serial Nos. 8 and 9 of this Schedule. They were included as separate items vide Punjab Government Notification No. S. O. 7/p. A. 46/48/s. 31/68 dated 15th January, 1968, with the obvious result that with effect from that date tax was payable separately on the purchase of either of these two types of goods. Every dealer is required under the Act to submit to the Assessing Authority returns in the prescribed form S. T. VIII-A annually, quarterly or monthly, as the case may be, showing the purchases made by him for the relevant period. The petitioner submitted his return for the quarter ending 31st December, 1968, and the purchases were shown therein as nil. With the return was appended a covering letter dated 30th January, 1969, wherein it was stated that the petitioner has acquired paddy through commission agents with whom he had relationship as principal and agent. In spite of the notification treating paddy and rice as two distinct commodities, the petitioner chose to consider them as one. It was stated in the letter that since the petitioner was not the last purchaser, no tax was payable by it. Some further reasons were also advanced in the covering letter in support of the position taken up by the firm that no purchases had been made by it for the return period and one of these was that the firm had acquired the goods only to be sold to the Food and Supplies Department and that its case fell within the exemptions enumerated in Section 5 of the Act. It appears that the petitioner had purchased paddy worth lacs of rupees during the period 1st of October, 1968, to 31st of December, 1968, and the Excise and Taxation Officer, respondent 4, was on the look out to check up if the petitioner would show purchases in the quarterly return or not. Soon after the filing of the return, a notice was issued to the petitioner on 10th February, 1969, to show cause why a penalty under Section 10 (7) of the Act be not levied for submitting an incorrect return. It was stated in this notice that the Assessing Authority had information with it that the paddy worth lacs of rupees had been purchased during the period in question. Shri S. K. Khosla, partner of the firm, was directed to appear before the Assessing Authority on 13th February, 1969, at Camp Pathankot. He did appear along with his counsel and they were confronted with the information. They were told that, paddy worth Rs. 89,009. 07 had been purchased locally at Sarna and that worth Rs. 33,44,368. 88 had been purchased from certain dealers in the District of Gurdaspur. It was further told to them that these purchases had been made against furnishing declarations in form S. T. XXII. A dealer, who wishes to deduct from his gross turnover the amount in respect of any purchase on the ground that his case is covered by the provisions of Sub-clause (vi) of Clause (a) of Sub-section (2) of Section 5, has to append with his return a declaration in form S. T. VIII-A as required by Rule 27-A of the Punjab General Sales Tax Rules, 1949 (hereinafter described as the Rules ). A reply dated 12th February, 1969, to the show cause notice was given to the Assessing Authority on 13th February, 1969. It was pleaded that Section 19 (7) of the Act was not applicable and that if the Assessing Authority was of the opinion that the return in form S. T. VIII-A was in any way incorrect or incomplete, the only course open to it was to make best judgment assessment under Section 11 (2) of the Act for which notice in form S. T. XIV was required to be served. When Shri Khosla and his counsel appeared before the officer on 13th February, 1969, they were asked to produce the accounts on the following day. Sarna is not much distant being only 4 miles from Pathankot and no objection was taken by the representative of the petitioner-firm that the time granted to them was in any way insufficient. None appeared on 14th February, 1969, in spite of having undertaken to do so and respondent 4 then passed an order imposing a penalty of Rs. 1,25,000. 00 as it worked out on the basis of the tax which was leviable on the purchases said to have been made by the petitioner. As already stated, an appeal against the order of the Assessing Authority failed and the Tribunal reduced the amount of penalty to Rs. 20,000; hence the present writ petition challenging the validity of the orders, annexures B, C and D passed by the various authorities upholding the finding that the petitioner-firm submitted a false return.

(2.) MR. D. S. Nehra, learned counsel for the petitioner, has raised the following points: (1) The acquisition of paddy through commission agents does not amount to purchase so as to attract liability to pay purchase tax; (2) Section 10 (7) was not attracted in the instant case as no penalty under the said provision of law could be imposed unless an assessment had actually been made.

(3.) THE argument is that if the return was false and incorrect within the meaning of Section 10 (7), the only legal and proper course for the Assessing Authority was to have proceeded to assess to the best of its judgment the amount of tax due from the petitioner and in order to determine the quantum of punishment by way of penalty, it is necessary to make an assessment and it is then alone that it can be known as to what is the amount of tax to which a dealer is liable. In this very context further argument is that in the Act there is no provision for refund of penalty and for ought we know at the time of the final assessment it may be found that the tax actually assessed is much less which was thought by the Assessing Authority to be leviable at the time of the consideration of the matter of penalty under Section 10 (7 ). According to the learned counsel, it could not be intended by the Legislature that a penalty is recoverable but the same cannot be refunded if ultimately it turns out that it cannot be lawfully imposed. For all these reasons, it is urged that proceedings relating to assessment and imposition of penalty have to be taken together; (3) that, at any rate, the petitioner acted bona fide inasmuch as there was a controversy going on in those days as to whether paddy and rice were to be treated as separate commodities or only as one commodity for the purpose of sales tax, and (4) that the petitioner was not afforded reasonable opportunity of being heard against the charge of submitting a false return inasmuch as the Assessing Authority hastened to pass the impugned order, annexure B, on 14th February, 1969, when the petitioner failed to appear on that date for sufficient cause.