CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 415 and 962 of 1976.
(Appeals by Special Leave from the Judgment and Orders dated 2-3-1976 and 21-7-1976 of the Punjab & Haryana High Court in Civil Writ Petition Nos. 561 and 1961 of 1976 respectively).
S.T. Desai, Talat Ansari and Shri Narain for J.B. Dadachanji, for the Appellants (in both appeals).
M.C. Bhandare and R.N. Sachthey, for the Respondents (in both appeals). The Judgment of the Court was delivered by
UNTWALIA, J. In these two appeals by special leave a common question of law falls for our determination, hence, they have been heard together and are being disposed of by this judgment.
The Indian Aluminium Cables Ltd., appellant No. 1 in both the appeals has got its factory at Faridabad in the State of Haryana. It sells and supplies aluminium cables to several State Electricity Undertakings or Boards situated in the various States. In respect of the assessment year 1962-63, the Company raised a dispute that it was not liable to pay Central Sales Tax under the Central Sales Tax Act, 1956, as it claimed to be exempt from inter-State tax on the sales of its products to the various State Undertakings or Boards by reason of the provisions contained in section 5 (2)(a)(iv) of the Punjab General Sales Tax Act, 1948--hereinafter referred to as the Act. The Tribunal decided the matter in favour of the assessee Company but the High Court of Punjab and Haryana answered the Sales Tax Reference made at the instance of the Revenue against the assessee. The decision of the High Court is reported in The State v. Indian Aluminium Cable Ltd., Faridabad(1). The matter was brought to this Court in appeal and by a decision given on April 2, 1976 the view of the High Court was affirmed and it was held that the sales were not exempt from tax generally within the meaning of section 8(2A) of the Central Act read with section 5(2)(a)(iv) of the Punjab Act. The decision of this Court is reported in Indian Aluminium Cables Ltd. and another v. State of Haryana(2).
The period of assessment concerning the appellant is each quarter of the year. In respect of.all the 8 quarters of the years 1969-70 and. 1970-71, Returns were filed by the Company in time, i.e. on or before the last day of the month following the quarter concerned. The Assessing Authority did not accept the Returns and issued notices on May 22, 1970 under section 11 (2) of the Act in respect of the 4 quarters of 1969-70 requiring the assessee Company to produce evidence in support of the Returns. Since the question of assessee’s liability to pay Central Sales Tax was pending in reference before the High Court the matter was not pursued by the Assessing Authority and as per the request of the asses.see it was kept pending. Even though the High Court decision was given on November 5, 1973, the matter became subjudice in appeal filed in this Court. It appears that the matter of assessment in respect of the year 1969-70 was taken up by the Assessing Authority again by issuance of a notice on September 15, 1975. Thereupon, the Company filed Civil Writ Petition No. 561/1976 in the High Court on January 27, 1976 to quash the notice dated September 15, 1975 and to re.strain the State. of Haryana and its Officer--the Excise and Taxation Officer, Faridabad, from proceeding with the assessment. It is said that in respect of the 4 quarters of the (2) 38 S.T.C. 108. year 1970-71 notices under section 11(2) of the Act were issued for the first time by the assessing authority on January 30, 1976. Thereupon, the Company filed in the High Court Civil Writ Petition No. 1961/1976 for reliefs similar to the ones asked for in the other writ petition.
According to the appellant, in the first writ petition were raised before the High Court the two main questions in the following terms:
"(i) Whether the assessment proceedings with
regard to assessment year 1969-70 could be proceed-
ed with and whether assessment order could be
passed beyond a period of 5 years after the expiry
of the period to which the assessment relates. In
other words, whether the Sales Tax Officer had
jurisdiction to make assessment for the assessment
year 1969-70 which had become time barred;
(ii) Whether Central Sales Tax was payable in
respect of sale of electric cables manufactured and
sold by the petitioner Company to State Electricity
Boards in view of the exemption granted generally
under section 8(2A) of the Central Sales Tax Act
read with section 5 (2) (a) (iv) of the Punjab
General Sales Tax Act, 1948". This writ petition was dismissed in limine by a Bench of the High Court stating "Reply has been filed. The matter is covered in favour of the respondent by 33 STC 152. Dismissed". It appears by the time the second writ petition came to be filed the appellant’s liability to pay Central Sales Tax was decided by this Court in the case referred to above. Therefore, in the second writ petition, in the main, the question raised was one of limitation as in the other writ petition. Another Bench of the High Court dismissed this writ petition in limine on July 21, 1976. In substance and in effect, in spite of the Full Bench decision (by the majority) of the High Court in the case of Rameshwar Lal Sarup Chand v. Shri U.S. Naurath, Excise & Taxation Officer, Assessing Authority, Amritsar and Another(1), on which Mr. S.T. Desai, learned counsel for the appellant heavily relied upon before us, neither Bench found any substance in the point of limitation raised by the Company and dismissed the two writ petitions in limine. In our opinion the High Court was right, for the reasons to be stated hereinafter in this judgment, in not entertaining the point of limitation in spite of the full Bench decision aforesaid, as, the said decision in view of many pronouncements of this Court to be alluded to hereinafter is no longer good law.
In face of the decision of this Court in Indian Aluminium Cables Ltd. & Anr. v. State of Haryana (supra) the question of the appellant’s tax liability under the Central Sales Tax Act was not reagitated before US. Learned counsel for the appellant, however, strenuously urged that the assessing authority could not assess the tax payable by the appellant on expiry of the period of 5 years from the end of each quarter. The 4th quarter of the year 1969-70 expired on March 31, 1970 and the period of 5 years having expired on March 31, 1975 no assessment could be made thereafter. In relation to the year 1970-71 even the notice for the first time was issued under section 11 (2) of the Act after the expiry of the period of 5 years in relation to the first three quarters, although it was within time apropos the last quarter. The period of the last quarter expired on March 31, 1971; but no assessment could be made, according to the appellant’s counsel, even in regard to the assessment year 1970-71 in respect of any quarter on the expiry of the 5 years’ period reckoning from the last date of the quarter. Mr. M.C. Bhandare, learned counsel for the respondents submitted that although a time limit had been’ fixed in sub-sections (4), (5) ,and (6) of section 11 of the Act, no time limit was fixed by the Legislature for actions and orders to be taken and passed under sub- ’ sections ( 1 ), ( 2 ) and ( 3 ). Counsel, therefore, urged that neither the issuance of any notice under section 11 (2) of the Act was beyond any period of time nor was the assessing authority under any disability of any period of limitation in passing the final order of assessment in respect of any of the quarters in question. The alternative submission of Mr. Desai that in any view of the matter notice had to be issued under section 11 (2) and assessments had to be completed under section 11 (3) within a reasonable time was also refuted by Mr. Bhandare.
It is beyond any dispute and debate that under section 10 of the Act read along with the Rules framed thereunder, Return has to be filed by a dealer for each quarter by the last day of the following month of the quarter and admitted sales tax as per the Return has also got to ’be deposited and challan filed along with the Return. It will be seen hereinafter from the authoritative pronouncements of this Court that the mere statutory liability of a dealer to file the Return or to pay the tax has not the effect of commencement of any proceeding under the Act. If a dealer does not file a Return being liable to pay tax, then action under sub-section (5) or sub-section (6), as the case may be, has to be taken by the Assessing Authority within the period of 5 years prescribed therein. The expression "proceed to assess" in those two sub-sections as also in sub-section (4) means taking some effective step towards proceeding to make the best judgment assessment in accordance with the subsection which may be applicable. In a given case action may be taken under section 11-A (1 ) of the Act treating the case as a case of escaped assessment within the meaning of said section. But the assessing authority has got to. proceed to assess or reassess within 5 years following the close of the year for which the turnover is proposed to be assessed or reassessed. But in a case where the assessee has filed the Return the proceeding under the Act commences on the filing of the Return. "If the Assessing Authority is satisfied without requiring the presence of dealer or the production by him of any evidence that the returns furnished in respect of any period are correct and complete, he shall assess the amount of tax due from the dealer on the basis of such returns" as provided for in section 11 (1 ). The assessment under sub-section(1) can be made at any time even according to the Full Bench decision of the Bombay High Court in Bisesar House v. State of Bombay and Others(1), followed in Rameshwar Lal Sarup Chand(3). But the view of the Bombay High Court on a consideration of the similar provisions of the other State Statutes that a notice under sub-section (2) must be issued within the period of limitation mentioned in other sub-sections of section 11 or section 11-A no longer holds good. A notice under sub-section (2) requiring the dealer to produce evidence can be issued at any time after the filing of the Return. The expectancy of taking steps without any undue delay and within a reasonable time is an expectancy of prudence. But legally the action cannot be nullified merely on the ground of delay in the issuance of the notice under section 11 (2). Subsection (3) of section 11 says :--
"On the day specified in the notice or as
soon afterwards as may be, the Assessing Authority
shall, after hearing such evidence as the dealer
may produce, and such other evidence as the Assess-
ing Authority may require on specified points,
assess the amount of tax due from the dealer".
On a correct interpretation of the provision afore-
said what emerges as follows :--
(i) That the Assessing Authority shall hear the
evidence produced by the dealer on the day speci-
fied in the notice issued under sub-section (2).
(ii) It can adjourn the hearing to some other
day and hear the evidence produced by the dealer on
the adjourned day or days.
(iii) The Assessing Authority may require the
dealer to produce further evidence on specified
points on the adjourned day or days.
(iv) The Assessing Authority should assess the
amount of tax due from the dealer, that is to say,
pass the order of assessment, on the day on which
the. hearing ,of the evidence is completed or "as
soon afterwards as may be".
"the last phrase is absent in some of the similar
statutes. It, therefor may be open to argument
whether the assessment order passed under section
11(3) of the Act after undue delay of the comple-
tion of the hearing of the evidence produced or
required to be produced by the dealer is valid or
not. But we are not concerned with the said ques
tion in this case as on the facts and in the cir-
cumstances appearing relation to the assessment
proceedings of either of the two years to produc-
tion of evidence by the assessee could not and has
not start as yet because of the filing of the writ
petitions and the appeals in the Court. It goes
without saying that the assessing authority will be
well advised to complete the assessment proceedings
in question as soon as it may be possible to do so
after the delivery of this judgment.
(1) 9 S.T.C. 654. (2) 15
S.T.C, 932.
Sub-section (4) of section 11 is attracted in a
case where a dealer having furnished a Return in
respect of a period fails to comply with the terms
of a notice issued under sub-section (2). In such
a case the Assessing Authority has to take some
effective step, such as issuance of a notice to the
assessee intimating to him that he is proceeding to
assess to the best of his judgment the amount of
tax due from the dealer. On failure of a dealer to
furnish a Return in respect of any period by the
prescribed date the Assessing Authority after
giving the dealer a reasonable opportunity of being
heard can proceed to assess to the best of his
judgment the amount of tax, if any, due from the
dealer. In such a case also an effective Step such
as issuance of a notice to the dealer concerned
showing that the Assessing. Authority is proceeding
to assess has got to be taken within 5 years of the
expiry of the period concerned. Sub-section (6) is
attracted in the case of a dealer who being liable
to pay tax under the Act has failed to apply for
registration. Similar steps as the ones to be
taken under subsection (5),are to be taken under
sub-section (6) within a period of 5 years after
the expiry of the concerned period. But the Legis-
lature advisedly did not fix any period of limita-
tion for taking up of the steps or the passing of
the assessment order under any of the sub-sections
(1), (2) or (3). The reason is obvious. Best
judgment assessments in the circumstances mentioned
in any of the sub-sections (4), (5) or (6) could
not be allowed to be made after the expiry of a
certain reasonable time which the Legislature
thought was three years previously but made it five
years by Punjab Act 28 of 1965. But where a regis-
tered dealer has filed the Return the assessing
authority can pass the assessment order under sub-
section (1 ) and accept the Return filed by the
dealer as correct and complete. In such a case the
formality of passing an order of assessment is to
be completed without any further demand of tax from
the dealer. For the issuance of a notice under
subsection (2) no time limit has been fixed, but
the assessing authority must remain on its guard
of taking the steps and completing the assessment
as soon as it may be possible to do so. Other-
wise, the risk involved may just be pointed out.
Take a case where a notice under sub-section (2) is
issued after the expiry or just on the verge of
expiry of the period of 5 years and the dealer
fails to comply with the terms of the notice. In
such a case the assessing authority may have to
proceed to make the best judgment assessment under
sub-section (4) attracting the bar of limitation of
5 years. But, of course, there may be a case where
in spite of the failure of the dealer to comply
with the terms of a notice issued under sub-section
(2) the assessing authority may be in a position to
complete the assessment under sub-section (3),
treating the alleged failure of the dealer as not a
real failure on his part.
We now proceed to discuss some of the relevant decisions on the points at issue.
In Bisesar House case (supra), Chagla, C.J. delivering the judgment of a Full Bench of the Bombay High Court on a consideration of the similar provisions of section 11 of the C.P. and Berar Sales Tax Act, 1947 applied the ratio of his decision in Commissioner of Income tax, Bombay City v. Natsee Nagsee & Co.(1), to a case covered by (1) 31. I.T.R. 164. section 11 (2) of the Sales Tax Act. With respect to the learned Chief Justice we say that he was not right when he said at page 669: "Section 11 (2) is in the substantial sense an initiation of fresh proceedings by the Commissioner. It is open to the Commissioner to be satisfied with what the assessee has done and pass an order under section 11 (1). But if he is not satisfied, then he initiates fresh proceedings under-section 11(2) by issuing a notice. That undoubtedly is putting the assessee to the peril of the apprehension that as a result of the notice his tax might be enhanced. If the principle we have laid down in Narsee Nagsee’s case--31 I.T.R. 164 is correct, then that principle would undoubtedly apply to the issuing of a notice under section 11(2)".
As held by this Court in the case of Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax, Nagpur & others(1), even the filing of a Return by a dealer is tantamount to initiation or commencement of a proceeding under the Sales Tax Act. The decision of the Bombay High Court in Narsee Nagsee’s case Was affirmed by a Division Bench (by majority) of this Court in Commissioner of Income-tax, Bombay City Iv. Narsee Nagsee & Co. (2).
Subba Rao, J. as he then was, delivering the majority opinion of a Constitution Bench of this Court in Ghanshyamdas’s case (supra) referring to the decision of the Privy Council in Rajendranath Mukherjee v. Income-tax Commissioner(1), said at S.T.C. "This decision is a clear authority for the position that if a return was duly made, the assessment could be made at any time unless the statute prescribed a time limit. This can only be for the reason that the proceedings duly initiated in time will be pending and can, therefore, be completed without time limit". At page 987 says the learned Judge: "It is manifest that in the case of a registered dealer the proceedings before the Commissioner start factually when a return is made or when a notice is issued to him either under section 10(3) or under section 11(2) of the Act". As rightly pointed out by Shah, J. as he then was, at page 436, if we may say so with respect, in the case of Regional Assistant Commissioner of Sales Tax, Indore v. Malwa Vanaspati and Chemical Co. Ltd.(4), section 11 (2) is a typographical error in the sentence extracted above. In disapproval of the view of the Full Bench expressed in Bisesar House case (supra) it was reiterated at page 989 in Ghanshyamdas’s case "AS we have held that the submission of a statutory return would initiate the proceedings and that the proceedings would be pending till a final order of assessment was made on the said return, no question of limitation would arise ........... For the foregoing reason we hold that a statutory obligation to make a return within a prescribed time does not proprio vigore initiate the assessment proceedings before the Commissioner; but the proceedings would commence after the return was submitted and would continue till a final order of assessment was made in regard to the said return".
(1) 14 S.T.C. 976 .... (2) 40 I.T.R. 307. (3) 2 I.T.R. 71. (4) 21 S.T.C. 431.
In Narsee Nagsee’s case (supra) it has been pointed out by the majority of the Bench that a notice under section 11(1) of the Business Profits Tax Act, 1947 "must be given within the financial year which commences next after the expiry of the accounting period or the previous year which is by itself or includes the chargeable accounting period in question". (vide I.T.R.). It was also pointed out in that case that the words "profits escaping assessment"’ in section 14 of the Business Profits Tax Act applied equally to cases where notice had been given but had resulted in no assessment and to cases where due to inadvertence, oversight or any other reason no notice was given and therefore no assessment was made.
This Court in The State of Punjab & Others v. Tara Chand Lajpatt Rai(1), reversed the decision of the Punjab High Court in Civil Writ No. 1088/61 and following the decision of this Court in Ghanshyamdas’s case (supra) stated at page 501:
"This decision is, therefore, a clear authority
for the proposition that assessment proceedings
commence in the case of a registered dealer either
when he furnishes a return or when a notice is
issued to him under section 11(2) of the present
Act, and that if such proceedings are taken within
the prescribed time though the assessment is fina-
lised subsequently, even after the expiry of the
prescribed period, no question of limitation would
arise".
In the case of Tarachand Lajpat Rai (supra) the
dealer had filed the Returns after the expiry of 30
days from the relevant date but they were not
rejected by the Department on that ground. Notice
under section 11 (2) of the Act was issued and that
also was done before the expiry of period of 3
years’ as the period of limitation stood then in
the other sub-sections. On the authority of Ghan-
shyamdas’s case it was held "the assessment pro-
ceedings commenced either when the respondent-firm
filed the returns or in any event from the date of
the said notice. Both the events, therefore, were
within the prescribed time." The decision of the
Full Bench of the Punjab High Court in the case of
Rameshwar Lal Sarup Chand (supra) was merely
distinguished on the ground that the question
decided in Ghanshyamdas’s case did not come up for
consideration in Rameshwar Lal’s case. But we
think it is high time that the decision of the Full
Bench of the High Court in Rameshwar Lal’s case
should be clearly and expressly over-ruled now. An
identical view had been expressed by his Court
reversing the decision of the Punjab High Court in
Letters Patent Appeal No. 319/63 in the case of The
State of Punjab and another v. Murlidhar Mahabir
prasad(2). The challenge before this Court in the
case of Madhya Pradesh Industries Ltd. v. State of
Maharashtra and Others(3), was whether sub-section
(3) of section 11A of the C.P. and Berar Sales Tax
Act, 1947 was violative of Article 14 of the
Constitution. The argument was repelled and it was
stated at page 402 by Hegde, J.
(1) 19 S.T C:. 493 (2) 21
S.T.C. 29.
delevering the judgment on behalf of himself,
Wanchoo, C.J. and Mitter,J.:
"This Court in Ghanshyamdas’s case specifically
overruled the decision of the Bombay High Court in
Bisesar House case. Therein this Court held that
while s.11 (2) deals with pending proceedings,
section 11A concerns itself with matters which are
not pending. This Court .further ruled that in the
case of pending proceedings the Act has not pre-
scribed any period of limitation. That decision
proceeds on the basis that section 11 (2) and
section 11A cover different fields and that they do
not overlap".
Bachawat, J. speaking for himself and Ramaswami, J.
went a step further and in their concurring judg-
ment stated at page 403:
"There is no limitation for the issue of a
notice under section 11 (2). This follows from a
plain, reading of section 11(2) independently of
section 11A(3). Neither section 11(2) nor sec-
tion 11A(3) is violative of Article 14. A notice
under section 11 (2) is issued in a pending pro-
ceeding, where- as a notice under section 1 I A( 1
) initiates a new proceeding. There is a reasona-
ble basis for classification and differential
treatment of the notices under sections 11(2) and
11A(1) for the purposes of limitation."
The majority opinion of the Full Bench of the Punjab High Court was delivered by two judges in the case of Rameshwarlal Sarupchandra (Supra) Pandit J ave a dissenting opinion. It is wrong to say, as stated by the majority, that the expression "proceed to assess" and the word "assess" connote the same meaning. The ratio of the majority opinion is chiefly based upon the decision of the Full Bench of the Bombay High Court in Bisesar House’s case which decision was not approved by this Court and must be deemed to have been overruled. The majority we may also point out with respect, committed a mistake in appreciating the decision of this Court in the case of Madan Lal Arora v. The Excise and Taxation Officer’, Amritsar(1) Sarkar, J., as he then was, delivering the judgment on behalf of a Constitution Bench of this Court adverted to the facts of the case and stated that the registered dealer under the Punjab General Sales Tax Act had filed returns for the 4 quarters of the financial year ending on March 31, 1955 as also for the 4 quarters for the financial year ending on March 31, 1956. In respect of each year the Sales Tax Assessing Officer served three successive notices on the dealer one on March 7, 1958, the other on April 4, 1958, and the third on August 18, 1959. The first two notices were merely under section 11(2) of the Act. But in the last notice which was issued after the expiry of 3 years it was stated that on the dealer’s failure to produce the docu-ments and other evidence mentioned in the notice, the case would be decided on best judgment assessment basis. The dealer did not comply with any of the notices and challenged with success by a petition under Article 32 of the Constitution the right of the authorities to, make a best judgment assessment. In that connection it was (1) 12 S.T.C. 387 pointed out that the period of 3 years mentioned in subsection (4) of section 11 of the Act had to be counted from the expiry of the period in relation to which the returns had been filed and on expiry of the said period the authorities could not proceed to make the best judgment assessment. The third and the last notice given on August 18, 1959 was taken to be a notice to the dealer that the assessing authority was proceeding to make the best judgment assessment and since this was done more than 3 years after expiry of all the 8 quarters’ in respect of the two years it was held to be without jurisdiction and the respondent was restrained from making any best judgment assessment on the petitioner for sales tax for any quarter of the financial years 1954-55 and 1955-56. The decision of this Court in Madan Lal Arora’s(1) case justifies our apprehension which we have mentioned in the beginning of our judgment to the effect that if a dealer fails to comply with the notice issued under section 11 (2) of the Act, then in such a case, even though there may not be any time limit for issuance of a notice, but on the dealer’s failure to comply with it the assessing authority may be obliged to take recourse to subsection (4) attracting the bar of limitation of 5 years for proceeding to assess on the best judgment basis. The majority, however, was wrong when they said at page 949 of 15 S.T.C. with reference to Madan Lal Arora’s case:
"In the case before the Supreme Court,
two notices were within three years and the third
notice was beyond three years and their Lord’-
ships held that the third notice beyond three
years, the Assessing Authority had no jurisdiction
to make the assessment. If the phrase "proceed to
assess" bears the meaning which the learned counsel
for the State contends for, namely, that only a
step towards assessment has to be taken and the
assessment can be made at any time after the period
of three years, their Lordships would on the basis
of the two notices within the period of limitation,
have come to a different conclusion and that is not
what has been done."
This was, it appears to us, clearly a mistaken reading of the judgment of this Court. The majority in our opinion, was also wrong in importing the period of limitation provided in sub-sections (4), (5) and (6) of section 11 of the Act into sub-section (3) and in holding, therefore, that an assessment under sub-section (3) must also be completed within 3 years from the last date on which the return should be filed under the Act. We are again constrained to point out that the majority of the Full Bench committed a mistake in thinking that, this Court had held in Madan Lal Arora’s case that the period of 3 years had to be counted from the last date on which the return should be filed. The decision of the Full Bench of the Punjab High Court in the case of Ramashwar Lal’s case (supra) is clearly erroneous and must be over-ruled. Pandit, J. in his dissenting opinion had, by and large, taken a correct view in favour of the Revenue.
Lastly, we may also make a reference to a recent decision of this Court delivered by one of us (Untwalia, J.) in the case of Gurbaksh Singh v. Union of India & Others(1) An argument quite similar to the one advanced before us was advanced on behalf of the assessee appellant in that case before this Court. It was argued that the period of 4 years of limitation prescribed under sub-section (2a) of section 11 of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi, should be imported into the revisional and the appellate power of the authorities conferred on them under section 20. This argument was repelled and it was pointed out that .the legislature had not provided any period within which an order was to be made by an Appellate or Revisional authority; no such period should be imported in the exercise of the power on the basis of section 11 (2a). Mr. Desai relied upon the penaltimate paragraph of this decision in support of his contention that in any view of the matter notice under section 11 (2) had to be issued and the assessment completed within a reasonable time. We do not accept this contention to be sound. The argument as presented cannot be accepted to be correct. In Gurbaksh Singh’s case it was not stated that the exercise of the revisional power suo moto could not be made after an undue long delay. On such an assumption it was merely found as a fact that there was no undue delay in the suo moto exercise of the power.
In the result we do not find any merit in the appeals. They are dismissed with costs. Hearing fee one set only. V.P.S. Appeals dismissed. (1) [1976] 3 S.C.R. 247.