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India Leather House and anr. Vs. the Sales Tax Officer and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax;Constitution
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Writ No. 3789 of 1970
Judge
Reported in[1973]30STC357(All)
AppellantIndia Leather House and anr.
RespondentThe Sales Tax Officer and anr.
Appellant Advocate R.K. Gulati, Adv.
Respondent Advocate The Standing Counsel
DispositionPetition dismissed
Excerpt:
.....(1) within the period prescribed in that behalf or, if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment and assess the tax on the basis thereof. the argument is that section 7(3) and section 21(1) contemplate one and the same class of dealers, that is, the dealers who have failed to file a return of their turnover. before the amendment of 1956 there was no limitation for assessment under section 7(3), but after the amendment assessment under section 7(3) as well as under section 21 should be made within four years from the end of the relevant assessment year. in our case, section 7(3) does not..........the legislature has, in effect, said that where notice is served on a dealer during the fourth year, assessment may be made within one year from the date of the service of notice even after the expiry of four years. perhaps the legislature in its wisdom considered that the time spent in collecting materials for having 'reasons to believe' and in serving the notice on the dealer could not be more than one year. accordingly, it has itself exercised judgment on the period of time which may be excluded in computing the limitation under sub-section (2) of section 21. the wisdom of the legislature cannot be questioned. it is, however, important to notice that the principle which justifies the first proviso does not create inequality ; on the contrary, it brings about equality between the.....
Judgment:

S.N. Dwivedi, J.

1. The first petitioner, M/s. India Leather House, Agra, is a dealer within the meaning of that term in the U.P. Sales Tax Act. The second petitioner is a partner in M/s. India Leather House. The petitioners did not file any return of their turnover of sales for the assessment year 1956-57. On 24th March, 1962, the first petitioner was assessed to sales tax under Section 21 of the U.P. Sales Tax Act. An appeal was preferred against the assessment order. It was allowed and the matter was remanded to the Sales Tax Officer for assessment. The petitioners filed a revision against the order of remand. It was dismissed. The Sales Tax Officer made another assessment. Again an appeal was preferred. It was allowed. The appellate authority remanded the case again to the Sales Tax Officer for assessment. It is at this stage that the petitioners have filed the present petition.

2. Counsel for the petitioners has submitted two points for our consideration. First, there is no material on record to show that the Sales Tax Officer could have reasons to believe that any part of the turnover of the petitioners has escaped assessment and that accordingly the notice issued under Section 21 is invalid ; second, the first proviso to Sub-section (2) of Section 21 is obnoxious to Article 14 of the Constitution.

3. The first point may shortly be disposed of. It was never raised before the appellate authority and the revising authority. It is being raised for the first time now. In the circumstances, we are not inclined to permit the petitioners to raise it now.

4. Coming to the second point, it is necessary to examine Section 21 of the Sales Tax Act. The material part of Section 21 reads:

(1) If the assessing authority has reason to believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for any year, the assessing authority may, after issuing notice to the dealer, and making such enquiry as may be necessary, assess or reassess him to tax...

(2) No order of assessment under Sub-section (1) or under any other provision of this Act shall be made for any assessment year after the expiry of four years from the end of such year :

Provided that where the notice under Sub-section (1) has been served within such four years the assessment or reassessment to be made in pursuance of such notice may be made within one year of the date of service of the notice even if the period of four years is thereby exceeded...

5. The constitutionality of the first proviso is impugned by the petitioners.

6. Section 3 of the U.P. Sales Tax Act (hereinafter called the Act) is the charging provision. It imposes sales tax on every dealer. Section 2(2) defines the term 'dealer'. It means any person or association of persons carrying on the business of buying or selling goods in Uttar Pradesh, whether for commission, remuneration or otherwise. Section 3-A provides for single point taxation. It states that the State Government may notify in the Gazette that the turnover in respect of any goods or class of goods shall not be liable to tax except at such single point in the series of sales by successive dealers as it may specify. It may further notify that the turnover in respect of such goods shall be liable to tax at such rate not exceeding ten naye paise per rupee as may be specified. Section 8-A(1) provides for registration of dealers of four kinds : (1) every dealer who sells any goods imported by him from outside Uttar Pradesh, the turnover whereof is liable to tax under Sub-section (1) of Section 3-A; (2) every dealer who is liable to pay tax under any other provisions of the Act; (3) every dealer who would, but for any exemption made or granted under the Act, be liable to pay tax provided his actual or estimated turnover for the assessment year is not less than Rs. 12,000 or such larger amount as may be notified under the first proviso to Sub-section (1) of Section 3 ; and (4) every dealer commencing business during the course of an assessment year whose average monthly estimated turnover for the remainder of the year, or whose actual turnover in any month during such period, is not less than one-twelfth of Rs. 12,000 or of such larger amount as may be notified under the first proviso to Sub-section (1) of Section 3. Section 7 deals with assessment of tax. Section 7(1) provides that every dealer who is liable to pay tax under the Act shall submit such return of his turnover at such intervals within such period in such form and verified in such manner as may be prescribed. It further provides that the assessing authority may for recorded reasons extend the date for filing the return by any person or class of persons. Section 7(3) provides that if no return is submitted by the dealer under Sub-section (1) within the period prescribed in that behalf or, if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment and assess the tax on the basis thereof. The proviso to Sub-section (3) says that before taking action under Sub-section (3) the dealer shall be given a reasonable opportunity of proving the correctness and completeness of any return submitted by him.

7. The constitutionality of the first proviso to Sub-section (2) of Section 21 is to be seen in the backdrop of these provisions. The argument is that Section 7(3) and Section 21(1) contemplate one and the same class of dealers, that is, the dealers who have failed to file a return of their turnover. Sub-section (2) of Section 21 prescribes limitation for assessment. It says that no assessment would be made either under Section 7 or under Section 21 after the expiry of four years from the end of the relevant assessment year. The effect of the first proviso, however, is that where the notice under Section 21 is served in the course of the fourth year, the assessment may be made on the dealer who has not filed his return within one year of the date of service of the notice. In other words, the assessment may be made even after the expiry of four years. It is said that the extension of limitation with respect to the assessment under Section 21 creates an invidious discrimination between the same class of dealers. Where a dealer who has not filed his return is proceeded with under Section 7(3), the assessment is made against him within four years from the end of the relevant assessment year ; but where another similar dealer is dealt with under Section 21, the assessment may be made against him even after the expiry of four year's if the notice has been served on him during the fourth year.

8. Section 21 was amended in 1956. Before 1956 a proceeding for assessment could be under Section 21 even if the assessing authority had no reason to believe that the turnover had escaped assessment. Again, before 1956, limitation for assessing a dealer under Section 21 was three years from the end of the relevant assessment year. The amending Act made three important changes. After the amendment the pre-condition for initiating a proceeding under Section 21 is that there should be reasons to believe with the assessing authority that the turnover has escaped assessment. There is another pre-condition. He should issue a notice to the dealer before making the assessment. The next important change is the enlargement of the period of limitation from three years to four years. Before the amendment of 1956 there was no limitation for assessment under Section 7(3), but after the amendment assessment under Section 7(3) as well as under Section 21 should be made within four years from the end of the relevant assessment year. The next important change made by the amending Act is the insertion of the first proviso to Sub-section (2). We have already spoken about it. It seems to us that the proviso enlarges the period of limitation for assessment under Section 21 on account of the first two important changes made in Section 21, namely, 'the pre-condition of there being reasons to believe' and of 'a notice having been served on the dealer'.

9. It may be true that Section 7(3) and Section 21(1) deal with the same class of dealers, that is, the dealers who have not filed a return. But it is not quite correct to say that the limitation provided for proceedings under Section 7(3) and under Section 21(1) is different. Sub-section (2) of Section 21 provides for the same period of limitation for both the proceedings. The limitation is four years from the end of the relevant assessment year. The proviso to Sub-section (2) enlarges the period of limitation in the case of proceedings under Section 21. The enlargement is explained by the two pre-conditions of there being reasons to believe and the service of a notice on the dealer.

10. Section 7(3) places no restriction on the assessing authority for making assessment on a dealer who has not filed a return. It is not necessary that the assessing authority should have reasons to believe in order to make an assessment under Section 7(3). Nor there is any statutory requirement under Section 7(3) that a notice should be served on the dealer who has not filed the return. It may be that the assessing authority may in his discretion decide to serve the notice. But Section 7(3) itself does not impose a restriction of serving a notice. It is accordingly evident that a dealer who is dealt with under Section 21 gets two precious advantages. He cannot be dealt with under Section 21 unless the assessing authority has reasons to believe that his turnover has escaped assessment. Nor can he be assessed unless he has been served with a notice. Now the assessing authority will not have reasons to believe that the turnover of the dealer has escaped assessment until he has made some enquiries. The enquiries will take some time. Again, serving a notice will also take some time. Some part of the period of four years will be spent by the assessing authority in collecting materials and in effecting service on the dealer. Absent the first proviso, the two advantages of the dealer under Section 21 become the corresponding disadvantages of the assessing authority. In other words, absent the first proviso, Section 21 would be weighed in favour of the defaulting dealer and would inflict unjust inequality on the department. We think that the Legislature has tried to remove that inequality by introducing the first proviso. The Legislature has tried to remove a similar inequality by Section 15(1) and (2) of the Limitation Act. Section 15(1) provides that where a prior sanction of any authority is necessary for instituting a suit the time spent in obtaining the sanction of the authority would be excluded in computing the period of limitation provided for the institution of the suit. Section 15(2) provides that where a suit cannot be instituted without serving a notice on the defendant, the time spent in serving the notice would be excluded in computing the period of limitation provided for instituting the suit. If the first proviso had adopted the same time exclusion technique, no legitimate objection could have been taken thereto. If the first proviso had said that the time spent in collecting the materials for having reasons to believe and in serving notice on the dealer shall be excluded in computing the period of four years, no dealer could raise a legitimate objection on the score of Article 14. Far from creating inequality, such provision, indeed, affects inequality between the parties to the proceedings. The Legislature has, however, adopted another method. Instead of saying that the time spent in obtaining materials for having reasons to believe and in serving notice on the dealer shall be excluded in computing the period of limitation, the Legislature has, in effect, said that where notice is served on a dealer during the fourth year, assessment may be made within one year from the date of the service of notice even after the expiry of four years. Perhaps the Legislature in its wisdom considered that the time spent in collecting materials for having 'reasons to believe' and in serving the notice on the dealer could not be more than one year. Accordingly, it has itself exercised judgment on the period of time which may be excluded in computing the limitation under Sub-section (2) of Section 21. The wisdom of the Legislature cannot be questioned. It is, however, important to notice that the principle which justifies the first proviso does not create inequality ; on the contrary, it brings about equality between the parties to the proceedings under Section 21.

11. Counsel for the petitioners relied on Anandji Haridas v. S.P. Kushare [1968] 21 S.T.C. 326 (S.C.). In our opinion, that decision does not help the petitioners. In that case, the Supreme Court held that Section 11(4)(a) of the C.P. and Berar Sales Tax Act is violative of Article 14. The court said that the case of a registered dealer who fails to submit a return falls both under Section 11 (4)(a) and Section 11-A(1). The assessing authority may proceed against the dealer under either of those provisions. Where he proceeds against the dealer under Section 11(4)(a), there is no limit of time for assessment; where he proceeds against the dealer under Section 11-A(1), the assessment can be made within three years from the expiry of the relevant assessment year. There are marked differences between our Section 7(3) and Section 21 and Section 11(4)(a) and Section 11-A(1) and (3). Firstly, when a registered dealer is to be assessed under Section 11(4), it is necessary for the assessing authority to serve notice on him. He cannot be assessed until he has been given a reasonable opportunity of hearing. That, to our mind, presupposes prior notice of hearing. In our case, Section 7(3) does not impose such a requirement where the dealer has failed to file a return. Such a requirement is necessary where the dealer has filed an incorrect return. Again, a proceeding under Section 11-A(1) may be initiated where in consequence of any information which has come into his possession, the assessing authority is satisfied that the turnover of the dealer during any period has escaped assessment. There is no pre-condition that before initiating proceedings under Section 11-A(1) there should be reasons to believe that the turnover has escaped assessment. That requirement is to be found in our Section 21. There is another important distinction between the two sets of provisions. The C. P. and Berar Sales Tax Act provides for no limitation for assessing a dealer under Section 11(4)(a). In our case, assessment under Section 7(3) as well as under Section 21(1) should be made within four years from the end of the relevant assessment year. On account of the three important distinctions, we are of opinion that the decision of the Supreme Court will not assist the petitioners in this case.

12. There is yet another argument. It is said that assuming that Section 21 constitutes a separate class of dealers, the assessing authority has discretion to proceed against one dealer under Section 7(3) and against another dealer under Section 21. We are unable to accept this argument. It is true that the assessing authority has discretion to proceed against the dealer under Section 21. But it cannot be said that his discretion is unguided and unrestrained. It is the duty of the assessing authority to assess and collect revenue for the State. It is implicit in his duty that he should act in the interests of the revenue of the State. In M.M. Ipoh v. Income-tax Commissioner [1968] 67 I.T.R. 106 (S.C.), the Supreme Court has pointed out :

The duty of the Income-tax Officer is to administer the provisions of the Act in the interests of public revenue, and to prevent evasion or escapement of tax legitimately due to the State. Though an executive officer engaged in the administration of the Act, the function of the Income-tax Officer is fundamentally quasi-judicial.... The nature of the authority exercised by the Income-tax Officer in a proceeding to assess to tax income, and his duty to prevent evasion or escapement of liability to pay tax legitimately due to the State, constitute, in our judgment, adequate enunciation of principles and policy for the guidance of the Income-tax Officer.

13. Where the assessing authority has reasons to believe that the turnover of the dealer has escaped assessment, he should act under Section 21 specially in those cases where the revenue gets the benefit of the extended period of limitation. If, in spite of there being material for having reasons to believe that the turnover of the dealer has escaped assessment, the assessing authority does not act under Section 21, the Commissioner of Sales Tax may invoke the aid of Article 226 of the Constitution for a direction to him to act in accordance with Section 21, for Section 21 confers a power on him coupled with a duty to the State. So we are of opinion that Section 21 gives ample guidance to the assessing authority how to exercise discretion in the particular circumstances of a case.

14. In the result, we think that the first proviso to Sub-section (2) of Section 21 does not run a foul of Article 14 of the Constitution. There is no force in the petition and accordingly it is dismissed with costs.


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