1. This is a reference under Section 11(1) of the U.P. Sales Tax Act.
2. The assessee, M/s. Swadeshi Cotton Mills Company Ltd., Kanpur, is a manufacturer of and dealer in cloth. On 2nd August, 1961, the assessee was assessed to tax for a sum of Rs. 12,28,764.57. A notice of demand was served upon the assessee on 11th August, 1961. The assessee did not make the payment of the tax within the time specified in the notice of demand. The Sales Tax Officer issued a notice, under Section 15-A(1)(c) requiring the assessee to show cause as to why penalty should not be imposed upon it for its failure to pay the tax within the time allowed in that behalf. The assessee submitted a written explanation in which it was stated that the assessee had approached the Government for the grant of instalments for the payment of the arrears of tax, as it was not in a position to pay the whole amount in a lump sum. The assessee further requested for four weeks' time within which to obtain appropriate orders from the State Government. It appears, however, that the assessee did not succeed in obtaining the necessary orders from the State Government and in due course the Sales Tax Officer issued a recovery certificate to the Collector for the recovery of the arrears of tax. By an order dated 25th May, 1963, the Sales Tax Officer also imposed under Section 15-A(1)(c) a penalty of Rs. 2,45,758 at the rate of 20 per cent, of the tax due. The assessee filed an appeal and one of the contentions raised in the appeal was that the penalty order was invalid, because no notice of hearing as contemplated by Section 15-A(3) was given to the assessee before passing the penalty order. The appellate authority did not accept this contention, even though it reduced the quantum of tax to 15 percent, of the tax. It may be mentioned that in calculating the penalty, the appellate authority reduced the tax demand by a sum of Rs. 68,749 which the assessee had admittedly paid towards its tax liability before the assessment order was passed.
3. The assessee then preferred a revision. The Judge (Revisions) also upheld the imposition of penalty, but reduced the amount of penalty to 10 per cent. The assessee then asked for a reference under Section 11(1) of the U.P. Sales Tax Act. The revising authority has accordingly submitted a statement of the case and has formulated the following fourteen questions of law :
(a) Whether in the facts and circumstances of the case the notice of demand was not a valid one ?
(b) Whether the Honourable Supreme Court's decision in Income-tax Officer, Kolar Circle, Kolar v. Seghu Buchiah Setty, 52 I.T.R. 538 was validly distinguished ?
(c) Whether under the law it was not necessary to give two notices, one for showing cause under proviso to Section 15-A(1)(c) and the other for giving a reasonable opportunity for personal hearing under Section 15-A (3) of the U.P. Sales Tax Act ?
(d) Whether as a matter of law the two notices could be combined in one and the show cause notice dated 6th September, 1961, could be interpreted or treated as a composite notice giving also a reasonable opportunity for personal hearing ?
(e) Whether in the absence of a demand by the assessee for an opportunity for personal hearing, the legal requirements of the issue of notice for such an opportunity could be deemed to be satisfied ?
(f) Whether as a matter of law the Judge (Revisions) properly understood and applied the rulings reported in Shrilal Sagarmull v. Commissioner of Income-tax, Bihar and Orissa 28 I.T.R. 837, Ayyasami Nadar and Bros., Colombo v. Commissioner of Income-tax, Madras 30 I.T.R. 565 and Maddula Appa Rao and Ors. v. Income-tax Officer, Eluru, and Anr. 36 I.T.R. 140
(g) Whether under the facts and circumstances of the case the penalty imposed by the succeeding Sales Tax Officer without giving any notice to the applicant or allowing of an opportunity of being heard was legal and proper especially when there was no reply on record which could have been considered by him ?
(h) Whether under the facts and circumstances of the case a penalty can be imposed under Section 15-A for late payment when it was mentioned in the notice of demand that on failure to pay tax in time, the proceedings shall be started under Section 14 of the Act ?
(i) Whether under the facts and circumstances of the case there is any delay or default in the payment of sales tax, when the Collector, Kanpur, allowed instalments, for which a penalty can be imposed ?
(j) Whether in the circumstances of the case and when the Collector, Kanpur, allowed the assessee to pay the tax in instalments, there was a reasonable cause for delay in payment of tax demanded ?
(k) Whether under the circumstances of the case, the penalty of 10 per cent, can be imposed on the balance of tax due as per notice of demand or on the balance due on the date when the penalty was imposed ?
(l) Whether the Additional Judge (Revisions), Sales Tax, Agra, took legally correct view of the representations, explanation and correspondence filed by the assessee before the A.C. (J.) and treated by him as part of the record and dealt with by him in this order ?
(m) Whether the default, if any, was not merely technical and whether the token penalty would not have met the ends of justice ?
(n) Whether in the circumstances of the case the quantum of penalty imposed was not excessive, oppressive and unreasonable
4. Before proceeding to answer the questions, we may state a few more facts. It appears that the Collector to whom the recovery of tax was entrusted had granted instalments to the assessee. The penalty was imposed by the Sales Tax Officer, while these instalments were being paid by the assessee so that at the time when the penalty was imposed, a part of the tax had already been liquidated.
5. It appears that during the currency of the assessment year the assessee had paid in two instalments a total sum of Rs. 68,749 towards its tax liability for the assessment year in question. The Sales Tax Officer did not deduct this amount while issuing the notice of demand to the assessee. The assessee contended that the notice of demand issued to it was not valid as the amount of tax specified as payable by it was in excess of the actual amount due.
6. Now, coming to the questions we find that they are not happily framed. Some of the questions are mere arguments, while some are not very material. Most of the questions have been framed in the negative. After having perused the record before us, we find that the questions require reframing. In our opinion the only material questions that arise in the case are the following :
(i) Whether the notice of demand issued to the assessee for the payment of the tax was a valid notice, and in case the notice was invalid, the imposition of penalty was also invalid for that reason ?
(ii) Whether there was compliance of the provisions of Section 15-A(3) and in case there was no such compliance, was the penalty order vitiated for that reason ?
(iii) Whether there was any material upon which it could be held that the assessee had failed to pay the tax without a reasonable cause so as to attract the provisions of Section 15-A(1)(c) of the Act, and
(iv) Whether the quantum of penalty was rightly calculated
7. We proceed to answer question No. (2) first. Section 15-A so far as it is material for our purposes is as follows:
15-A. Penalty for failure to file returns.-(1} If the assessing authority is satisfied that any dealer....
(c) has without reasonable cause, failed to pay, within the time allowed the tax assessed on him, he may direct that such dealer shall pay, by way of penalty in the cases referred to in Clauses (a) and (c), in addition to the amount of tax payable by him, a sum not exceeding 25 per cent, of the tax due if the tax is up to rupees 10,000 and not exceeding 50 per cent, of the tax due if the tax is above rupees 10,000 and in the cases referred to in Clause (b), in addition to any tax payable by him, a sum not exceeding one and one-half times the amount of tax, which would have been avoided, if the turnover, as returned by such dealer had been accepted as the correct turnover:
Provided that no penalty shall be imposed under the foregoing clause-
(i) except after notice to the dealer, and
(ii) in a case falling under Clause (a), until a period of 60 days has expired after the date on which the return is required to be furnished under Section 7, 7-Aor 18....
(3) No order shall be made under Sub-section (1), unless the dealer has been heard or has been given a reasonable opportunity of being heard....
8. It appears that no separate notice of hearing was issued to the assessee, nor was the assessee in fact heard before the penalty order was passed. A notice as contemplated by the proviso quoted above was issued. The notice is in Hindi and when translated into English would read as follows:
Notice No. 2/3247/ST-4/ 6-9-61. M/s. Swadeshi Cotton Mills Co. Ltd., Kanpur.
Whereas you have failed to pay within the time allowed without any reasonable cause the tax amounting to Rs. 12,28,764.57 you should show cause within eight days as to why a penalty under Section 15-A should not be imposed upon you.
9. This notice, in our opinion, does no more than call upon the assessee to show cause as to why a penalty should not be imposed upon it for its failure to pay the tax within the time allowed. It does not specifically provide any opportunity of being heard to the assessee. The notice does not fix any particular date on which the assessee may appear personally or send his written explanation to the Sales Tax Officer. It allows the assessee a period of eight days within which to show cause. Obviously such a notice cannot be said to allow an opportunity of being heard to the assessee. Had the notice fixed a date, it could be argued that on the specified date it was open to the assessee to have appeared before the Sales Tax Officer and to be heard orally, if it so wanted. But in the absence of a particular date, it is not possible to say that the assessee could appear before the Sales Tax Officer and make oral submissions. It is true that Section 15-A(3) does not insist that an assessee must always be actually heard before a penalty order is passed. However, it does require that an opportunity of being heard must be afforded to him.
10. It was argued before us by the learned standing counsel that the notice was a combined notice fulfilling the requirements of the proviso as well as of Sub-section (3) of Section 15-A. This indeed is the reasoning adopted by the revising authority. We cannot accept this argument. The notice is a simple notice as contemplated by the proviso to Sub-section (1) of Section 15-A. It does not take into consideration the requirement of Sub-section (3) of Section 15-A.
11. A somewhat similar question arose under the Income-tax Act. Sub-section (3) of Section 28 of that Act is similarly worded. There also the Income-tax Officer cannot pass a penalty order unless the assessee is heard or is given an opportunity of being heard. There are three cases which have been noticed by the Judge (Revisions) under that provision, namely, Shrilal Sagarmull v. Commissioner of Income-tax, Bihar and Orissa  28 I.T.R. 837 Ayyasami Nadar and Bros., Colombo v. Commissioner of Income-tax, Madras  30 I.T.R. 565 and Maddula Appa Rao and Ors. v. Income-tax Officer, Kluru, and Anr.  36 I.T.B. 140. In all these cases the notice required the assessee to show cause in writing or in person on a particular date as to why a penalty should not be imposed. In the first case the Orissa High Court said that such a notice did not fulfil the requirements of Sub-section (3) of Section 28 and was therefore an invalid notice. In the latter two cases a different view has been taken. It has been held that so long as the assessee was given an opportunity of being heard in person, it did not matter that he was also simultaneously given the option to show cause in writing.
12. It is not necessary to decide as to which of the two views is correct because the notice in those cases was materially different from the notice in the instant case. There the assessee had been given an option to show cause in person on a fixed date but in the notice before us, no such option was given to the assessee.
13. We are, therefore, of opinion that the requirement contained in Sub-section (3) of Section 15-A has not been complied with. Now Section 15-A is a penal provision and before an action can be taken under that section, strict compliance of the law must be shown. The law requires that before an order imposing penalty is passed, the assessee must be heard or should be given an opportunity of being heard. This not having been done, the penalty order was invalid,
14. The learned standing counsel tried to argue that from the written explanation submitted by the assessee, it was clear that it had no reasonable cause for the non-payment of the tax and therefore the personal hearing would have been of no avail to it. We do not agree. The notice issued to the assessee merely required it to show cause against the imposition of the penalty. The assessee therefore confined its submission to that aspect. In the written explanation, the assessee did not say anything about the quantum. Had the assessee been given an opportunity of being heard, it would have made its submissions about the quantum as well and would have elaborated the written explanation already submitted by it. A written explanation, in our opinion, is not always a good substitute for an oral hearing.
15. We accordingly answer question No. (2) by saying that there was non-compliance of the provision contained in Sub-section (3) of Section 15-A and the penalty order was for that reason invalid.
16. In view of our answer to question No. (2), it is not necessary to answer the other questions. The assessee is entitled to the costs which we assess at Rs. 100.