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Shree Guru Industries Vs. K.J. Raval, S.T.O., Jamnagar and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 1619 of 1979
Judge
Reported in(1982)1GLR539; [1983]53STC392(Guj)
ActsGujarat Sales Tax Act, 1969 - Sections 32, 35, 35(2), 58, 58(1), 58(2) and 59(4)
AppellantShree Guru Industries
RespondentK.J. Raval, S.T.O., Jamnagar and ors.
Appellant Advocate R.D. Pathak, Adv.
Respondent Advocate J.R. Nanavati, Government Pleader, i/b H.V. Chhatrapati for Bhaishanker Kanga and Girdharlal
Excerpt:
sales tax - recognition certificate - sections 32, 35 and 58 of gujarat sales tax act, 1969 - petitioner-firm failed to maintain correct and complete books of business - order of cancellation of recognition certificate of petitioner-firm passed - petition against such order - opportunity of hearing not given to petitioner - no adjudication has been made on materials collected in proceedings - impugned order bad in law and void - petition allowed. - - r-701-r-008 with effect from 31st may, 1979, since the petitioner-firm had failed to maintain correct and complete books of account of the business as required under section 58(1) of the gujarat sales tax act, 1969 (hereinafter referred to as 'the gujarat act'). 2. in order to appreciate the challenge to the impugned order of..........correct and complete books of account of the business as required under section 58(1) of the gujarat sales tax act, 1969 (hereinafter referred to as 'the gujarat act'). 2. in order to appreciate the challenge to the impugned order of cancellation of the recognition certificate of the petitioner-firm, a few facts need be set out. the petitioner-firm is a dealer registered under the gujarat act as well as under the central sales tax act, 1956. it also hold recognition certificate under the gujarat act. it is claimed by the petitioner-firm that is annual turnover of the sales was more than rs. 15 lacs and substantial portion thereof was in the course of inter-state trade and commerce. the petitioner-firm further claims that it used to submit the returns regularly and has paid the tax.....
Judgment:

B.K. Mehta, J.

1. By this petition under article 226 of the Constitution of India, the petitioner-firm prays for appropriate writs, orders and directions to quash and set aside the order of the Sales Tax Officer-3, Division II, Jamnagar, of 5th May, 1979, seeking to cancel the recognition certificate bearing No. R-701-R-008 with effect from 31st May, 1979, since the petitioner-firm had failed to maintain correct and complete books of account of the business as required under section 58(1) of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as 'the Gujarat Act').

2. In order to appreciate the challenge to the impugned order of cancellation of the recognition certificate of the petitioner-firm, a few facts need be set out. The petitioner-firm is a dealer registered under the Gujarat Act as well as under the Central Sales Tax Act, 1956. It also hold recognition certificate under the Gujarat Act. It is claimed by the petitioner-firm that is annual turnover of the sales was more than Rs. 15 lacs and substantial portion thereof was in the course of inter-State trade and commerce. The petitioner-firm further claims that it used to submit the returns regularly and has paid the tax due thereon as per the provisions of the Gujarat Act. No contumacious breach of the provisions of the Act or the Rules is said to have been committed by the petitioner-firm.

3. It appears that on 1st February, 1979, the Sales Tax Officer-3, Enforcement Branch, Jamnagar, had visited the business place of the petitioner-firm for spot-survey and sought some clarifications in respect of certain accounts. It further appears that after this visit of the Sales Tax Officer, by notice of 20th March, 1979, the respondent herein, who is designated as Sales Tax Officer-3, Division II, Jamnagar, called upon the petitioner-firm to show cause why the recognition certificate of the firm should not be cancelled since he had been informed by the Sales Tax Officer-1, Enforcement Branch, Jamnagar, by his letter of 17th March, 1979, that the account books of the petitioner-firm have been seized. The petitioner-firm was required to submit its explanation to the show cause notice within three days of the receipt thereof. The petitioner-firm by it letter of 22nd March, 1979, protested before the respondent herein that he had no jurisdiction, power or authority under the Gujarat Act to cancel the recognition certificate merely because the account books were seized and it was not proper to propose such an action. The petitioner-firm further stated in the said letter that if there was any want of satisfactory explanation before the Sales Tax Officer-1, Enforcement Branch, Jamnagar, in reply to the queries raised by him in the course of his spot-survey held on 1st February, 1979, it was only because the person in-charge of the account was not present on that day. To the surprise of the petitioner-firm the respondent herein by the impugned order decided to withdraw the recognition granted to the petitioner-firm under section 32 of the Gujarat Act in exercise of his power conferred by section 35(2)(b) of the Gujarat Act. It is this order which is under challenge in this petition before us.

4. Pursuant to the rule nisi issued by this Court (by the learned single Judge during the summer vacation) by his order of 5th June, 1979, the respondent herein has filed his affidavit-in-reply supporting the impugned order on the ground, inter alia, that the cancellation of the recognition certificate was justified since the petitioner-firm had failed to maintain correct and complete books of account as required under section 58 of the Gujarat Act.

5. At the time of hearing of this petition, three grounds have been urged on behalf of the petitioner-firm as under :

(1) The impugned order of cancellation of the recognition certificate is beyond the jurisdiction, authority and power of the respondent inasmuch as the petitioner-firm has not been given any opportunity to meet with the allegation that the petitioner-firm had failed to maintain proper and complete books of account as held by the respondent herein in the impugned order.

(2) The impugned order is bad in law and void inasmuch as no adjudication is made about the propriety and irregularity of the books by holding regular proceedings pursuant to the seizure of the books as envisaged in section 59(4) read with section 35(2) of the Gujarat Act.

(3) In any case, the impugned order could not have been made without giving opportunity to the petitioner-firm to rectify the irregularity or deficiency found in the books of account of the petitioner-firm as provided in section 58(2) of the Gujarat Act.

6. We are of the opinion that this petition must be allowed obviously for the reasons stated hereunder on the first two contentions and it is not necessary for us to go into the third contention which has been urged on behalf of the petition-firm. It cannot be gainsaid that the show cause notice issued by the respondent herein calling upon the petitioner-firm to explain why its recognition certificate should not be cancelled did not by way of allegation state a word as to the impropriety or the irregularity found by the respondent herein in the books of the petitioner-firm. Besides calling for the explanation in the show cause notice as to why recognition should not be cancelled, there is no reference to any precise ground which impelled the authorities concerned to take the proposed action. The only other fact which has been mentioned in the said notice was that the Sales Tax Officer-1, Enforcement Branch, Jamnagar, has, by his letter of 17th March, 1979, informed the respondent that the account books of the petitioner-firm have been seized. The petitioner-firm was, therefore, right when it contended in its reply of 22nd March, 1979, to the show cause notice that there was no authority or power invested in the respondent to exercise the power of cancellation of recognition merely because the books have been seized. It was really a matter of surprise for us that the respondent herein has proceeded to make the impugned order for cancellation of the certificate without inviting the attention of the petitioner-firm to any alleged irregularity or impropriety in the books, if any, of the petitioner-firm. Section 35 of the Gujarat Act provides for the cancellation or suspension, inter alia, of the recognition. Section 35(2)(b), which is material and relevant for the purposes of this petition, reads as under :

'35. (2) If a licensed dealer, recognised dealer or commission agent holding a permit -

(a) fails to pay any tax (including any penalty) due from him under any provisions of this Act or of any earlier law, or

(b) contravenes or has contravened any provisions of this Act or the Rules or any conditions of his licence, recognition or permit, or

(c) becomes an insolvent, or

(d) has been convicted of an offence under this Act, or any earlier law, the Commissioner may, after giving the licensed dealer, or recognised dealer or as the case may be, commission agent a reasonable opportunity of being heard, suspend, the licence or, recognition or as the case may be, permit for such period as he thinks fit or cancel it,'

7. Section 35(2), therefore, entails an obligation on the competent authority, before exercising the power of suspension or cancellation of recognition, licence or permit, of giving a reasonable opportunity to the licensed dealer, recognised dealer or a commission agent, as the case may be, of being heard and making his submissions against the proposed action. It is, therefore, clear that before a dealer could be deprived of the benefit of the licence or the recognition or the permit, as the case may be, he must be apprised of the grounds, which, in the opinion of the competent authority, called for the proposed action of suspension or cancellation. So far as the present case is concerned, it is common ground that the power which has been exercised by the respondent is under section 35(2)(b) of the Gujarat Act. In other words, the impugned order of cancellation of the recognition has been made since, in the opinion of the respondent herein, the petitioner-firm had contravened the provisions of the Act or the Rules or any condition of its recognition. On perusal of the impugned order, it appears that what had weighed with the respondent in taking the action as he did was that the petitioner-firm had not maintained the correct and complete books of account of all their business activities as required under section 58(1) of the Gujarat Act. In other words, in the opinion of the respondent, the petitioner-firm has contravened the provisions contained in section 58(1) of the Gujarat Act. If, therefore, in the show cause notice the petitioner has not been apprised of this ground even in general terms, it is beyond our comprehension as to how the petitioner-firm could defend its cause by submitting the explanation to satisfy the respondent that there was no failure on the part of the petitioner-firm to maintain the correct and complete books of account as required by law. As a matter of fact it was obligatory for the respondent to precisely point out as to in what particulars, in the opinion of the respondent, the books were incomplete or incorrect. Unless these particulars are furnished, it would be well-nigh impossible for a dealer to controvert the same by producing necessary materials or for that matter to submit satisfactory explanation to avoid the proposed action of cancellation or suspension.

8. The second grievance of the petitioner-firm is also well-founded. The grievance is that the impugned order has been made without any adjudication properly and legally made by holding regular proceedings pursuant to the seizure of the books under section 59(4) of the Gujarat Act. It will be worthwhile to reproduce section 59(4) under which the books of a dealer can be seized. Sub-section (4) of section 59 reads as under :

'59(4) If the Commissioner has reason to believe that any dealer has evaded or is attempting to evade the payment of any tax due from him he may, for reasons to be recorded in writing, seize such accounts, registers or documents of the dealer as may be necessary, and shall grant a receipt for the same, and shall retain the same for so long as may be necessary, in connection with any proceeding under this Act or for a prosecution.'

The proceedings, admittedly in the present case, can be only for the purposes of taking necessary action under section 35 of the Gujarat Act. Unless those proceedings are held in which a dealer is given an opportunity of hearing so as to defend himself against the proposed action of cancellation or suspension of the licence, recognition or permit, as the case may be, under section 35 of the Gujarat Act, and an adjudication is legally made on the materials which have been produced on the record by the department as well as by the dealer concerned no valid or legal order of cancellation or suspension could have been validly made against the erring dealer. It is common ground that no proceedings have been held by the respondent by giving sufficient opportunity of hearing to the petitioner and no adjudication has been made on the materials if any collected in such proceedings. The impugned order is, therefore, clearly bad in law and void on that count also.

9. In that view of the matter, we do not think it is necessary for us to go into the larger contention which has been urged as contention No. (3) on behalf of the petitioner-firm.

10. The result is that this petition should be allowed and we issue a writ of certiorari quashing and setting aside the impugned order of the respondent dated 5th May, 1979, annexure A/3 to the petition, cancelling the recognition certificate of the petitioner-firm is purported exercise of his power under section 35(2)(b) of the Gujarat Act. Rule is made absolute accordingly with costs.


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