1. The question of law which has been referred for consideration of the Full Bench is:
Whether Rule 14 of the Madras General Sales Tax Rules is valid and if so, whether the powers, of revision thereunder can be exercised in cases to which Rule 17 relating to escaped assessment is applicable?
2. In view of the fact that the appeals themselves will be posted for final disposal after the receipt of the opinion of the Full Bench on the question of law formulated by the referring Judges we do not propose to deal in any detail with the facts of either of these cases but merely answer the legal question propounded in the order of reference.
3. The following facts, however, have to be set out to understand the complaint of the assessees. Both the suits out of which these appeals arise were filed by the assessees for the refund of sales tax paid by them as a result of re-assessment in the exercise of revisional powers and in each of them the assessees have succeeded. O.S.A. No. 62 of 1951 relates to an assessment for the year 1944-45. The Deputy Commercial Tax Officer, Harbour Division who was the assessing authority, by his order dated 27th March, 1946, determined the total turnover of the respondents at Rs. 2,53,72,488-14-11 and tax on this basis was paid by them. Subsequently on 28th March, 1947 the Commercial Tax Officer, North Madras, issued a notice to them to show cause why the assessment should not be revised under Rule 14(2) of the Madras General Sales Tax Rules and by his proceedings dated 31st March, 1947, he revised it by the inclusion in the turnover of a further sum of Rs. 30,03,650-12-6 and levied tax accordingly. The amount thus demanded was paid and the suit C.S. No. 446 of 1947 was filed by the assessees for the refund of the tax on the ground that the revision and reassessment were invalid.
4. In the assessment proceedings which are the subject-matter of C.C.C.A. No. 137 of 1951 the Deputy Commercial Tax Officer, Harbour Division, by his order dated 26th March, 1946, determined the turnover of the assessee at Rs. 2,02,26,736, the assessment in this case also related to 1944-45. The assessee preferred an appeal to the Commercial Tax Officer and the appeal was dismissed on 25th March, 1947, by this appellate authority. On 5th March, 1948, the Commercial Tax Officer issued notice to the assessee to show cause why the assessment should not be revised by including in the turnover a sum of Rs. 7,45,593-11-0. The assessee appeared and denied the jurisdiction of the revising authority. The Commercial Tax Officer, however, by his proceedings dated 1st December, 1948, increased the turnover by the addition of the sum mentioned earlier and the assessee was required to pay the tax due according to the revised assessment which he did and filed the suit for the refund of the sum involved in the revised assessment.
5. To appreciate the points raised, it will be necessary to set out the relevant, provisions of the Madras General Sales-tax Act and the rules framed thereunder which deal with the assessment of the tax and the provisions relating to appeal and revision at the time when the assessment orders were made and when the orders-under revision were passed. Section 3(1) of the Act is the main charging provision under which every dealer has to pay in each year a tax on his total turnover to be calculated at the rate of three pies per every rupee on such turnover subject to exceptions not relevant for our purposes. Sub-section (4) of this section provides for the turnover being determined in accordance with such rules as may be prescribed and the sub-section following provides for the tax under the main provision being assessed levied and collected in such manner and in such instalments if any as may be prescribed. Section 9 which relates to assessment enacts:
9. (1) Every dealer whose turnover is ten thousand rupees or more in a year shall submit such return or returns of his turnover in such manner, and within such periods as may be prescribed.
(2)(a) If the assessing authority is satisfied that any return submitted under Sub-section (1) is correct and complete, he shall assess the dealer on the basis thereof.
(b) If no return is submitted by the dealer under Sub-section (1) before the date prescribed or specified in that behalf or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall assess the dealer to the best of his judgment:
Provided that before taking action under this clause, the dealer shall be given a reasonable opportunity of proving the correctness and completeness of any return submitted by him.
6. Appeals from these orders are provided by Section 11 which runs:
Section 11(1): Any assessee objecting to an assessment made on him under Section 9, Sub-section (2) may, within thirty days from the date on which he was served with notice of the assessment, appeal to such authority as may be prescribed:
Provided that no appeal shall be entertained under this sub-section unless it is accompanied-by satisfactory proof of the payment of the tax admitted by the appellant to be due or of such instalments thereof as might have become payable, as the case may be.
(2) The appeal shall be in the prescribed form and shall be verified in the prescribed manner.
(3) The Appellate authority may, after giving the appellant an opportunity of being heard, pass such orders on the appeal as such authority may think fit.
(4) Every order passed in appeal under this section, shall, subject to the powers of revision conferred by Section 12 to 12-C be final.
7. Before an amendment effected by Madras Act XXV of 1947 which came into force on 1st January, 1948, Section 12 referred to in Section 11 was in these terms:
Section 12: The Board of Revenue may in its discretion at any time either suo motu or on application, call for and examine the record of any order passed by or any proceedings recorded by, any officer or person under this Act for the purpose of satisfying itself as to the legality or propriety of such order, or as to the regularity of such proceedings, and may pass such order in reference thereto as it thinks fit.
8. The amended section which has been in force since then runs:
Section 12(1): The Board of Revenue may in its discretion call for and examine the record of any order passed or proceeding recorded by any authority, officer or person under the provisions of this Act, including Sub-section (2), for the purpose of satisfying itself as to the legality or propriety of such order, or as to the regularity of such proceeding and may pass such order in reference thereto as it thinks fit.
(2) Powers of the nature referred to in Sub-section (1) may also be exercised by such authority or officer and in such class of cases as may be prescribed, including cases where an inferior authority or officer has exercised its or his powers under this sub-section.
(3) The powers conferred by Sub-sections (1) and (2) may be exercised by the Board of Revenue or by the authority or officer concerned, as the case may be, suo motu at any time or on application preferred within six months of the passing or recording of the order or proceeding in question.
9. Section 19(1) empowers the Provincial Government to make rules to carry out the purposes of the Act. By Sub-section (2) 'without prejudice to the generality of the foregoing power' it is enacted that such rules may provide for, among others.
(a) all matters expressly required or allowed by this Act to be prescribed:
* * * * *(f) the assessment to tax under this Act of any turnover which has escaped assessment, and the period within which such assessment may be made, not exceeding three years;
(g) the rectification of mistakes apparent from the record of any assessment, appeal or revision and the period within which such rectification may be made;
* * * * *(j) the duties and powers of officers appointed for the purpose of enforcing the provisions of this Act;
* * * * *(l) any other matter for which there is no provision or no sufficient provision in this Act and for which provision is, in the opinion of the Provincial Government, necessary for giving effect to the purposes of this Act.
10. The Act itself does not prescribe the assessing authority, nor the other authorities to whom appeals lie under Section 11 and in fact the only specific authority named in the Act is the Board of Revenue in Section 12. The hierarchy of officers who are to assess and exercise appellate jurisdiction over orders of the assessing authorities are left, to be prescribed by rules as Section 2(a) of the Act defines an 'assessing authority' as meaning any person authorised by the Provincial Government to make any assessment under the Act, and Section 11 leaves it to the Provincial Government to name and constitute the appellate authorities to hear appeals from assessment orders. In exercise of these powers confined to them, the Provincial Government framed the Madras General Sales Tax Rules after satisfying the formalities prescribed for their promulgation. The gradation of officers is set out in Rule 3, viz., Assistant Commercial Tax Officer, Deputy Commercial Officer and Commercial Tax Officer. The Assistant and Deputy Commercial Tax Officers are the assessing authorities under the rules. Under Rule 13 of the Madras General Sales Tax Rules the Commercial Tax Officer is prescribed as the appellate authority to whom appeals may be preferred from original orders of an assessing authority. Sub-rule (6) provides that the appellate authority shall, after giving the appellant a reasonable opportunity of being heard, pass such orders on the appeal as such authority thinks fit. As the rules numbered 14 and 17 are the main provisions whose interpretation arises on this reference they have to be set out in full.
11. Rule 14 as it stood before 7th February, 1948, ran in these terms:
Rule 14 (1): Every order passed on appeal under Rule 13 shall, subject to the powers of revision conferred by Section 12 and Sub-rule (2), be final.
(2) The Commercial Tax Officer may, in his discretion, at any time, either suo motu or an application, call for and examine the record of any order passed or any proceedings recorded under the Act by an Assistant or Deputy Commercial Tax Officer working under him, for the purpose of satisfying himself as to the legality or propriety of such order or as to the regularity of such proceedings and may pass such order in reference as he thinks fit.
12. This rule was amended as and from 7th February, 1948, by Government Notification so as to read:
14 The following authorities may exercise the powers of the nature referred to in Section 12(i):
(1) The Deputy Commissioner of Commercial Taxes, and
(2) The Commercial Tax Officer.
Provided that the Deputy Commissioner of Commercial Taxes shall not revise an appellate order of a Commercial Tax Officer acting under Section 11 in respect of cases involving a turnover exceeding Rs. 20,000.
14-A: Where the tax as determined by the initial assessing authority appears to the appellate or revising authority to be less than the correct amount of the tax payable by the dealer, the appellate or revising authority shall, before passing orders, determine the correct amount of tax payable by 'the dealer after issuing a notice to the dealer and after making such enquiry as such appellate or revising authority considers necessary.
13. Rule 17 as it stood before 7th February, 1948, was in these terms:
17 (1): If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to the tax in any year or if the licence fee has escaped levy in any year, the assessing authority or licensing authority, as the case may be, may, at any time within the year or the year next succeeding that to which the tax or licence fee relates, assess the tax payable on the turnover which has escaped assessment or levy the licence fee, after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
(2) If for any reason any tax or licence fee has been assessed at too low a. rate in any year the assessing authority or the licensing authority, as the case may be, may, at any time within the year or the year next succeeding that to which the tax or licence fee relates, revising the assessment or the license fee after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
14. This rule also underwent a change as and from 7th February, 1948, from whence it ran:
17(1): If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to the tax in any year or if the license fee has escaped levy in any year, the assessing authority or licensing authority, as the case may be, may, at any time within the year or the two years next succeeding that to which the tax or licence fee relates, assess the tax payable on the turnover which has escaped assessment or levy the licence fee, after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
(2) If for any reason any tax or licence fee has been assessed at too low a rate in any year, the assessing authority or the licensing authority, as the case may be, may, at any time within the year or the two years next succeeding that to which the tax or licence fee relates, revise the assessment or the licence fee after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.
(3) Notwithstanding anything contained in Sub-rules (1) and (2).
(a) The whole or any part of the turnover of a dealer or licensee which has escaped assessment to tax in the year 1945-46 shall not be assessed to tax after the 31st March, 1947.
(b) any licence fee which has escaped levy in the year 1945-46 shall not be levied after the 31st March, 1947; and
(c) any tax or licence fee which has been assessed or levied at too low a rate in the year 1945-46 shall not be enhanced after the 31st March, 1947.
15. The contentions raised by learned Counsel for the assessees respondents in. the two appeals are two: (1) On a proper construction of the provisions of the Act which we have set out above the Board of Revenue was intended to be the sole and, exclusive revising authority and Rule 14(2) which authorities the Commercial Tax Officer to exercise powers of revision is beyond the rule-making power vested in the Provincial Government. (2) Section 19(f) specifically provides for rules being made for the assessment of the escaped turnover of an assessee with a time-limit of three years within which such reassessment proceedings could be started and as Rule 17 framed for this purpose vests the jurisdiction to assess the escaped turnover in the assessing authority, namely, the Deputy Commercial Tax Officer and has also prescribed a time-limit of originally one and subsequently two years from the assessment order, within which that power is to be exercised, it would be contrary to all sound rules of construction to read Rule 14(2) as conferring upon the Commercial Tax Officer an unfettered jurisdiction to reopen assessments and effect a reassessment even after the lapse of the periods prescribed by Rule 17(f). We shall deal with these two points in that order.
16. The arguments advanced in support of the challenge of the validity of Rule 14(2) fall under two heads: (1) that the rule was contrary to an express provision in the Act and (2) that the rule was not authorised by the rule-making power conferred by Section 19. The first head of argument was formulated thus. Section 11(4) has enacted that
every order passed in appeal under this section shall subject to the power of revsision conferred by Section 12 be final.
17. This sub-section imparts finality to an order of the Commercial Tax Officer subject only to one specified exception viz., revision by the Board of Revenue. It was not therefore competent to the rule-making authority to enact a provision whereby this finality was impaired by the action of some other revisional authority. Stated in this broad form the argument is un-exceptionable. But this has no application to the facts of the cases before us. In O.S.A. No. 62 of 1951 the order that was revised by the Commercial Tax Officer was. an order of the Deputy Commercial Tax Officer from which no appeal had been brought and to which therefore the finality pointed by Section 11(4) was not attracted. This argument therefore cannot avail the assessee in O.S.A. No. 62 of 1951. No doubt the assessee in C.C.C.A. No. 137 of 1931 had preferred an appeal from the assessment order passed by the Deputy Commercial Tax officer to the Commercial Tax Officer and his appeal had been dismissed so that it was after an appellate order that the Commercial Tax Officer revised the assessment. But as and from 1st January, 1948, Section 12 had been amended so as to confer not merely upon the Board of Revenue as under the enactment as it originally stood but also on the Commercial Tax Officer, the same powers of revision as had been conferred on the Board of Revenue, so that in this case also, though for a different reason the objection has no force. We have therefore no hesitation in rejecting it.
18. The second head of argument on this aspect of the case turns upon the scope of the rule-making power under Section 19. Reliance was placed in this connection principally on the decision of the Full Bench of this Court in Nagappa v. Annapooroni Achi : AIR1941Mad235 , where this Court held that Rule 8 of the rules framed under the Madras Agriculturists Relief Act providing for appeals from orders of trial Courts was ultra sires the rule-making power under Section 28 of the Madras Agriculturists Relief Act IV of 1938. That case arose in the following circumstances. An application filed under Section 19 of the Madras Agriculturists Relief Act was dismissed by a Subordinate Judge and an appeal was preferred therefrom to this Court.
19. On the date of the order there was no specific rule authorising appeals from such orders. Subsequently a notification was issued under Section 28 of the Agriculturists Relief Act promulgating a new Rule 8 which enabled appeals to be filed from orders under Section 19:
amending or refusing to amend a decree or entering or refusing to enter satisfaction in respect of a decree as if the order related to the execution, discharge or satisfaction of the decree within the meaning of Section 47, Civil Procedure Code.
20. A preliminary objection was raised to the appeal filed to this Court and one of the points urged was that Rule 8 was ultra vires, and this question was referred to a Full Bench. The learned Judges held this rule ultra vires for the reason that a right of appeal could exist only by statute and could not be implied and that Section 28 of the Agriculturists Relief Act which conferred authority on the Provincial Government to make rules could not reasonably be read as authorising Rule 8.
21. Section 28 was in these terms:
(1) The Provincial Government may make rules for carrying into effect the purposes of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, the Provincial Government may make rules.
(a) in regard to any matter which is required to be prescribed by this Act;
(b) prescribing the form of and the fees to be paid in respect of applications under this Act and
(c) for removing any difficulty in giving effect to the provisions of this Act.
22. The learned Judges said:
Only Sub-section (i) and Clause (e) of Sub-section (2) are relied upon in support of the contention that Rule 8 is intra vires the Provincial Government. Sub-section (1) merely says that the Provincial Government may make rules for carrying into effect the purposes of this Act. In making a rule providing for appeals the Provincial Government is not making a rule for carrying into effect the purposes of the Act. It is adding something to the Act. The object of the Act is to grant relief to agriculturists by providing machinery for the scaling down of their debts. The Court of first instance decides whether a case falls within or without the Act. If a case falls within the Act the Court must scale down the debt in accordance with the directions embodied in the Act. An order of the Court must be taken to be a correct order unless it is shown to be wrong by an appellate tribunal which has power to entertain an appeal. Clause (e) of Sub-section (2) does not carry the matter any further. By providing for an appeal the Provincial Government is not removing any difficulty in giving effect to the provisions of the Act.... To read either into Sub-section (1) or into Clause (c) of Sub-section (2) a power for the Provincial Government to constitute an appellate Tribunal would be to read something which is not there, and incidentally be ignoring a well-settled principle.
23. The decision referred to only lays down a familiar principle. But we are unable to see its application to the present case where the language of the rule-making power is couched in quite different terms. In particular we might refer to Section 19(2)(j) which enables rules to be made prescribing the duties and powers of officers appointed for the purpose of enforcing the provisions of the Act particularly in the context of the Act leaving it to the rules to constitute the hierarchy of officials to exercise powers under the Act and secondly Sub-clause (1) where power is conferred upon the Provincial Government to frame rules in respect of
any other matter for which there is no provision or no sufficient provision in this Act and for which provision is, in the opinion of the Provincial Government, necessary for giving effect to the purposes of this Act.
24. These words are of the widest amplitude and, in the absence of any prohibitions or restrictions inferable from the Act itself, are apt to confer upon the Government power to constitute revisional authorities and invest them with powers in that behalf. This contention also fails and has to be rejected. We therefore hold that it was open to the Provincial Government to have framed Rule 14(2) conferring upon the Commercial Tax Officers the revisional powers that were vested in them by that provision.
25. The other question that has to be considered is thus formulated in the order of reference:
whether the powers of revision thereunder (under Rule 14(2)) can be exercised in cases to which Rule 17 relating to escaped assessment is applicable.
26. In the form in which it has been stated above, it is capable of only one answer namely that the two rules are mutually exclusive and that in cases which fall within Rule 17(1) and where the jurisdiction to reopen the assessment is vested in the assessing authority, the Commercial Tax Officer would not have power to pass such an order under Rule 14(2) And this was in fact conceded by the learned Advocate-General who appeared for the State. The point however debated before us - and we consider rightly - was the relative scope of Rules 14(2) and 17(1). The argument addressed to us by the learned Advocate-General was that the two Rules 14(2) and 17(1) have to be read together to define the precise content of each and so read Rule 17(1) would be applicable only to cases where the turnover of a dealer has been omitted to be taken into account by an assessing authority either because there was a deliberate concealment of such transactions by the assessee or because of any inadvertent omission on his part or on the part of the assessing officer. Only such cases could with propriety be termed cases where the turnover has escaped assessment. On the other hand, in cases where the entire turnover of an assessee is before the assessing authority and is considered by it but such authority by error of fact or law treats the turnover or any part thereof as not assessable or grants a deduction or exemption to which the assessee is not entitled under the Act, the case, is not one of escaped turnover but of an improper or illegal assessment order which is revisable under Rule 14(2).
27. The contention however raised on behalf of the assessees respondents was that Rule 17 should be understood as applicable not merely to cases of escaped turnover as set out above but also to every case where by reason of some error or omission on the part of the assessing authority the assessee has been directed co pay a lesser amount of tax than was properly payable by him. In this connection the analogy of Section 34 of the Income-tax Act and certain decisions interpreting the scope of that section were strenuously pressed upon us. Reliance was particularly placed on the decisions of this Court reported in The Commissioner of Income-tax Madras v. Raja of Parlakimedi (1925) 50 M.L.J. 63 : I.L.R. Mad. 22, The Commissioner of Income-lax, Madras v. Sheikh Abdul Kadir Marakaya & Co. (1927) 54 M.L.J. 298 , and of the Privy Council in Commissioner of Income-tax, Bombay v. Khemchand Ramdas (1938) 2 M.L.J. 115 : 1938 L.R. 65 IndAp 236 : I.L.R. (1938) Bom. 487 (P.C.). We do not propose to discuss the facts of these cases or refer to the observations in them as regards the proper construction of Section 34 of the Income-tax Ace because in our opinion there is no real analogy between Rule 17(1) of the Madras General Sales Tax Rules and the provisions contained in Section 34 of the Income-tax Act. The scheme of the two enactments is wholly different.
28. The language employed in Section 34 of the Income-tax Act which has undergone serious changes from time to time is not identical with that in Rule 17 of the Madras General Sales Tax Rules and the mere fact that both these provisions are designed to achieve a somewhat similar purpose is too slender a foundation for the application of the cases construing one provision for determining the scope of the other. We therefore propose to confine our attention to the language used in the two Rules 14(2) and 17(1) and gather the intention of the rule-making authority as-expressed by the words employed.
29. No doubt in a general sense both Rule 14(2) as well as Rule 17(1) serve a common purpose, viz., to gather revenue which has improperly escaped but while Rule 14(2) is directed to the correction of improper or illegal assessment orders which have levied less or more tax than justified, Rule 17(1) lays emphasis on escaped turnover. The distinction between the two provisions might be expressed by saying that Rule 14(2) deals with escaped assessments and Rule 17(1) with escaped turnovers, notwithstanding that the latter also would mean that a lesser amount of tax has been levied. So understood the two provisions would be completely reconcilable and the two jurisdictions to revise assessments and to reopen them would each be assigned to the proper authority.
30. The language of Rule 17(1) is consistent with this construction. The 'escape' that serves as the foundation of the jurisdiction to reopen an assessment is that of 'turnover' and not, be it noted, an assessment. 'Turnover' escapes when it is not noticed by the officer either because it is not before him by reason of an inadvertence, omission or deliberate concealment on the part Of the assessee or because of want of care On the part of the officer the turnover though in the books has not been taken notice, of. This would be the natural and normal meaning of the expression 'turnover which has escaped' in Rule 17(1).
31. A close examination of Rule 14(2) also supports this view of the scope of the two rules which are intended to be mutually exclusive. This rule empowers the Commercial Tax Officer 'to call for and examine the record of any order passed or any proceedings recorded by the Deputy Commercial Tax Officer.' Now what exactly is the meaning to be attached to the expression 'the record of any order passed'. The records which the revising authority calls for are the records of the assessment. They would include the assessment order as well as the other files of the assessing authority which would furnish the basis upon which the assessment order is passed. If in the assessment order the turnover which a dealer has returned or which has been gathered from his books is treated as not taxable or subject to any exemption and the revising authority is of the opinion that the order in this behalf is erroneous, the Commercial Tax Officer 'would have satisfied himself that such an order was not legal or proper'. Upto this there could not be any room for controversy as regards the competency of the revising authority to revise an assessment order which in its opinion is 'not legal or proper'. If the argument advanced on behalf of the assessee invoking the analogy of Section 34 of the Income-tax Act is applied, even an error of this sort would give rise to proceedings for assessing the escaped turnover and be covered by Rule 17(1). We have already indicated that we are unable 10 accept this as the proper interpretation of the Rule 17(1). In fact if this argument were accepted learned Counsel for the assessees was unable to suggest any conceivable case to which Rule 14(2) could apply apart from cases in which interference is sought in favour of an assessee.
32. It remains to consider the intermediate case between a truly escaped turnover as we have indicated above and a case where the turnover has not escaped - only it has escaped assessment by reason of some error on the part of the assessing officer. We have in mind cases where the entire turnover is before the assessing officer but he fails to levy tax upon the whole or any part of it either because in his view it could not be included in the taxable turnover of the assessee or because of deduction allowed by him, but fails to make specific reference to these matters in the assessment order, in other words, where only the final result is reflected in the order without the details as to how the computation was made being specifically noted in it. In this-class of cases if by the record were meant only the assessment order, there may not be any reference to the particular transaction or turnover though as a fact that has been considered by the assessing authority though omitted to be referred to in the. assessment order. We are of the opinion that the expression 'record' would include not merely the assessment order but the entire assessment file and, in the intermediate cases also, if from a perusal of the record or the assessment files the revising-authority can find that the turnover was before the assessing officer, it is competent for it to pronounce upon the legality or propriety of the assessment order under Rule 14(a). We are of the opinion that the construction which we have placed upon the relative content of Rules 14(2) and 17(1) gives proper effect to both the provisions and assigns to each the role which it was designed to accomplish.
33. In the light of the above discussion, our answers to the reference are as follows : (1) Rule 14(2) is intra vires the rule-making power of the Provincial Government under Section 19 of the Act. (2) The revisional powers under Rule 14(2) cannot be exercised incases to which Rule 17 applies. (3) Rule 17 applies only to cases of escaped turnover as described earlier.