1. The validity of Sub-rule (7) of Rule 5 of the Central Sales Tax (Madras) Rules, 1957 and Sub-section (3) of Section 9 of the Central Sales Tax Act, 1956 is questioned in these petitions for prohibiting the respondent, the Deputy Commercial Tax Officer, Mettupalayam from taking further action against the petitioner under the Central Sales Tax Act, 1956, in pursuance of his notices in September, 1965, proposing to bring to tax certain turnovers of inter State sales for the years 1960-61 to 1964-65 on the ground that such sales were not made on the basis of 'C ' declaration of dealers of other States. The petitioner states that he has been carrying on business as dealer in areca-nuts in Mettupalayam town. During these years, he admittedly effected sales of areca-nuts to dealers outside the State of Madras. He did not register himself as a dealer as required by Section 7 of the Central Sales Tax Act, 1956. According to him, being uneducated he was not aware of the provisions of this Act and had failed to collect even one naya paise as sales tax from any one of the purchasers and to make returns of his transactions. He was, however, as he had said, maintaining correct accounts as well as invoices and keeping records relating to each transactions effected by him. The Intelligence Wing of the Sales Tax Department reported to the respondent about the petitioner's transactions during the said years and action was taken by the respondent to assess the transactions by serving notices on the petitioners to show cause why he should not be assessed as proposed. The notices set out the circumstances under which action was taken and the turnover for each year to be assessed at 7 per cent, under the Central Sales Tax Act as the petitioner had not sold on 'C declaration forms of the dealers of other States.
2. The contention for the petitioner is that the action taken by the respondent to assess his alleged escaped turnover is wholly without jurisdiction and that Rule 5(7) of the Central Sales Tax (Madras) Rules, 1957 is ultra vires Section 13(3) and (4) of the Central Sales Tax Act. Reliance being placed for the respondent on Section 9(3) of the Act, the Sub-section, according to the petitioner's submission is unconstitutional.
3. We are of the view that the petitioner's first contention is well founded but not the second. Section 13 of the Central Act provides for power to make Rules. Sub-section (1) authorises the Central Government to make Rules providing for certain matters specifically mentioned and the Rules made by the Central Government are required by Sub-section (2) to be placed before both Houses of Parliament. Under Sub-section (3), the State Government is given the power to make Rules to carry out the purposes of the Act but the Rules so made should not be inconsistent with the provisions of the Act and the Rules made under Sub-section (1). The next Sub-section enumerates certain purposes in respect of which the State Government will have power to make Rules and this power is given without prejudice to the powers conferred by Sub-section (3). In purported exercise of the powers conferred by Sub-sections (3) and (4) of Section 13, the State Government made the Central Sales Tax (Madras) Rules, 1957 of which Rule 5 provides for submission of returns and the procedure to assess them. Sub-rule (5) says that after the close of the year, the assessing authority shall, after such scrutiny of the accounts and after such enquiry as he considers necessary, satisfy himself that the return or returns filed are correct and complete and finally assess under a single order the tax or taxes payable under the Act for the preceding year or for the year to which the return submitted relates as the case may be. The Sub-rule further provides that if the assessing authority finds that the returns are incorrect or incomplete, he shall assess the turnover to the best of his judgment after giving the dealer an opportunity to prove the correctness and completeness of his returns. Sub-rule (7) is as follows:
If, for any reason, the whole or any part of the turnover of business of a dealer had escaped assessment to tax in any year, the assessing authority may, at any time within five years next succeeding that to which the tax relates, determine to the best of his judgment the turnover which has escaped assessment and assess the tax payable on such turnover after issuing a notice to the dealer and after making such enquiries as he considers necessary.
This Sub-rule, therefore, provides for (1) assessment of escaped turnover, (2) period of limitation for applying the power to assess such turnover, namely, five years and (3) determination by best judgment of the escaped turnover. The provisions of the Central Act do not themselves provide for any of these matters and certainly Section 13(4) does not specifically confer power on the State Government to make a rule like Sub-rule (7). The Madras General Sales Tax Act, 1939 by Section 9 provided power for the assessing authority to assess the turnover on the basis of the return and where it does not accept the correctness or completeness of the return, to assess it to the best of his judgment and by Section 19(1) authorised the State Government to make Rules to carry out the purposes of the Act, and by Sub-section (2) certain matters were particularised without prejudice to the general power to make Rules for the purposes of the Act in respect of which the State Government could make Rules. One of such matters specifically mentioned is " the assessment to tax under this Act of any turnover which has escaped assessment, and the period with in which such assessment may be made not exceeding five years". Section 13(4) of the Central Sales Tax Act does not contain any such specific enabling provision, though the Act was made when the Madras General Sales Tax Act, 1939 was still in force which the Parliament should have been aware of. The Madras General Sales Tax Act, 1959 has not life to the rule making authority the power to make rule relating to the assessment of escaped turnover but Section 16 of that Act itself provides for power to assess escaped turnover and prescribed also the procedure and period of limitation for the exercise of that power as well as the power to assess such turnover by best judgment. In the absence of an enabling power provided for by Section 13(4) of the Central Act, Sub-rule (7) of Rule 5 of the Central Sales Tax (Madras) Rules is unauthorised and is ultra vires the power of the State Government.
4. Power to assess escaped turnover is an original power, whether it is applied to a case of failure to make returns or reopening of an order of assessment already made in order to bring to tax what was escaped assessment. In either case, the power is part of and included in the power to make assessments. But it does follow from it that by reason of the existence of such a ' power' the State Government could provide for limitation for exercise of power to assess escaped turnovers by best judgment. No doubt limitation is procedural but it is also substantive. A rule covering those matters cannot, therefore, be made unless in be in exercise of specific conferment of enabling rule-making power. This Court in Messrs. Solar Works v. Employees' State Insurance Corporation, Madras (1964) 2 M.L.J. 223 took the view that where an Act itself did not provide for limitation with reference to a particular matter and the delegation of power to make Rules was conferred by a section of the Act which did not expressly or impliedly relate to the power to prescribe time, the authority to which the power was delegated, namely, the State in that case could not make a rule prescribing limitation. We have already pointed out that the legislative practice at least so far as this State is concerned- appears to be that in the Sales Tax Law, express and specific conferment of power is made to make a rule providing for assessment of escaped turnover, limitation for exercise of the power and the manner in which the assessment should be made, including by best judgment. The charge under the Central Act as well as the State Acts is on the turnover which means the actual turnover. A turnover determined by best judgment is what the authority, which determined it, had taken to be the turnover which need not necessarily be the actual turnover. Vide Commissioners of Customs and Excise v. Cure and Deeley, Ltd. (1961) 3 All. E.R. 641. A rule providing for determination of turnover by best judgment could only be valid if there is specific conferment of the enabling power upon the rule-making authority. The Revenue, however relies upon Section 13(3) of the Central Act to sustain Sub-rule (7). But Section 13(3) is in general terms and confers power to make Rules only to carry out the purposes of the Act. Nowhere in the Central Act is there any indication that one of its purposes is to provide for limitation for the exercise of the power to assess escaped turnover and to determine such turnover by past judgment. We hold that Sub-rule (7) at least in so far as it provided for limitation and determination of escaped turnover by best judgment is in excess of the rule-making power and the Sub-rule, as a whole should be struck down as invalid.
5. That does not, however, conclude the matter in favour of the assessee. As we indicated, the Revenue lelies on Section 9(3) of the Central Act and contends that even in the absence of Sub-rule (7), the respondent will have the power and jurisdiction to take action, as he has, against the petitioner. Support is sought to be derived for this contention from the majority view in State of Mysore v. Lakshminarasimhiah Setty and Sons (1965) 16 S.T.C. 231 on the scope and effect of Section 9(3). In that case the Supreme Court decided with reference to the provisions of the Mysore Sales Tax Act and Sections 8(2) and 9(1) and (3) of the Central Act. Though the sales, there were of inter-State character, they were nevertheless not liable to tax under the Central Sales Tax Act, as they were not first sales within the Mysore State which alone were made liable to tax at a single point at that stage under the Mysore Act. This decision was reached on the majority view that whatever ambiguity existed in relation to the expression "in the same manner" in Section 8(2), Section 9(1) dispelled it and made it clear that Section 8(2) dealt with not only the calculation of the rates but also the manner of levy of the tax. The Supreme Court held that " levied " in Section 9(1) of the Central Act referred to the expression " levied " in Section 5(3)(a) of the Mysore Sales Tax Act. We do not, therefore, think that this decision is directly in point for the Revenue, because, the question we have to decide now is somewhat different, namely, whether Sub-section (3) of Section 9 attracts to the working of the Central Act, the powers of assessing authorities under the "State Acts to assess escaped turnover.
6. As we mentioned earlier, the Central Act itself does not contain provisions relating to the machinery and powers of assessment and collection of Central salts tax. But the scheme of the Central Act shows that instead it assimilates and attracts for its purpose, by reference to the relative provisions of the Sales Tax Law in force under the State Acts as to machinery for and powers of assessment and collection of tax. We do not think it necessary to reproduce the circumstances in which Article 286 of the Constitution came to be amended and the Central Sales Tax Act, 1956 was enacted. The Preamble to this Act sets out its purpose quite clearly and accordingly the Act contains definition of when a sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, prescribes the locale of such sale and declares its liability to the Central tax. The rate of tax is fixed by Section 8 which has, in certain circumstances, reference to the rate of tax obtaining under the State Acts. The next section provides for levy and collection of tax and penalties. Sub-section (1) says that inter-State sales tax shall be levied and collected by the Government of India in the manner provided in Sub-section (3) in the State from which the movement of the goods commenced. Sub-section (1) has a proviso which we need not refer to. Sub-section (2) deals with collection of penalties imposed on a dealer under Section 10-A. Sub-section (3) reads:
The authorities for the time being empowered to assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, and subject to any Rules made under this Act, assess, collect and enforce payment of any tax, including any penalty, payable by a dealer under this Act in the same manner as the tax on the sale or purchase of goods under the General Sales Tax Law of the State is assessed, paid and collected; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, appeals, reviews, revisions, references, penalties and compounding of offences, shall apply accordingly:
Provided that if in any State or part thereof there is no general sales tax in force, the Central Government may, by Rules made in this behalf, make necessary provision for all or any of the matters specified in this Sub-section, and such Rules may provide that a breach of any rule shall be punishable with fine which may extend to five hundred rupees; and where the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues.
The last Sub-section assigns the proceeds of any tax levied and collected under the Central Act in any State to that State, which shall retain the same. It is manifest from Section 9 that though the Central tax is levied and collected for and on behalf of the Government of India, it is appropriated eventually by the particular State entitled to it and the administration of the provisions of the Central Sales Tax Act is left to the authorities functioning under the State Acts. While Sub-section (1) of Section 9 directs that the Central Sales Tax shall be levied and collected in the manner provided in Sub-section (3), the latter makes available the authorities under the State Acts and their powers under those Acts to assess, collect and enforce payment of any local tax, to assessment, collection and enforcement of Central Sales Tax. In other words, Sub-section (3) provides for two matters : (1) the authorities empowered to assess, collect and enforce payment of local tax under the State law are authorised to assess, collect and enforce payment of the Central Tax on behalf of the Government of India and subject to the Rules made under the Act, in the same manner as the tax on the sale or purchase of goods under the State Law is assessed, paid and collected, and (2) while acting under that authority, the authorities concerned will exercise all or any of the powers they have under the general sales tax law of the State. The State Sales Tax Authorities are thus charged with the duty to assess, collect and enforce payment of Central sales tax and in discharging this duty, they have all the powers which they possess under the State Sales Tax Law. The words " in the same manner " in Sub-section (3) of Section 9 of the Central Act clearly show, in our opinion, the true scope and effect of that Sub-section, to wit, the State Sales Tax Authorities shall assess, collect and enforce payment of the Central Tax in exactly the same way as under the local sales tax law and for that purpose the authorities will have same powers as they possess under such law to assess, collect and enforce local sales tax.
7. That being the effect of Sub-section (3) of Section 9 one has to turn to the provisions of the appropriate local sales tax law to see what powers the sales-tax authorities possess there under. When the Central Sales Tax Act, 1956 was enacted, there was in force in the State of Madras, the Madras General Sales Tax Act, 1939. Section 9 of this Act prescribed the procedure for assessment of tax and conferred power to assess returns and compute tax and, where ,the returns are incorrect or incomplete, to assess turnover by best judgment. Section 19(2)(f) conferred on the State Government power to make Rules for assessment of escaped turnover and the period during which such assessment should be made not exceeding five years. In exercise of this rule-making power, the State Government made Rules called the Madras General Sales Tax Rules, 1939 of which Rule 17 provided for the procedure to assess escaped turnover and prescribed the period in this regard, namely, five years. The power and procedure in relation to assessment of escaped turnover including limitation provided by Section 9 and Rule 17 are now substantially to be found in Section 16 of the Madras General Sales Tax Act, 1959. It follows, therefore, that Sub-section (3) of Section 9 of the Central Act would enable the respondent to invoke those powers which he has under the local Sales Tax Law in assessing turnover which has escaped assessment in any year.
8. The contention for the petitioner is that, Sub-section (3) is unconstitutional because it attracts for its purpose, for assessment, collection and enforcement of tax, the provisions of the Local Sales Tax Law for the time being in force and such legislation by reference amounts to abdication by the Parliament of its legislative powers. It is not disputed by the petitioner that where the Parliament intends to adopt, for purposes of Central legislation, any particular provisions of a State Law, it can do so by reference to those provisions instead of reiterating them verbatim. That precisely is the case in relation to Sub-section (3) of Section 9. But the Madras General Sales Tax Act, 1939 was repealed and was substituted by the Madras General Sales Tax Act, 1959. The argument for the petitioner is that the Parliament cannot with propriety make a law adopting by reference, the provisions of the State law, as they stand amended by the local Legislature from time to time. The principle of the contention is certainly unexceptionable, for, while it is competent for the Parliament to adopt the existing provisions of a local law as part of the Central legislation without repeating those provisions in the Central Act, it cannot make a law adopting the provisions of a local law which did not exist at the time. Is this principle offended in this case In answering this question, we are inclined to think that we should, look at the substance and not the form of the matter. Section 16 of the Madras General Sales Tax Act, 1959 substantially re enacted, as we already mentioned, the provisions under the Madras General Sales Tax Act, 1939, relating, to assessment of escaped turnover and the period of limitation for exercising that power. This is not, therefore, a case where the law, as re-enacted by the local Legislature, is substantially different from what it was when the Central Legislature enacted by reference to it. The crux of the matter is that the subject-matter of Section 16 of the Madras 1959 Act is not something which the Parliament had not applied its mind to when it enacted Section 9(3). On that view, we are not persuaded to hold that Sub-section (3) of Section 9 is unconstitutional.
9. The petitions are dismissed with costs one set. Counsel's fees Rs.