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Shethia Mining and Manufacturing Corporation Ltd. Vs. Commercial Tax Officer, Central Section and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKolkata High Court
Decided On
Case NumberCivil Revision Case Nos. 3215-16 (W) of 1974
Judge
Reported in[1977]39STC246(Cal)
AppellantShethia Mining and Manufacturing Corporation Ltd.
RespondentCommercial Tax Officer, Central Section and ors.
Appellant AdvocateS.C. Bose, ;B.P. Banerjee and ;L.K. Gupta, Advs.
Respondent AdvocateS.N. Dutta, ;Ajay Kumar Mitra and ;Aloke Banerjee, Advs.
Cases Referred(P.C.) and Balakrishna & Sons v. Sales Tax Officer
Excerpt:
- .....is a company incorporated under the indian companies act. the petitioner was the owner of several coal mines. in this application the petitioner is challenging an order of assessment dated 16th january, 1974, under section 9(2) of the central sales tax act, 1956, read with section 11(1) of the bengal finance (sales tax) act, 1941.2. the period relevant for the said assessment was 1st april, 1972, to 30th january, 1973.3. it is indisputable in this case that the petitioner had carried on business during the relevant period under assessment. on 30th january, 1973, the coal mines (taking over of management) ordinance was issued taking over the management of coal mines with effect from 31st march, 1973. thereafter on 31st march, 1973, the coal mines (taking over of management) act, 1973,.....
Judgment:

Sabyasachi Mukharji, J.

1. The petitioner in this application under Article 226 of the Constitution is Messrs. Shethia Mining and Manufacturing Corporation Limited. It is a company incorporated under the Indian Companies Act. The petitioner was the owner of several coal mines. In this application the petitioner is challenging an order of assessment dated 16th January, 1974, under Section 9(2) of the Central Sales Tax Act, 1956, read with Section 11(1) of the Bengal Finance (Sales Tax) Act, 1941.

2. The period relevant for the said assessment was 1st April, 1972, to 30th January, 1973.

3. It is indisputable in this case that the petitioner had carried on business during the relevant period under assessment. On 30th January, 1973, the Coal Mines (Taking Over of Management) Ordinance was issued taking over the management of coal mines with effect from 31st March, 1973. Thereafter on 31st March, 1973, the Coal Mines (Taking Over of Management) Act, 1973, came into effect. Sub-section (1) of Section 3 of the said Act provides that on and from the appointed day, the management of all coal mines shall vest in the Central Government. Mine has been defined under the said Act as follows :

2. Definitions.-....

(g) 'mine' means any excavation where any operation for the purpose of searching for or obtaining minerals has been or is being carried on and includes-

(i) all borings and bore-holes ;

(ii) all shafts, whether in the course of being sunk or not;

(iii) all levels and inclined planes in the course of being driven ;

(iv) all open cast-workings ;

(v) all conveyors or aerial ropeways provided for the bringing into or removal from a mine of minerals or other articles or for the removal of refuse therefrom;

(vi) all lands, buildings, works, adits, levels, planes, machinery and equipments, instruments, stores, vehicles, railways, tramways and sidings in, or adjacent to, a mine and used for the purposes of the mine ;

(vii) all Workshops (including buildings, machinery, instruments, stores, equipments of such workshops and the lands on which such workshops stand) in, or adjacent to, a mine and used substantially for the purposes of the mine or a number of mines under the same management;

(viii) all coal in-stock or in transit belonging to the owner of the mine and all coal under production in a mine;

(ix) all power stations in a mine or operated primarily for supplying electricity for the purpose of working the mine or a number of mines under the same management;

(x) all lands, buildings and equipments, belonging to the owner of the mine and in, adjacent to, or situated on, the surface of the mine where the washing of coal obtained from the mine or manufacture, therefrom, of coke is carried on ;

(xi) all lands and buildings [other than those referred to in Sub-clause (x)] wherever situated and solely used for the location of the management, sale or liaison offices, or for the residence of officers and staff, of the mine ;

(xii) all other assets, movable and immovable, belonging to the owner of a mine, wherever situated including cash balances, reserve funds and investments in so far as they relate to the mine and also any money lawfully due to him in relation to the mine in respect of any period prior to the appointed day.

4. On 30th May, 1973, the Coal Mines (Nationalisation) Act, 1973, came into force. The preamble to the said Act states that the Act is to provide for the acquisition and transfer of the right, title and interest of the owners in respect of the coal mines specified in the schedule with a view to re-organising and reconstructing such coal mines so as to ensure the rational, co-ordinated and scientific development and utilisation of coal resources consistent with the growing requirements of the country, in order that the ownership and control of such resources are vested in the State and thereby so distributed as best to subserve the common good and for matters connected therewith or incidental thereto. Therefore, it is an Act to provide for the acquisition and transfer of the right, title and interest of the owners in respect of the coal mines. Mines had similarly been defined as follows :

2. Definitions.-....

(h) 'mine' means any excavation where any operation for the purpose of searching for or obtaining minerals has been or is being carried on and includes-

(i) all borings and bore-holes ;

(ii) all shafts, whether in the course of being sunk or not;

(iii) all levels and inclined planes in the course of being driven ;

(iv) all open cast-workings ;

(v) all conveyors or aerial ropeways provided for bringing into or removal from a mine of minerals or other articles or for the removal of refuse therefrom ;

(vi) all lands, buildings, works, adits, levels, planes, machinery and equipments, instruments, stores, vehicles, railways, tramways and sidings in, or adjacent to, a mine and used for the purposes of the mine ;

(vii) all workshops (including buildings, machinery, instruments, stores, equipments of such workshops and the lands on which such workshops stand) in, or adjacent to, a mine and used substantially for the purposes of the mine or a number of mines under the same management ;

(viii) all coal belonging to the owner of the mine, whether in-stock or in transit and all coal under production in a mine ;

(ix) all power stations in a mine or operated primarily for supplying electricity for the purpose of working the mine or a number of mines under the same management;

(x) all lands, buildings and equipments belonging to the owners of the mine and in, adjacent to or situated on the surface of, the mine where the washing of coal obtained from the mine or manufacture therefrom, of coke is carried on ;

(xi) all lands and buildings [other than those referred to in Sub-clause (x)] wherever situated, if solely used for the location of the management, sale or liaison offices, or for the residence of officers and staff, of the mine;

(xii) all other fixed assets, movble and immovable belonging to the owner of a mine, wherever situated and current assets, belonging to a mine, whether within its premises or outside and also any money lawfully due

to such owner in relation to the mine in respect of any period prior to the appointed day.

Explanation.-The expression 'current assets' does not include dues from sundry debtors, loans and advances to other parties and investments, not being investments in the coal mine.

5. under Section 3 of the said Act it is provided that on the appointed day, the right, title and interest of the owners in relation to the coal mines specified in the schedule shall stand transferred to and shall vest absolutely in, the Central Government, free from all incumbrances. The instant coal mine is one of the coal mines included in the said schedule. Section 7 of the Act provides that every liability of the owner, agent, manager or managing contractor of a coal mine, in respect of any period prior to the appointed day, shall be the liability of such owner, agent, manager or managing contractor, as the case may be and shall be enforceable against him and not against the Central Government or the Government company. Section 8 of the Act provides that the owner of every coal mine or group of coal mines specified in the second column of the schedule shall be given by the Central Government, in cash and in the manner specified in Chapter VI, for the vesting in it, under Section 3, of the right, title and interest of the owner in relation to such coal mine or group of coal mines, an amount equal to the amount specified against it in the corresponding entry in the fifth column of the schedule. Section 9 provides for further payment of compensation to the owners of the business. Section 32 provides that no proceeding for the winding up of a mining company, the right, title and interest in relation to which have vested in the Central Government or a Government company under this Act or for the appointment of a receiver in respect of the business of the company, shall lie in any court except with the consent of the Central Government.

6. It appears that on 9th July, 1973, there was a notification under Section 5 of the Coal Mines (Nationalisation) Act, 1973, which was to the following effect:

G.S.R. 345(E).-In exercise of the powers conferred by Sub-section (1) of Section 5 of the Coal Mines (Nationalisation) Act, 1973 (26 of 1973), the Central Government hereby directs that the right, title and interest of the owners in relation to all the coal mines referred to in Section 3 of the said Act, except the coal mines specified against serial numbers 45 to 219 (both inclusive), 227, 235, 237, 260, 265, 275, 441, 483 and 583 of the schedule to the said Act, shall with effect from the 9th July, 1973, vest in the Coal Mines Authority Limited, Calcutta, a Government company incorporated under the Companies Act, 1956 (1 of 1956) and having its registered office at Calcutta, in the State of West Bengal.

7. The impugned assessment order was made as mentioned hereinbefore on 16th January, 1974. There was a fresh certificate of incorporation in favour of Coal India Limited on 21st October, 1975. Section 17 of the Bengal Finance (Sales Tax) Act, 1941, provides as follows :

17. Transfer of business. Where the ownership of the business of a registered dealer is transferred absolutely by sale, gift, bequest, inheritance or otherwise or transferred by way of lease and the transferee or the lessee carries on such business, either in its old name or in some other name, the transferee or the lessee shall for all the purposes of this Act (except for liabilities under this Act already discharged by such dealer) be deemed to be and to have always been registered (in the case of a lease for so long as the lease subsists) as if the registration certificate of such dealer had initially been granted to the transferee or the lessee; and the transferee or the lessee shall on application to the Commissioner be entitled to have the registration certificate amended accordingly.

8. The main contention in support of this application under Article 226 of the Constitution is that as there was a transfer of the ownership of the business, by the operation of law, the transferee, i. e., the Coal Mines Authority Limited, Calcutta, a Government undertaking had become the registered dealer by virtue of Section 17 of the Act and the assessment thereafter should have been made only against the said transferee registered dealer, namely, the Coal Mines Authority Limited. Section 17 undoubtedly covers a case of transfer by operation of law as well as by act of parties. In the case of Bibhas Chandra Gon v. State of West Bengal [1964] 15 S.T.C. 277, a Division Bench of this Court construing Section 17 observed that the expression 'transferred absolutely' in Section 17 of the Bengal Finance (Sales Tax) Act, 1941, as amended by Act No. 19 of 1954 was of wide import and was broad enough to include an absolute transfer on intestate succession. The Section applies to all cases, where the business is 'transferred absolutely' and is not limited to transfers by act of the owner only. But the Section comes into operation if 'the ownership of the business' is transferred and if the transferee carries on such business. Now, in this case, therefore, the question that is material for consideration is whether 'the ownership of the business' has been transferred from the petitioner. It is true that the petitioner was the registered dealer in respect of the coal mining business carried on by the petitioner. In the aforesaid view of the fact, the ownership in relation to the coal mines has been nationalised or taken by the Government, but the effect of Section 3 of the Coal Mines (Nationalisation) Act, 1973, is not that the ownership of the business as such has been taken over. As a matter of fact, the business of the company or the business of the owner continues as is apparent from the provisions of Section 7, Section 8 and Section 32 of the Act. It appears to me that the right, title and interest of the owner in relation to the coal mines as defined under Sub-section (h) of Section 2 of the Act, namely, the specified items belonging to the coal mines have been taken over as a result of the said Act, but the ownership of the business as such continues to be with the erstwhile owners.

9. Counsel for the revenue drew my attention to the preamble of the Act. It does not state that the Act is for the transfer of the ownership of the business carried on by the owners of the coal mines as such. In the aforesaid view of the matter I am unable to accept the contention that by virtue of Section 17 of the Bengal Finance (Sales Tax) Act, 1941, the petitioner was not liable to be assessed at all in this case.

10. In the case of Kshitish Chandra v. State of West Bengal [1967] 20 S.T.C. 42, it was held by a Division Bench of this Court that Section 17 of the Bengal Finance (Sales Tax) Act, 1941, made the transferee of a business liable for the outstanding liability of the transferor, but did not say that on transfer the liability of the transferor ceased. The Section merely imposed an additional liability on the transferee keeping intact the liability of the transferer. Therefore, when the ownership of the business was transferred, the transferor by reason of the transfer, was not absolved from outstanding tax liabilities of the transferred business. Section 17 of the Act spoke not only of the tax liabilities but also other liabilities, for example, submission of the return, deposit of security, payment of tax, etc. The facts of that case were very much different from the facts of the instant case before me. Further, in the view I have taken of the effect of Section 3 of the Coal Mines (Nationalisation) Act, 1973, it is not necessary for me to rest my decision on the ratio of the aforesaid decision referred to hereinbefore. In an appropriate case, if Section 17 of the Act had applied and if there was no assessment, then whether by effect of the deeming provision when the registration was deemed to be in favour of the transferee and not in favour of the transferor, the question might arise as to whether the transferor is still liable to be assessed at all. That question, however, does not arise for consideration in the instant case before me.

11. It was then contended on behalf of the petitioner that the impugned order was in any event arbitrary and liable to be set aside. The order of assessment states, inter alia, as follows :

Reasons for the findings made by the assessing officer :

This is an assessment under Section 9(2) of the C.S.T. Act, 1956, read with Section 11(1) of the B.F. (S.T.) Act, 1941, for the period from 1-4-1972 to 30-1-1973. Notice in form 3 was issued to the dealer on 8-8-1973 and the hearing was fixed on 13-9-1973. A copy of the said notice in F.3 was duly acknowledged by the dealer as per acknowledgment card placed separately. The dealer's representative appeared on the first date of hearing on 13-9-1973, when the case was adjourned on dealer's prayer. The dealer did not, however, turn upon the next date of hearing nor any petition for time was received from the dealer. As claims have to be filed before the Commissioner of Payments, the assessment requires to be completed at the very earliest. So, the dealer cannot be given any more chance and under the circumstances, stated above, the assessment is taken up ex parte and is completed to the best of my judgment.

12. The dealer has been allowed an exemption of Rs. 90,00,000.00 under Section 5(2)(a)(v) of the State Act case on account of sales in the course of inter-State trade or commerce. Considering all the facts and circumstances, I determine the dealer's gross turnover at Rs. 90,00,000.00 exclusive of any Central sales tax to my best judgment.

Computation

Sales to others of declared goods: Rs. 90,00,000.00

Tax payable at 3 per cent Rs. 2,70,000.00

Tax paid is Nil

Total tax due Rs. 2,70,000.00

Issue form 4 accordingly.

Sd./- D. N. Mitra, 16-1-1974,

C.T.O., C.S.

13. This was a best judgment assessment. The respondent assessing authority was entitled to make a best judgment assessment in the facts and circumstances of the case. But the best judgment assessment does not permit an assessing authority to make an arbitrary or whimsical assessment. There must be basis for the said assessment and the basis of such assessment must have some rational nexus to the assessment made. This position in law is well-settled by several decisions of the Judicial Committee, the Supreme Court and the High Courts. Reliance in this connection may be placed in the cases of Raghubar Mandal Harihar Mandal v. State of Bihar A.I.R. 1957 S.C. 810, Commissioner of Income-tax, United and Central Provinces v. Badridas Ramrai Shop, Akola [1937] 5 I.T.R. 170 (P.C.) and Balakrishna & Sons v. Sales Tax Officer [1961] 12 S.T.C. 272.

14. In the instant case, the respondent assessing authority has merely observed that the petitioner runs a colliery. From the fact that it is a colliery business and that the demand for coal was high, he has estimated the gross turnover. The exemption under Section 5(2)(a)(v) of the Act was also without any basis. The assessing authority did not refer to any past records of the dealer or the amount or the quantum as well as the business done by the dealer in the past years. He has also not referred to any comparable sales by any comparable dealer in the same region or the locality. He has also made no attempt to call for the books or papers, if any, from the coal mines authority. In my opinion, the assessing authority has made no attempt to make the assessment to the best of his judgment. In the aforesaid view of the matter, I am of the opinion that the said assessment is liable to be set aside on the ground that it is whimsical and arbitrary. The assessment order is, therefore, set aside. Respondent No. 1 is directed to make a fresh assessment in accordance with law after giving the petitioner reasonable opportunity. If necessary, the respondent-authority will ensure compliance under Section 21A of the Bengal Finance (Sales Tax) Act, 1941, of such papers and documents that may be in the possession of the coal mines authority.

15. With the aforesaid direction the rule is made absolute. There will be no order as to costs.

16. It is recorded that the coal mines authority has not filed any affidavit-in-opposition and does not admit any statement or allegations made in the petition.

Civil Revision Case No. 3216(W) of 1974

17. In view of the decision in Civil Revision Case No. 3215(W) of 1974, this rule is also made absolute to the extent indicated in that case with the directions as in that case.

18. There will be no order as to costs in this rule.

19. In this case also the coal mines authority has not filed any affidavit-in-opposition and does not admit any allegation made in the petition.


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