Sarin Textiles Mills v. Sales Tax Officer — 1963 DIGILAW 195 (ALL)

JUDGMENT S.C. Manchanda, J. - This is a writ petition under Article 226 of the Constitution directed against the notices dated the 11/16th January 1963, issued by the Sales Tax Officer, under Section 22, of the U.P. Sales Tax Act hereinafter referred to as the Act, for the assessment years 1956-57, 1957-58 and 1958-59. 2. The facts leading up to this petition are these: The petitioner is a dealer in woollen carpet yarn which is used in the manufacturer of woollen carpets. Woollen Carpet yarn is supplied to manufacturers of woollen carpets and the same is said to be used only for tufting and making piles of the carpets. The relevant assessment years are 1956-57, 1957-58 and 1958-59. Since the assessment year 1951-52, a controversy existed between the petitioners and the Sales Tax Department as to the rate of tax chargeable on woollen carpet yarn. The petitioner contended that woollen carpet yarn was as unclassified article which fell to be charged under Section 3 of the Act at multiple points at the rate of 3 pies in the rupees. The Department on the other hand claimed that woollen carpet yarn fell within Notification no. ST 117/X-923-1948 dated, the 8th of June 1948, issued by the Government under Section 3-A of the Act and therefore stood to be charged under Section 3-A at single point @ 6 pies per rupee. For the assessment year 1951-52 the department had charged tax under Section 3-A at 6 pies in the rupee. On revision the Judge (Revisions), came to the conclusion that woollen carpet yarn was not covered by entry No. 3 in the said Notification No. ST 117/X-923-1948 relating to "woollen goods and knitting wool" and was therefore not liable to tax under Section 3-A but was chargeable under Section 3, of the Act to a tax at 3 pies per rupee only. This decision of the Judge (Revisions) would appear to have been accepted by the Department as no reference against that order was sought to this Court. 3. For the assessment year 1952-53, the Sales Tax Officer had passed an ex parte order of assessment and had imposed a tax @ 6 pies in the rupee under Section 3-A of the Act. 3. For the assessment year 1952-53, the Sales Tax Officer had passed an ex parte order of assessment and had imposed a tax @ 6 pies in the rupee under Section 3-A of the Act. Upon an appeal being filed by the petitioner it was held that woollen carpet yarn was a multiple point commodity liable to tax under Section 3-A at the rate of 3 pies in the rupee and not under Section 3-A of the Act. This decision again would appear to have been accepted by the Department. 4. For the assessment year 1953-54 the Sales Tax Officer prior to the passing of the above said order of the Judge Revisions and Judge Appeals, had again assessed the turn-over of the petitioner at the rate of 6 pies in the rupee under Section 3-A. He was requested by the petitioner to correct the rate of tax in the light of the above decisions but he declined to do so. An application was thereupon filed before the Commissioner of Sales Tax by the petitioner and the Commissioner stayed the recovery of tax on being satisfied that the Central Sales Tax at the rate of 3 pies per rupee had been duly deposited by the petitioners. 5. For the assessment year 1954-55, the Sales Tax Officer himself made an assessment on the petitioner's turnover of woollen carpet yarn at the rate of 3 pies per rupee under Section 3 of the Sales Tax Act. For the assessment year 1955-56, the petitioner's turnover consisted not only of carpet yarn but of the hosiery goods. The Sales Tax Officer would appear to have applied his mind and imposed tax on the turnover of woollen carpet yarn at 3 pies per rupee under Section 3 of the Act and at the rate of 6 pies per rupee on hosiery goods under Section 3-A of the Act. 6. For the relevant assessment years 1956-57 to 1958-59, the Sales Tax Officer made the assessment, in respect of the turnover of woollen carpet yarn by applying a rate of 3 pies per rupee under Section 3 of the Act, in the same manner as for the earlier assessment years 1954-55 and 1955-56. Therefore, it would appear that the decision of the Judge Appeals and Judge Revisions was not only accepted, but acted upon by the department without demur. Therefore, it would appear that the decision of the Judge Appeals and Judge Revisions was not only accepted, but acted upon by the department without demur. Under Section 3, the rate of 3 pies was applied on the turnovers of Rs. 4,12,561,31 nP., Rs. 412,038.34 nP. and Rs. 591,993/, for the three relevant assessment years respectively in the assessment orders made on the 12th of September 1960, 10th of October 1960 and the 8th of August 1961 respectively. 7. Thereafter, on the 26th September 1961, a learned Single Judge of this Court gave the decision in the case of British India Corporation v. State of U.P., (1962) 13 S.T.C.p. 459, which again unsettled the law which hitherto had been accepted by the department as settled. By this judgment it was held that woollen carpet yarn which is yarn made of wool for use in manufacture of carpets is a variety of woollen goods and therefore woollen carpet yarn fell within the entry "woollen goods and knitting wool," as contained in list 1 of notification No. ST 117/X-923-1948 issued under Section 3-A of the Act and such goods were therefore chargeable at 6 pies in the rupee and not at 3 pies. This decision at last vindicated the stand which the department sought to take as far back as 1952-53 assessment but which was repelled both by the Judge (Revisions) and the Judge (Appeals) and whose decisions the department ultimately accepted. It was quite natural for the department, to want to take advantage, in the interest of revenue, of the aforesaid decisions of this Court by demanding a tax at a higher rate on woollen carpet yarn than it had hitherto done in the assessments made far the relevant years of assessment. 8. As a result of the said decision, the Commissioner of Sales Tax, by a letter dated, the 31st January 1963 cancelled the interim stay of recovery proceedings for the assessment year 1953-54, which had been granted to the petitioner, by his order dated the 7th July 1955. It was expressly stated in the said letter that this action was being taken in view of the findings of the High Court about the rate of tax. Thereupon, the Sales Tax Officer in obedience to the directions of the Commissioner sent a certificate of recovery to the Collector for recovering the dues from the petitioner. It was expressly stated in the said letter that this action was being taken in view of the findings of the High Court about the rate of tax. Thereupon, the Sales Tax Officer in obedience to the directions of the Commissioner sent a certificate of recovery to the Collector for recovering the dues from the petitioner. The petitioner then filed writ petition No. 775 of 1963, relating to the assessment year 1953-54 but this was rejected by this Court on the ground that the earlier decision of the single Judge was binding upon it. The petitioner has since filed a Special appeal no. 119 of 1963 which has been admitted and the recovery of tax stayed. 9. In the meanwhile, the Sales Tax Officer by three notices issued on 11/16th January 1963, has called upon the petitioner to show cause why the assessments made for the three relevant years of assessment should not be rectified because of a mistake. In the notice for the assessment year 1956-57 the relevant words used are "while applying the reduction of Sales Tax the turnover disclosed there occurred a mistake, which being apparent on the face of the record is to be rectified under Section 22 of the Act." For the assessment year 1957-58, the words used were somewhat different. The material portion reads: "In calculating the rate of tax there occurred a mistake which being apparent on the face of the record is to be rectified under Section 22 of the Act." The notice for the assessment year 1958-59 was in the same terms as the notice for the assessment year 1956-57. It may be noticed that the notices for the assessment year 1956-57 and 1958-59 talk of the "mistake in the application of rate" which might go to indicate that what the Sales Tax Officer had in mind was the application of the rate under Section 3 or Section 3-A of the Act whereas in the notice for the assessment year 1957-58 the mistake is said to be "in calculating the rate of tax which would imply that there was some kind of arithmetical mistake in the calculation of the tax due. It may also be observed that the notices did not give any indication to the nature of the mistake which was sought to be rectified. It may also be observed that the notices did not give any indication to the nature of the mistake which was sought to be rectified. The petitioner, therefore, made three attempts to obtain on this point from the Sales Tax Officer, but without success. The petitioner his objection to the notices under Section 22, as required, on the 23rd January 1963, and requested the Sales Tax Officer again for clarification as to what the mistake was which was required to be rectified. 10. Having again received no response the petitioner, filed the present petition on the 16th of April, 1963, as he apprehended that the Sales Tax Officer would enhance the Sales Tax for the relevant years of assessment by levying a tax on sales of woollen carpet yarn by treating it as yarn goods and charging tax thereon at the rate of one anna per rupee. 11. After the writ petition was filed the Sales Tax Officer by his letter dated, the 22nd April, 1963, clarified the position vide, Annexure 2 to the counter affidavit by stating that woollen carpet yarn dealt with by the petitioner would fall to be taxed under notification No. ST90/X dated the 31st March, 1956 which provided for a tax at 6 pies per rupee and as this would involve additional tax liability upon the petitioner firm, they were asked to show cause. It was, therefore, for the first time on the 22nd April, 1963 that the department took the stand that rectification under Section 22 of the Act was sought so that woollen carpet yarn which fell to be assessed at single point and not at multiple point under the said notification No. ST907/X dated the 31st of March, 1956, had been assessed. It is not surprising that the Department, which was on the horns of a dilemma, had found it difficult to make up its mind. There was firstly, the decisions of the Judge Revisions and Judge Appeals in 1952-53 and 1953-54 assessment years, which decisions the department had presumably accepted as correct holding that woollen carpet yarn fell to be charged under Section 3 of the Act at 3 pies in the rupee at multiple points. Then came the decision in 1961 of a learned single Judge of this court which again upset the calculations of the department. Then came the decision in 1961 of a learned single Judge of this court which again upset the calculations of the department. Prior to that, however, there were two notifications issued in 1956, one was notification No. ST905/X dated, the 31st of March, 1956, which in supersession of all previous notifications on the subject, was in respect of all woollen goods, "excluding carpets but including knitting wool." The notification to all intents and purposes remained the same as the earlier notification No. ST117/X923/1948 which had been considered and interpreted by the Judge (Revisions) and Judge (Appeals) in one way and by a learned Judge of this Court in diametrically the opposite manner. On the same date as Notification No. 905/X, was issued another Notification No. ST907/X was also issued. This provided - "In exercise of the powers conferred by Section 3A of the U.P. Sales Tax Act, 1948 and in supersession of all previous notification on the subject the Governor of U.P. is hereby pleased to declare that the turnover in respect of the goods specified in the list below shall not with effect from April 1, 1956 be liable to tax except- (a) In the case of goods imported from outside U.P. at the point of sale by the Importer. (b) In the case of goods manufactured in U.P. at the point of sale by the manufacturer and the Governor is further pleased to declare that such turnover shall with effect from the said date be taxed at the rate of six pies per rupee. List Yarn of all kinds, including unspun fibre used in weaving, other than handspun yarn, but excluding cotton yarn in cops and cones." 12. It is this latter notification issued in 1956, which in 1963, for the first time the Sales Tax Officer proposed to press into service for rectifying the relevant assessment by charging tax under Section 3-A at six pies per rupee at single point against 3 pies in the rupee hitherto applied in making the assessment under Section 3 of the Act. The said Notification prima facie, requires several conditions to be satisfied before it can be applied to the facts of a particular case. The said Notification prima facie, requires several conditions to be satisfied before it can be applied to the facts of a particular case. It provides, firstly, that the turnover in respect of goods specified in the list which includes "yarn of all kinds" shall not be liable to tax except in the case of goods imported from outside U.P. at the point of sale by the importer, and in the case of goods manufactured in U.P. at the point of sale by the manufacturer. There is no material on the record on this aspect and it would require the taking of further evidence, in order to determine the turnover under Section 3A of the Act, before this notification could possibly apply. It is manifest, that the turnover under Section 3A and Section 3 of the Act will not necessarily be the same. The assessments, hitherto, made which are sought to be rectified, as already observed, proceeded on the basis that the entire turnover was taxable at multi-points under Section 3 of the Act. The proposal, to change the charge of tax from Section 3 to Section 3A now made in the impugned notices purporting to have been issued under Section 22 of the Act would require a fresh determination of the turnover. Under Section 3A, the turnover which has to be determined is that only from the manufacture of woollen carpet yarn or the yarn, if any, imported from outside U.P. by the petitioner. It would be necessary before a charge under Section 3A can be made invoking the said notification S.T. 907/X-11956 that the particular turnover by Section 3A be determined. Therefore, even assuming everything in favour of the department, that the notice under Section 22 was a valid notice, it would still fail to satisfy the prerequisite condition for the issue of such a notice, namely that there was a mistake apparent on the face of the record as, inevitably, further investigation of some facts would be necessary. 13. The application of Notification No. 907/X-1956, cannot be said to be so clear as to rule out the applicability of notification No. ST 905/X-56 or the view hitherto taken, in respect of the similar Notification No. ST 117/X-1948: "that woollen goods and knitting yarn" includes carpet yarn, by a learned Judge of this Court. 13. The application of Notification No. 907/X-1956, cannot be said to be so clear as to rule out the applicability of notification No. ST 905/X-56 or the view hitherto taken, in respect of the similar Notification No. ST 117/X-1948: "that woollen goods and knitting yarn" includes carpet yarn, by a learned Judge of this Court. In addition there were earlier decisions by the Judge (Revisions) and Judge (Appeals) holding such yarn to be unclassified goods which fall to be assessed under Section 3 of the Act and which decisions the department would appear to have accepted. The Sales Tax Officer, therefore, cannot say with any degree of certainty that only Notification No. ST 90/X-1956 will apply and no other view could possibly have been taken in regard to the category in which woollen carpet yarn would fall. The Sales Tax Officer will have to decide whether the goods fall within the category goods in Notification No. 905/X or No. 907/X. He cannot lightly ignore notification no. S.T. 905/X for the simple reason that a learned single Judge of this Court has already held, while interpreting a similar earlier Notification No. 117/X-1948 that yarn in such cases would fall within the category of woollen goods. At best, therefore, it could be said that woollen yarn would fall both within Notification No. 905/X and ST 907/X. If that be the position then a division bench of this Court has laid down that when particular goods fall within two entries the use to which the goods are put and the purpose for which they are sold would be the determining factor. Now that is something which the Sales Tax Officer did not consider before issuing the notices under Section 22 of the Act. The position, to say the least is anomalous and therefore it would not be possible to say that the failure to apply Notification No. 907/X at the time when the assessment for the relevant years of assessment were made was patent error of law. 14. That apart in the counter affidavit it has nowhere been admitted unequivocally that a mistake was made at the time when the original assessment came to be made. 14. That apart in the counter affidavit it has nowhere been admitted unequivocally that a mistake was made at the time when the original assessment came to be made. In the counter affidavit at one stage, in paragraph 4, it was stated that the decision of this Court, in interpreting woollen carpet yarn as "woollen goods and knitting wool", as given in the case of British India Corporation Ltd. v. State of U.P., (1962) 13 S.T.C.p. 459, was the correct interpretation, but in paragraph 6, the stand taken is that Notification No. 907/X applied to the facts of this case. As already stated it appears that the department was unable to make up its mind as to which notification would apply and the mere fact, that by a process of reasoning and elimination it has now arrived at the conclusion that it is Notification No. 907/X which should have been applied would in itself demonstrate, clearly, that the error which is sought to be corrected is not a mistake which can be said to be a mistake apparent on the face of the record. A mistake which has to be established by a long drawn process of reasoning and on which two opinions are possible cannot be said to be a mistake apparent on the face of the record, vide, Satya Naryan v. Malikarjun, A.I.R. 1960 S.C. 137. 15. Reliance was placed by the learned Counsel Standing Counsel on various decisions given under Section 35 of the Income-Tax Act for showing that an error of law as well as an error of fact could be corrected under the powers conferred by that section. Section 35 of the Income-Tax Act cannot, possibly be compared with Section 22 of the Act or with the provisions of Order 47, rule 1, C.P.C. Section 35 of the Income-tax Act omits the word `face' of the record and uses the much more general and all embracing expression `mistake apparent from the record'. Section 35 further goes on to provide for various specific contingencies which though not mistakes apparent from the record, are yet deemed to be mistakes apparent from the record. 16. Section 22 of the Sales Tax Act would, therefore, appear to restrict the powers of rectification to a much narrower limit than that possible under Section 35 of the Income tax Act, 1922. 16. Section 22 of the Sales Tax Act would, therefore, appear to restrict the powers of rectification to a much narrower limit than that possible under Section 35 of the Income tax Act, 1922. Section 22 uses the words `rectify any mistake apparent on the face of the record'. Now contrast this with Order 47 of the Code. This would appear to be even narrower than the words used in Order 47, rule 1 of the Code of Civil Procedure where both the words `mistake' or "error" `apparent on the face of the record' are used. Section 22, would, therefore, prima facie appear to confine the rectification, only to `mistakes' apparent on the record and not to any of any 'errors' apparent on the face of the record. 17. The Supreme Court in Income-tax Officer v. Ashoke Textiles Limited, A.I.R. 1961, S.C. 699, drew a clear distinction between rectification under Section 35 of the Income-tax Act and the power of review under Order 47, rule 1 C.P.C. It was pointed out that "mistake apparent on the record" is much wider in its scope than "mistakes apparent on the face of the record". An error apparent on the face of the record must be definite and capable of ascertainment and must not be debatable point or a mere wrong exposition of the law or a failure to apply the appropriate law. It was pointed out that the two expressions `apparent from the record' and apparent on the face of the record do not mean the same thing. If a mistake has to be discovered as a result of argument, deliberation or consideration it is not an error apparent on the face of the record. The phraseology under Section 22 of the Act would, therefore, rule out the failure to apply a particular Notification from the ambit of a mistake apparent on the face of the record. 18. There is yet another obstacle in the way of the department in this case and that is a matter of some doubt as to whether under the guise or cloak of making a mere rectification, the very basis of assessment from a charge under Section 3 at multiple point it can be changed to a charge under Section 3A at single point. It is, undoubtedly, a serious matter for an assessee if the basis of his assessment and the charging section applicable could be changed by merely invoking the provisions of Section 22 of the Act against which no remedy by way of appeal is provided under the Act. It is, however, unnecessary to decide this point in these proceedings as I have come to the conclusion that, prima facie, the application of the Notification No. S.T. 907/X is one which is open to two opinions and is not on which it can be said that the position is crystal clear requiring no further argument, debate or consideration of further evidence. Once that position is reached it becomes difficult, if not impossible, to postulate that a mistake obviously inconsistent with Notification No. S.T. 907/X had come into existence which could be said to be a mistake apparent on the face of the record to justify action under Section 22 of the Act. I am also not satisfied that the error of law in this case was due to any inadvertency or failure to notice the particular Notification No. ST 907/X-1956. The position, as already observed, seems to be that there was an application of the mind by the Sales Tax Officer leading to a certain result, at the time when he made the assessment for the relevant years of assessment. If the earlier decisions of the Judge (Revisions) and Judge (Appeals) were accepted by the Sales Tax Officer with open eyes, while making the assessment for the three relevant years of assessment it is difficult to contend that the error was one of law and much less than it was an error apparent on the face of the record. It would at best be a mere change of opinion on further consideration and a fresh application of the mind to the problem. 19. The contention of the learned Standing Counsel that the present petition was premature is also without force. It would at best be a mere change of opinion on further consideration and a fresh application of the mind to the problem. 19. The contention of the learned Standing Counsel that the present petition was premature is also without force. The direct answer to this contention is furnished by the decision of the Supreme Court in the case of Calcutta Discount Company v. I.T.O., A.I.R. 1961 S.C. 372 where it was held that the issue of a valid notice was a matter which touched the jurisdiction to start proceedings and was not merely a matter of limitation; the existence of an alternate remedy would not be a bar to the issue of a direction prohibiting the income-tax Officer from taking any action on the basis of the impugned notices provided the condition precedent for the assumption of jurisdiction were lacking. In such a case it was held, it becomes the duty of the courts to issue a writ and the courts would be failing to perform their duty if relief is refused without adequate reasons. 20. In the present case the essential condition for the issue of the impugned notice was the prima facie existence of a "mistake apparent on the face of the record". The impugned notices when read with the letter of the 22nd April 1963 from the Sales Tax Officer, make it abundant clear that the condition precedent for the invoking of jurisdiction under Section 22 of the Act was non-existent in this case. 21. For the reasons given above a direction will issue quashing the notices dated 11/16th of January, 1963. 22. The petition is accordingly allowed with costs.