Manchar & Company v. State of U. P. Lucknow — 1967 DIGILAW 121 (ALL)

JUDGMENT V.G. Oak, J. - This is a reference under Section 11 of the U. P. Sales Tax Act, 1948 (hereafter referred to as the Act) . Messrs Manohar and Company, Shiamganj, Bareilly is the assessee. It started business during the course of the year 1952-53. The assessee worked for only a part of the year 1952-53. Assessment was made for the assessment year 1952-53 under Section 18 (3) of the Act. In the present reference we are concerned with taxation for the assessment year 1953-54. For the year 1953-54 the assessee submitted quarterly returns. It was assumed that the assessee had elected to be assessed on the basis of the assessment year. On that basis, an order of assessment was passed on 1-9-1959 under rule 41(5) of the Sales Tax Rules. The assessee did not file any appeal against that order, dated 1-9-1959. 2. Subsequently, the authorities decided to take action under Section 21 of the Act on the ground that certain turnover for the year 1953-54 had escaped assessment. An order of reassessment was passed in due course. Against the order of reassessment under Section 21 of the Act, an appeal was filed. One of the points raised in appeal was that assessment was initially wrongly made under rule 41 (5). Assessment ought to have been made under Section 18 (4) of the. Act. That contention was over ruled by the Judge (Appeals). He held that it was now too late to challenge the basis of assessment. The Judge (Appeals), however, remanded the case to the Assessing Authority for proper determination of the escaped turnover. Against that order, the assessee went up in revision. It again raised the point that assessment should have been made under Section 18 (4) of the Act. The contention was again overruled by the Judge (Revisions) . The revision was dismissed, and the order of remand was upheld. The assessee applied for reference to Court. The Revising Authority submitted two questions of law to this Court under Section 11 of the Act. 3. The reference was heard by a Division Bench of this Court. The learned Judges of the Division Bench disagreed as regards the answers on the questions referred to the Court. The learned Judges reframed the two question of law referred to the Court. In view of the difference of opinion, the case has 'been referred to me. 3. The reference was heard by a Division Bench of this Court. The learned Judges of the Division Bench disagreed as regards the answers on the questions referred to the Court. The learned Judges reframed the two question of law referred to the Court. In view of the difference of opinion, the case has 'been referred to me. The two question of law as re-framed are : (1) Whether a dealer who has commenced his business in the previous year can opt for assessment year basis under the proviso to Section 7 read with rule 39 in the face of the mandatory provisions of Section 18 (4) of the Act? (2) Whether the assessee was debarred from challenging the proceedings taken against it under Section 21 of the Act for the assessment year 1953-54 when it had allowed the original assessment for 1953-54 to become final on the ground that the original assessment itself was illegal and ought to have 'been made under the mandatory provisions of-Sec. 18 (4) of the Act? 4. According to the department, assessment was rightly made under Section 7 read with rule 39. According to the assessee, assessment should have been made at all the stages of the proceedings under Section 18 (4) of the Act. The first question for consideration is about the true method of assessment for the year 1953-54. Material parts of Sections 3, 7 and 18 rule 39, as they stood at the material time, have been quoted in the judgment of Mr. Justice Manchanda Section 7 lays down the general procedure for determination of turnover and assessment of tax. Sec. 18 lays down a special procedure for assessment of reconstituted or new firms. Admittedly, we are dealing with a new firm. This assessee commenced business in the year 1952-53. Assessment for that year was made under Section 18 (3) of the Act. It follows that assessment for the subsequent year 1953-54 ought to have been made under Section 18 (4) of the Act. This was the view expressed by the Judge (Revisions) also. 5. In the first question referred to the Court by the Revising Authority it is stated that this is a case in which Section 18 (4) applies. In the first question referred to me by the Division Bench the expression 'mandatory provisions of Section 18 (4) of the Act" has been used. 5. In the first question referred to the Court by the Revising Authority it is stated that this is a case in which Section 18 (4) applies. In the first question referred to me by the Division Bench the expression 'mandatory provisions of Section 18 (4) of the Act" has been used. I, therefore, take it that the proper procedure to be applied for assessment in the present case was that laid down under Section 18 (4) of the Act, and that the provision of Section 18 (4) is mandatory. 6. The next question for consideration is whether the assessee had an option of adopting the procedure laid down by rule 39. Rule 39 has been framed under powers conferred on the State Government by Section 24 of the Act. We have seen that both Sections 7 and 18 of the Act contain provisions for assessment of tax. The proviso to sub-sec. (1) of the Section 7 enabled the State Government to prescribe that any dealer or class of dealers might submit a return of his turnover of the assessment year. This was a modification of the plan, outlined in sub-sec. (1) of Section 7. There-was no such provision for option under Section 18 of the Act. So, rule 39 has to be read with the proviso to Section 7 of the Act. The question arises whether rule 39 is applicable in a case governed by Section 18 of the Act. 7. Mr. Raja Ram appearing for the department urged that although the provision for option contemplated by Section 7 appeared in the form of a proviso the proviso is in fact in the nature of an independent provision. He brought my attention to a number of decisions of the Supreme Court explaining the nature of a proviso in a statute. Those decisions are not of much assistance in understanding the nature of the proviso in Section 7 of the Act. Section 7 laid down a certain method for make assessment. The proviso contemplated that a different method of assessment would be permissible if the State Government so prescribed. On reading Section 7 along with the proviso, it appears that the proviso cannot be read as an independent provision. No such proviso appeared in Section 18 of the Act. So the proviso must be limited to Section 7 of the Act. The proviso contemplated that a different method of assessment would be permissible if the State Government so prescribed. On reading Section 7 along with the proviso, it appears that the proviso cannot be read as an independent provision. No such proviso appeared in Section 18 of the Act. So the proviso must be limited to Section 7 of the Act. Operation of rule 39 must be limited to cases falling under Section 7 of the Act. Rule 39 will not apply in cases falling under Section 18 of the Act. 8. This point came up for consideration before a Division Bench of this court in Sales Tax Reference No. 390 of 1954, decided on 10.12.1957. The learned judges observed in that case :- "We are clearly of opinion that this contention cannot be supported, for the provisions of sub-sec. (1) of Section 7 of the Act were specifically made subject to the provisions of Section 18. It is, therefore, clear, in our opinion, that in a case to which Section 18 applied the provisions of Section 7 and the rules made there-under had no application ... In case to which Section 18(4) applied the first proviso to Section 7 and rule 39 had no application." 9. With respect, I agree with the view taken by the learned Judge in that case. If a case falls under Section 18(4) of the Act, the dealer has no option under rule 39. 10. The next question for consideration is either the assessee can raise this question is a proceeding under Section 21 of the Act. Section 21 States:- "Where the whole or any part of the turnover of a dealer has for any reason escaped assessment to tax in any year, the Assessing Authority may.... assess the tax payable on such turnover." 11. For deciding question No. 2 It is necessary to understand the nature of the proceeding under Section 21 of the Act. Mr. Raja Ram urged that a case under Section 21 of the Act is an independent proceeding. In support of his contention, he referred to Section 9 of the Act. Section 9 that orders under Section 7, 18 and 21 are appealable. From the language of Section 21 is a separate proceeding. I don not think that is the correct inference from the language of Section 9. In support of his contention, he referred to Section 9 of the Act. Section 9 that orders under Section 7, 18 and 21 are appealable. From the language of Section 21 is a separate proceeding. I don not think that is the correct inference from the language of Section 9. Section 9 merely lays down that, if orders are successively passed under Sections 7 and 21 of the Act. both the order would be appearlable. That circumstance does not establish that a proceeding under Section 21 has no connection with the previous proceeding under Section 7 of the Act. The head not of Section 21 is :- "Assessment of tax on the turnover not assessed during the year." 12. Such a proceeding is for reassessment. A proceeding for reassessment is analogous to a proceeding for review. The proceeding under Section 21 of the U.P. Sales Tax Act is similar to a proceeding under Section 34 of the Income Tax Act, 1922. A proceeding for reassessment under Section 21 of the U.P. Sales Tax Act is merely a continuation of a proceeding for assessment under Section 7 or Section 18 as the case may be. Section 21 does not lay down any special basis for assessement of tax. It follows that the basis for reassessment must be the same as the basis for the original assessment. 13. It has been pointed out that sub-sec. (4) of Section 18 of the Act was deleted by amending Act. No. VIII of 1954, which came into force on 1-4-1954. It was, therefore, urged by Mr. Raja Ram that after 1-4-1954 the assessee can no longer press Section 18 (4) into service. He contended that the provision of Section 18 (4) 'was procedural; and an assessee can have no vested right in a matter of procedure. It may be conceded that amendment. of a statute dealing with a matter of procedure may have retrospective effect. The question, however, remains whether the provision of Section 18 (4) was procedural. Sub-sec. (4) of Section 18 ran thus: "The assessing authority shall fix the turnover of The dealer for next succeeding assessment year at the amount of average monthly turnover determined by him in accordance with clause, (b) or (c) of sub-sec. (3) , as the case may be, multiplied by 12 and shall assess the tax thereon." Sub-sec. Sub-sec. (4) of Section 18 ran thus: "The assessing authority shall fix the turnover of The dealer for next succeeding assessment year at the amount of average monthly turnover determined by him in accordance with clause, (b) or (c) of sub-sec. (3) , as the case may be, multiplied by 12 and shall assess the tax thereon." Sub-sec. (4) of Section 18 explained how tax payable for the succeeding assessment year had to be calculated. That was a substantive provision for fixation of tax payable for the succeeding assessment year. It cannot be said that the provision of sub-sec. (4) of Section 18 was merely a matter of procedure. Since Section 18 (4) dealt with a substantive right, the assessee is entitled to urge in a subsequent proceeding under Section 21 of the Act, that the true basis of taxation is that laid down in Section 18 (4) of the Act, and not the basis under Section 7 of the Act. Under question No. 2 the department has raised the questions of res judicata, estoppel and waiver. In Chatturam v. I.T. Commissioner, Bihar, A.I.R. 1947 F.C. 32 it was held that there may be a waiver as to the machinery of taxation which ensures against the subject. Similarly, in Amarendra Narayan v. I.T. Commissioner, West Bengal, AIR 1954 Calcutta 271 it was held that so far as machinery portion is concerned, it is open to the subject to waive the same. 14. It may be assumed that in the present case the assessee waived the special procedure laid down in Section 18(4) of the Act. The question remains whether it should be deemed to have waived the correct procedure for for purposes of reassessment under Section 21 of the Act. In support of the pleas regarding res judicata, estoppel and waiver, the department relies on the fact that the assessee did not file any appeal against the order of assessment dated 1.9.1959. Since the assessee did not file any appeal against the order dated 1.9.1959, that order became final in one sense. But it is to be noted that the department is not prepared to treat the order dated 1.9.1959 as final. By taking action under Section 21 of the Act, the authorities are themselves reopening the question of assessment. Since the assessee did not file any appeal against the order dated 1.9.1959, that order became final in one sense. But it is to be noted that the department is not prepared to treat the order dated 1.9.1959 as final. By taking action under Section 21 of the Act, the authorities are themselves reopening the question of assessment. In view of their anxiety to reopen the question of assessment, they cannot legitimately urged that the original assessment order dated 1.9.1959 is final. In view of reassessment proceedings under Section 21 of the Act, the department cannot raise the pleas of res judicata, estoppel and waiver. 15. In view of the assessee's omission to file an appeal against the order dated 1.9.1959, we may take it that it was prepared to pay the sales tax fixed under that order. But its omission to file an appeal should not be taken as a concession that the method of calculation was correct. It the assessee was content with the amount of sales tax fixed under an assessment order, it had little interest in the matter of method adopted in fixing the amount. If the authorities are anxious to reopen the question of assessment, they must be prepared to adopt the true basis of calculation. It is open to the assessee to urge before the authorities in the proceeding under Section 21 of the Act that the true basis of assessment is that under the provision of Section 18(4) of the Act. 16. In my opinion, the two questions, as re-framed and referred to me, should be answered in the negative, and in favour of the assessee. 17. Let the papers be returned to the Division Bench with these answers.