Rungta Projects Limited v. State of Bihar — 1996 DIGILAW 332 (PAT)

JUDGMENT B P. SINGH, J. 1. These two writ petitions have been preferred by the same petitioners and arise out of the same proceeding. They have, therefore been heard together and are being disposed of by this common order. 2. In C.W.J.C No. 926 of 1996, the petitioners have prayed for quashing of the entire proceeding being Case No.17 (5) 10/95-96 initiated by the Deputy Commissioner of Commercial Taxes, Tenughat, respondent No. 3, herein under section 17 (5) of the Bihar Finance Act, in which proceeding he has issued an order dated 9.1.1996 demanding from the petitioners a sum of Rs. 65,31,863.44 paisa by way of sales tax and has also demanded a sum of Rs. 34,000/- by way of penalty by issuance of order dated 13.1.1996. The main grievance of the petitioners is that no sales tax is payable by them and further that the proceeding under section 17 (5) of Bihar Finance Act has been concluded without notice to the petitioner as required by the Act. 3. C.W.J.C. No. 391 of 1996 (R) has been filed by the petition for quashing the orders dated 9.1.1996 Annexure 12 and 13.1.1996, Annexure 12/A, whereby respondent no. 3 has called upon the Damodar Valley Corporation, respondent no. 4, to deposit a sum of Rs. 65,31,863.44 Paisa by way of sales tax and a sum of Rs. 34,000/- by way of penalty after deducting the same from the bills of the petitioner no. 1, Company. This order has been passed under section 27 of the Bihar Finance Act (Hereinafter referred to as the Act). 4. It will thus appear that the orders impugned in C.W.J.C. No. 391 of 1996 (R) are merely in pursuance and in consequence of the impugned orders which have been assailed in C.W.J.C. No. 926 of 1996 (R). If the proceeding itself is found to be illegal, both the writ petitions may have to be allowed because issuance of an order under section 27 of the Act directing the DVC to deposit the amount of tax and penalty payable by the petitioner no. 1, Company by adjusting the same against the bills of petitioner no. 1, Company, pre-supposes existence of liability to pay such tax. In C.W.J.C. No. 926 of 1996 (R) the petitioners have challenged the very proceeding in which tax and penalty have been imposed. 5. 1, Company by adjusting the same against the bills of petitioner no. 1, Company, pre-supposes existence of liability to pay such tax. In C.W.J.C. No. 926 of 1996 (R) the petitioners have challenged the very proceeding in which tax and penalty have been imposed. 5. Having regard to the order which we propose to pass, it is not necessary to refer to the facts of the case on the merit of the claim in any detail but only such facts which are necessary to clarify the background in which the impugned orders have been passed must be noticed. 6. The petitioner no. 1, company, claims that in October, 1993, it was awarded a contract by the DVC for removal of over• burden, namely, soil, earth, stone, old debris, etc. at Bermo. The contract was for a period of 12 months commencing from October, 1993 but after the expiry of the said period, in or about October, 1994, respondent no. 5 renewed the contract for a further period of 12 months subject to certain modifications as regards rate. The case of the petitioners is that having regard to the nature of work required to be under taken by the petitioner no. 1, company, there was no transaction of sale or deemed sale under the provisions of the Act and therefore, the petitioner no. 1, company was not liable to pay sales tax for the work executed under the said contract. The petitioners contend that for executing the work of removing over-burden, the company utilised its own equipments and engaged its own workmen using its own stores. The company owns various machines, equipments implements and heavy earth moving machineries which are utilised by the petitioner company for carrying out the contractual work. The possession, control and use of such machinery always remained with the petitioner–company and respondent no. 5 DVC was never given possession of control of any such machinery, nor did it ever use such machinery itself. The contractual work undertaken by the petitioner–company, therefore, did not involve transfer of any goods in execution of the said works in any from whatsoever and was purely a labour contract even with regard to payment to be made/under the contract the rates were fixed on the basis of volume of earth/stone removed. 7. The Damodar Valley Corporation respondent no. 5 made payments for the work executed by the petitioner no. 7. The Damodar Valley Corporation respondent no. 5 made payments for the work executed by the petitioner no. 1 Company from time to time but the petitioner–company has yet to receive a sum of Rs. 2,00,00,000/- (rupees two crores) approximately from the DVC However, in view of standard contractual provisions, the DVC made a total deduction of Rs. 12,49,887/- from the running bills of the petitioner–company for the period from 23 October, 1993 to 30 April 1994 at the rate of 8%+ 1% towards sales tax, and deposited the same with the sales tax authorities. The petitioner–company protested against the wrongful and illegal deduction made by the DVC on account of sales tax and also represented to the sales tax authorities. According to the petitioner, after examining the contractual documents and after full investigation of the nature of work undertaken by the Company, the sales tax authorities duly certified that no sales tax was payable in respect of the work executed under the said contract. The petitioners have relied upon a certificate dated 29.6.1994 issued by respondent no. 3 which has been annexed as Annexure–5. In view of the aforesaid certificate, respondent no. 3 refunded a sum of 7,16,223/- to the petitioner–company which had been deposited by the DVC as sales tax deducted from the running bills of the petitioner–company. A sum of Rs. 5,33,665/- yet to be refunded by the sales tax authorities but the authorities have illegally not refunded the same in spite of repeated demands. Further, the DVC respondent no. 5, also stopped deducting sales tax from the running bills of the petitioner company on the basis of certificate Annexure–5 granted by respondent no. 3. 8. The petitioners also claim that the petitioner no. 1, company, is registered under the provisions of the Bihar Finance Act, at Ranchi. No return is due to be filed nor any tax is payable by the petitioner–company to the Commercial taxes authorities. The assessment of the company for the period up to financial year 1993-94 has been completed and all the sales tax has duly been paid by the petitioner–company. Infect the sales tax authorities issued a clearance certificate dated 16.11.1995 certifying that no tax is due from the petitioner. The aforesaid certificate has been annexed as Annexure–6 to the writ petition. The assessment of the company for the period up to financial year 1993-94 has been completed and all the sales tax has duly been paid by the petitioner–company. Infect the sales tax authorities issued a clearance certificate dated 16.11.1995 certifying that no tax is due from the petitioner. The aforesaid certificate has been annexed as Annexure–6 to the writ petition. In substance, the case of the petitioners is that since the work executed by it for the DVC is under a purely labour contract/which involves no transfer of property in goods (whether as goods or in some other form) in terms of notification No. So–214 dated 19.6.1993 issued by the Government of Bihar, under section 25A of the Bihar Finance Act, 1981, a 'NIL' rate of tax has been prescribed to be deducted from the bills or invoices of such contractors. 9. In these circumstance the petitioners were surprised to know from the office of the DVC on 10.1.1996 that a notice dated 9.1.1996 has been received by the DVC respondent no. 5, under the signature of respondent no. 3, demanding payment of a sum of Rs. 65,31,863.44 paisa on account of sales tax allegedly outstanding against the petitioner company. The petitioner–company received a copy of the notice issued by respondent no. 3 to the DVC u/s 27 of the Act and wrote to the respondent no. 3 on 13.1.1996 bringing to its notice that its action was high–handed, arbitrary, illegal and wholly without jurisdiction. It was requested that the notice sent by him to the DVC may be revoked. The protest of the petitioner–company was received in the office of respondent no. 3 on 15.1.1996 but even so the petitioner–company was neither informed nor made aware by respondent no. 3 that a proceeding under section 17(5) of the Act had already been initiated against the petitioner–company and final order had been passed on 9.1.1996 raising a demand of Rs. 65,31,863.44 paisa towards sales tax from the petitioner–company on account of work executed by it for the DVC during the period from October, 1993 to December, 1995. The petitioner–company also came to know that a further notice had been issued to the DVC under section 27 of the Act asking the DVC to deposit a further sum of Rs. 34,000/- from the amount due to the petitioner. 10. The petitioner–company also came to know that a further notice had been issued to the DVC under section 27 of the Act asking the DVC to deposit a further sum of Rs. 34,000/- from the amount due to the petitioner. 10. In these circumstances, on 24.1.1996 the petitioner–company filed the writ petition being CWJC No. 391 of 1996 (R) challenging the notice issued by respondent no. 3 to the DVC in purported exercise of power conferred upon it by section 27 of the Act on 9.1.1996 and 13.1.1996. In the said writ petition, a counter affidavit was filed and from that counter affidavit the petitioners came to know for the first time that a proceeding u/s 17 (5) of the Act had been allegedly initiated by respondent no. 3 on 27.12.1995 on the basis of documents made available by DVC during inspection of their office and further that respondent no. 3 on being satisfied that sale tax was payable on account of hiring of heavy earth moving machinery by the petitioner–company to the DVC it was necessary to take a proceeding u/s 17 (5) of the Act. He had ordered for issuance of notice under section 17 (5) of the Act fixing 9.1.1996 as the date of hearing in the said proceeding. But the said notice was purported to have been sent under Certificate of Posting. The petitioners allege that the said notice was infact never issued and in any event the same has not been received by the petitioner–company even till the date of filling the instant writ petition. According to the petitioners, no service was effected upon petitioner no. 1–company in connection with the proceeding initiated under section 17 (5) of the Act and therefore, the entire proceeding and the orders passed in the said proceeding are bad in law and the proceeding itself is vitiated on account or non compliance with the statutory provisions of the Act incorporating the principles of natural justice. 11. In the instant writ petitions, therefore the petitioners have urged that having regard to the nature of work executed by the petitioner no. 1–company pursuant to the contract entered into with the DVC, the contract being a purely labour contract involving to transfer of property in goods (whether as goods or in some other form.) no sales tax was payable under section 25A of the Bihar Finance Act. 1–company pursuant to the contract entered into with the DVC, the contract being a purely labour contract involving to transfer of property in goods (whether as goods or in some other form.) no sales tax was payable under section 25A of the Bihar Finance Act. Secondly, it was urged that the proceeding u/s 17 (5) of the Act was vitiated on account of the fact that no notice was given to the petitioner of the said proceeding and the orders imposing the tax and penalty have been passed in breach of statutory provisions as also in breath of the principle or natural justice. 12. We are not persuaded to express any opinion on the first submission urged on behalf of the petitioners because that is a matter which the petitioners can agitate before the sales tax authorities and satisfy them that the petitioner no. 1–company, is not liable to pay sales tax. However, we are persuaded to held that the proceeding u/s 17 (5) of the Act is vitiated on account of non–compliance with the statutory provisions incorporating a principle of natural justice, inasmuch as we are satisfied that no notice was effected on the petitioner no. 1 company as required by law before passing of the orders imposing tax and penalty. 13. In the counter affidavit filed on behalf of the respondents, it has been stated that on 27-12-1995 inspection was made in the DVC Colliery and during the course of inspection, it was found that the DVC was paying to the petitioner–company hire charges for the heavy earth moving machinery hired to it. The contract was a hiring contract under which there was a transfer of right to use the heavy earth moving machinery and consequently the same was chargeable to sales tax under section 3 (1) (b) of Explanation (iv) of the Act. It has further been explained how notice was issued to the petitioner–company and how further orders were passed in the proceeding. Having regard to the fact that the entire order sheet of the aforesaid proceeding is on record, it would be useful to refer to the ordersheet itself to ascertain the true facts. 14. From the ordersheet, it appears that on 27-12-1995 the respondent no. 3 or being satisfied that it was necessary to take action under section 17 (5) of the Act as the petitioner no. 14. From the ordersheet, it appears that on 27-12-1995 the respondent no. 3 or being satisfied that it was necessary to take action under section 17 (5) of the Act as the petitioner no. 1 company was liable to pay sales tax on account of having received substantial amount on account of hiring of heavy earth moving equipment, notice under section 17 (5) of Act the was directed to be issued on the address the head office of the company and the matter to be placed for hearing on 9-1-1996. The respondents have annexed Annexure–F which is the notice issued under section 17 (5) of the Act from which it appears that the same was posted on the 30th December 1995. The next date fixed as shown in the notice was 9-1-1996. Annexure–F/1 is the postal certificate under which the aforesaid notice had been lent. The petitioner have stated that they never received such a notice under section 17 (5) of the Act. This fact has not been denied in the counter affidavit and the respondents have only relied upon the dispatch of notice under Certificate of Posting. The question then arises as to whether mere dispatch of notice under Certificate of Posting can be taken to be sufficient compliance of the Act so that it may be deemed that the petitioner no. 1 company had been served with the notice under section 17 (5) of the Act. 15. Section 17(5) of the Act provides that if upon information which has come into his possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any dealer has been liable to pay tax in respect of any period and has never the less willfully failed to apply for a registration certificate or having so applied failed to furnish any particulars or information required for the purpose of Section 10, the prescribed authority shall, after giving the dealer a reasonable opportunity of being heard, assess to the best of its judgment, the amount of tax if any due from the dealer in respect of such period and all subsequent periods. The prescribed authority has also been vested with the power to impose penalty to the amount of tax so assessed. The prescribed authority has also been vested with the power to impose penalty to the amount of tax so assessed. It cannot, therefore, be disputed that before an assessment is made or penalty imposed under section 17(5) of the Act, the prescribed authority is obliged to give to the dealer a reasonable opportunity of being heard. The provision incorporates a principle of natural justice so as to assure fairness in action, because consequences of an order under section 17(5) of the Act may be serious and drastic so far as the dealer is concerned. It is submitted on behalf of the Revenue that this mandate of the statute was complied with since a notice was sent to the petitioner company under Certificate of posting. The petitioners denied having received any such notice. In this connection, it is relevant to refer to Rule 48 of the Bihar Saks Tax Rules, 1983, which provides notice under the Act or the Rules other than a notice under sub–rule(2) of Rule 19 may be served by any of the following methods, namely:– (i) By delivering or tendering a copy of the notice to the addressee or any adult male member of his family residing with him or to his manager, if any, declared under section 15 and (ii) By post: 15. Sub–Rule (4) of Rule 48 reads as follows:– (4) "When service is made by post, the service shall be deemed to be effected by properly addressing, pre–paying and posting by registered post the notice, and unless the contrary is proved, the service shall be deemed to have been effected at the time at which the notice would be delivered in the ordinary course of post." 16. In view of Rule 48, if notice of hearing was sought to be given by post, the Revenue had to establish as a fact that the said notice had been received by the petitioner–company, unless the no lice was sent by registered post, in which event, in view of sub–rule (4) of Rule 48, service would be deemed to have been effected unless the contrary was proved. It, therefore, follows that if the notice was sent by registered post, service of such notice would be deemed to have been effected unlees it is established by the notice that such notice was never received by him. It, therefore, follows that if the notice was sent by registered post, service of such notice would be deemed to have been effected unlees it is established by the notice that such notice was never received by him. A presumption shall be made in favour of the authority sending the notice and the onus shall be on the person to whom notice is addressed to establish that it had not been received by him. In the instant case, the respondents cannot take advantage of Sub–Rule (4) of Rule 48, because admittedly the notice had been sent under Certificate of Posting and not by registered post. The petitioners have asserted that such a notice was never received by them and this assertion has not been rebutted by the respondents. We have, therefore, no option but hold that the respondents have failed to establish that a proper notice was given to the petitioner–company of the proceeding under section 17(5) of the Act. That being so, the orders passed in the said proceeding on the 9th January, 1996 and the 13th January, 1996 are also vitiated and must be quashed. 17. From the order sl1eet of the proceeding, it appears to us that the respondents have shown undue haste in the completion of the proceeding under section 17(5) of the Act. The petitioners have alleged that the entire matter was reopened at the behest of respondent no. 2, the Joint Commissioner of Sales Taxes, but we do not consider it necessary to go into the question as to whether the action was motivated by extraneous considerations. What, however, appears to us clear is that the authorities acted with undue haste which leads us to think that the procedural safeguards were thrown to the winds and the authorities were only interested in imposing a huge liability because the State Government required funds. This is obvious from the fact that on 27.12.1995, notice was ordered to be sent under Certificate of posting to the petitioners fixing 9.1.1996 as the date of hearing. From the counter affidavit, it appears that the notice was actually dispatched on the 30th of December, 1995. Since the hearing was fixed for 9th January, 1996, it was expected that the notice will be served during this period and the petitioners will be able to appear before the concerned authorities before the next date. From the counter affidavit, it appears that the notice was actually dispatched on the 30th of December, 1995. Since the hearing was fixed for 9th January, 1996, it was expected that the notice will be served during this period and the petitioners will be able to appear before the concerned authorities before the next date. It also appears that by the same order dated 27.12.1995, a local inspection was ordered with a direction to submit the report by 5th January, 1996. It further appears that the inspection was done on 3.1.1996 and on the same day, a report was submitted. On 9.1.1996 the report submitted after local inspection was considered and respondent no. 3 decided to proceed ex parte because the State was in need of funds. On the basis of the payment of Rs. Seven Crores and odd said to have been made by the DVC to the petitioner, the same was taken to be sale price and a tax of rupees sixty five lacs and odd was imposed. Thereafter a demand notice was issued directing that the tax be paid on or before 16.1.1996 though the normal period prescribed for payment of tax is 45 days. No doubt, in exceptional cases, the authority may prescribed a shorter period but there appears to be no reason why this was done in the instant case. The only reason mentioned is that the State requires revenue and therefore, recovery should be made forthwith. On the same day a notice was also issued to the DVC under section 27 of the Act to deposit by 16.1.1996 the tax imposed against the petitioner–company after adjusting the same against the bills of the petitioner company. The order sheet further discloses that on 13.1.1996 respondent no 3 noticed that he had not imposed penalty and therefore, he immediately passed an order on 13.1.1996 imposing the penalty of Rs. 34,000/- payable by 17.1.1996, that is, within four days, even though the petitioner–company had not appeared in the proceeding. It also simultaneously issued notice to the DVC under section 27 of the Act for deposit of the penalty amount by 17.1.1996 after adjusting the same against the bills of the petitioner company. The order sheet discloses that the authorities acted in hot haste though it was not necessary to do so in the facts and circumstances of the case. It also simultaneously issued notice to the DVC under section 27 of the Act for deposit of the penalty amount by 17.1.1996 after adjusting the same against the bills of the petitioner company. The order sheet discloses that the authorities acted in hot haste though it was not necessary to do so in the facts and circumstances of the case. However, we wish to say nothing more except to emphasis that whenever law provides for opportunity, a reasonable opportunity is to be given to the concerned party. The grant of an opportunity is not a mere formality to be complied with unless the opportunity given is reasonable so that the concerned person may be able to make an effective representation against the purported action. 18. As we have come to the conclusion that no notice was served upon the petitioner–company of the proceeding under section 17(5) of the Act, we must hold that the continuation of the proceeding without notice and the issuance of the orders dated 9.1.1996 imposing tax and dated 13.1.1996 imposing penalty are vitiated and must be quashed. They are, accordingly, quashed. However this will not prevent the authorities from proceeding under section 17(5) of the Act, after serving upon the petitioner–company a proper notice in accordance with law so as to give to the petitioner–company a reasonable opportunity of being heard in the matter. 19. In CWJC No. 391 of 1996 (R), the notices making a demand issued to the DVC under section 27 of the Act have been impugned. Since we have quashed the orders imposing tax: and penalty under section 17(5) of the Act, the orders issued under section 27 of the Act demanding payment of such tax and penalty from the DVC after adjusting the same against the bills of the petitioner–company must also be quashed. We, therefore, quash the orders passed by respondent no. 3 under section 27 of the Act dated 9.1.1996 and 13.1.1996 being Annexure 12 and 12/A. These writ petitions are allowed to the extent indicated above. I agree. Application allowed.