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2000 DIGILAW 1116 (PNJ)

Bansi Rice Mills v. State Of Haryana

2000-09-15

G.S.SINGHVI, NIRMAL SINGH

body2000
Judgment G.S.Singhvi, J. 1. This is a petition for quashing of the orders dated May 7, 1998 and March 31, 2000 passed by the Deputy Excise and Taxation Commissioner-cum-Revisional Authority, Karnal, (respondent No. 3) and Sales Tax Tribunal-II, Haryana (respondent No. 2) respectively in the proceedings initiated against the petitioner under Section 40(1) of the Haryana General Sales Tax Act, 1973 (for short, "the Act"). 2. The petitioner is registered as a dealer under the Act. It is engaged in the business of purchase of paddy and sale of rice. The quarterly returns filed on its behalf for the assessment year 1994-95 were accepted by the Excise and Taxation Officer-cum-Assessing Authority, Karnal, who passed order dated December 6, 1996 declaring the tax liability in respect of consignment sales as nil. After about one year and five months, respondent No. 3 issued notice dated July 31, 1997 under Section 40(1) of the Act proposing suo motu revision of the assessment order and vide order annexure P5 dated May 7, 1998, he held that the petitioner liable to pay tax amounting to Rs. 51,578 on consignment sales. He also levied interest amounting to Rs. 43,236 under Section 25(5) of the Act. The appeal filed by the petitioner against that order was partly allowed by respondent No. 2 and the case was remanded to respondent No. 3 with the direction to work out tax liability excluding the purchase tax element from the amount received by the petitioner. However, the levy of tax of consignment sales was upheld. 3. The petitioner has challenged the impugned orders on the following grounds : (i) respondent No. 3 did not have the jurisdiction to initiate proceedings for revision of the order of assessment solely on the basis of audit note--Sha M. Hastimal and Co. v. Deputy Commissioner of Commercial Taxes, Administration, City Division II, Bangalore [1989] 72 STC 308 (Kar). (ii) levy of interest on the tax assessed by respondent No. 3 is contrary to the law laid down by the Supreme Court in J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422 and by this Court in United Riceland Limited v. State of Haryana [1997] 104 STC 362 [FB] and Punjab Breweries Limited v. State of Punjab [1999] 112 STC 314. 4. 4. The respondents have raised an objection to the maintainability of the writ petition on the ground that the petitioner has failed to avail of the alternative remedy of reference under Section 42 of the Act. On merits, they have averred that the order of assessment passed by respondent No. 3 does not suffer from any legal infirmity because he had initiated action under Section 40(1) of the Act in exercise of his suo motu jurisdiction and the audit report did not constitute the sole basis of his decision to revise the order of assessment. The levy of interest has been justified on the strength of the decision of the Supreme Court in Calcutta Jute Manufacturing Co. v. Commercial Tax Officer [1997] 106 STC 433. 5. We shall first decide the question as to whether initiation of proceedings for revision of the assessment is vitiated due to violation of Section 40 of the Act. For this purpose, we may refer to Section 40(1) and (2) of the Act and the relevant extracts of the notice dated July 31, 1997. The same read as under : "Section 40(1) and (2) of the Act : (1) The Commissioner may on his own motion call for the record of any case pending before, or disposed of by any officer appointed under Sub-section (1) of Section 3 of the Act to assist him or any assessing authority or appellate authority, other than the Tribunal, for the purposes of satisfying himself as to the legality or to propriety of any proceedings or any order made therein and may pass such order in relation thereto as he may think fit. (2) The State Government may, by notification, confer on any officer the powers of the Commissioner under Sub-section (1) to be exercised subject to such conditions and in respect of such areas as may be specified in the notification. Extracts of notice dated 31-7-1997: Whereas I, R.C. Mittal, Deputy Excise and Taxation Commissioner, In-charge of the District-cum-Revisional Authority, Karnal, vested with the powers under Section 40(2) of the Haryana General Sales Tax Act, 1973 , in suo motu examined your sales tax assessment record for the purpose of satisfying myself as to the legality and propriety of the order passed by Assessing Authority for the assessment year 1994-95 on February 6, 1996. After examining the said record, I have found the following illegality in the assessment order passed by the Assessing Authority: (i) Trading account reveals that you had opening stock of rice for Rs. 7,11,590 and purchases of rice during the year are of Rs. 1,93,357 from the State of Haryana and that purchases of paddy from the State of Haryana and from out of the Haryana are for Rs. 1,30,16,256. Against this you have made sales of rice for Rs. 1,46,87,685 and the closing stock at the end of the year of rice was of Rs. 9,81,399. This shows that against milling of paddy for Rs. 1,30,16,256 the maximum rice available could be of Rs. 1,46,87,685 + Rs. 9,81,399--Rs. 7,11,590 and Rs. 1,93,367 = Rs. 1,47,64,137 which shows that against milling of paddy for 100, the sale value of rice could at the most up to Rs. 113.43. (ii) Further on verification of the returns for the quarter ending September 30, 1994 and December 31, 1994, I find that the total sales of rice during these quarters are of Rs. 1,27,01,134. After excluding the value of opening stock of rice in case it is accepted that total opening stock of rice has been utilised during the first three quarters, the sale value of rice procured out of the paddy milled will come to Rs. 1,23,34,269 against which purchase value of paddy on the basis of ratio derived on the basis of trading account will come to Rs. 1,08,73,903 but the paddy milled from out of the paddy purchased from the State of Haryana during these first two quarters is only of Rs. 98,47,591 which is not sufficient to meet the requirement of sales of rice from the State of Haryana. So the rice procured out of the paddy milled which was purchased from outside the State of Haryana has also been used for the purpose of sales in the State of Haryana. In view of the same, it is clear that the claim of the dealer that rice sold in Haryana is procured out of the paddy milled which was purchased from the State of Haryana has been wrongly accepted and it should have been proportionately taxed as sales in the State of Haryana and the remaining sent on consignment basis." 6. In view of the same, it is clear that the claim of the dealer that rice sold in Haryana is procured out of the paddy milled which was purchased from the State of Haryana has been wrongly accepted and it should have been proportionately taxed as sales in the State of Haryana and the remaining sent on consignment basis." 6. A perusal of Section 40(1) shows that the Commissioner or an officer, to whom the power of Commissioner has been delegated, can suo motu call for the record of any case pending before, or disposed of by any officer appointed under Sub-section (1) of Section 3 of the Act for the purpose of satisfying himself as to legality or propriety of any proceeding or of any order made thereunder and pass appropriate order and for this purpose, he can rely upon the material supplied by the departmental authorities or information which may come to his notice from any other source. The audit note can also constitute a relevant material for the purpose of initiating proceedings under Section 40(1) and an order passed in pursuance of the notice issued under Section 40(1) cannot be invalidated simply because the source material for such notice is the audit note provided that the record made available to the court shows that the competent authority had independently applied its mind to the material placed before the Assessing Authority or the Appellate Authority. 7. In the light of the above, it is to be seen whether the notice issued by respondent No. 3 is vitiated by non-application of mind or any other legal infirmity. A perusal of the extracts of the notice, reproduced above, shows that before initiating action under Section 40(1) of the Act, respondent No. 3 had called for and examined the record containing the returns filed by the petitioner and felt satisfied that the rice procured out of the paddy purchased from outside the State of Haryana had also been sold within the State of Haryana and the dealers claim that such rice was procured only from the paddy purchased from the State of Haryana was incorrect. This shows that respondent No. 3 had independently applied his mind to the relevant record and recorded cogent reasons for issuing notice under Section 40(1). This shows that respondent No. 3 had independently applied his mind to the relevant record and recorded cogent reasons for issuing notice under Section 40(1). There is nothing in the language of the notice from which it can be inferred that respondent No. 3 had relied on the audit note for the purpose of initiating action under Section 40(1) of the Act. Therefore, merely because the Assessing Authority had forwarded a copy of the audit note to respondent No. 3, it cannot be said that the decision taken by him to revise the assessment order was based on the audit note or that the said respondent had not applied his mind to the record or had not recorded reasons before issuing notice to the petitioner. 8. The judgment of the Karnataka High Court in Sha M. Hastimal and Co.s case [1989] 72 STC 308, relied upon by Shri Jhingan is clearly distinguishable. The facts of that case show that the decision to initiate the proceedings for revision of the assessment order was taken by the concerned authority solely on the basis of audit note and without applying its mind independently to the record of the Assessing Authority. 9. The issue which remains to be examined is whether the petitioner can be held liable to pay interest for the period prior to May 7, 1998, i.e., the date on which respondent No. 3 held it liable to pay tax in respect of consignment sales. Shri B.K. Jhingan relied on the decision of the Constitution Bench of the Supreme Court in J.K. Synthetics Ltd.s case [1994] 94 STC 422 and the two decisions of this Court in United Riceland Limiteds case [1997] 104 STC 362 [FB] and Punjab Breweries Limiteds case [1999] 112 STC 314 and argued that levy of interest for the period prior to the date of revisional order should be declared illegal and quashed. As against this, the learned Deputy Advocate-General relied on the decision of the Supreme Court in Calcutta Jute Manufacturing Co.s case [1997] 106 STC 433, to support the levy of interest with retrospective effect. 10. As against this, the learned Deputy Advocate-General relied on the decision of the Supreme Court in Calcutta Jute Manufacturing Co.s case [1997] 106 STC 433, to support the levy of interest with retrospective effect. 10. In our opinion, the levy of interest for the period prior to May 7, 1998, i.e., the date on which the tax was levied on the petitioner must be treated as illegal in view of the law laid down by the Constitution Bench of the Supreme Court in the case of J.K. Synthetics Ltd.s case [1994] 94 STC 422. In that case, their Lordships interpreted the provisions of the Rajasthan Sales Tax Act, 1954, which are similar to those contained in the Act and held as under : "Under Section 11B of the Rajasthan Sales Tax Act, 1954, before its substitution by Act No. 4 of 1979 with effect from April 7, 1979, the liability to pay interest on unpaid tax amount accrued on the dealer in two situations only, viz., (i) failure to pay the tax due under sub-sections (2) and (2A) of Section 7 and (ii) failure to pay the tax within the time allowed by the notice of demand or thirty days from the receipt of the notice by the dealer. Section 11B before its amendment nowhere provided for payment of interest on the unpaid tax amount as found on final assessment from the date of the filing of the return under Section 7 of the Act. If the amount of tax payable under Sub-section (2) is paid on the basis of return, not on the basis of final assessment, there can be no question of payment of interest under clause (a) of Section 11B. Similarly, if the tax is paid according to the return as required by Sub-section (2A), in other words, if the full amount of tax due shown in the return is paid, there can be no question of charging interest under clause (a) of Section 11B. So far as clause (b) is concerned it is a post-assessment situation. Where tax is found due on final assessment and the dealer is required to make good the difference, a notice of demand will issue. So far as clause (b) is concerned it is a post-assessment situation. Where tax is found due on final assessment and the dealer is required to make good the difference, a notice of demand will issue. If the dealer fails to pay the tax within the time specified in the notice, and if no time is specified within 30 days from the receipt of notice, he is required to pay interest at the rates prescribed by the sub-section. But if he pays the difference of tax within the prescribed time, there is no question of charging interest. The conjoint reading of Section 7(1), (2) and (2A) and Section 11B of the Act leaves no room for doubt that the expression tax payable in Section 11B can only mean the full amount of tax which becomes due under sub-sections (2) and (2A) of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7. It is not possible to visit the assessee who pays the tax which according to him is due on the basis of the information supplied in the return filed by him with the liability to pay interest under clause (a) of Section 11B. The law did not envisage the assessee to predict the final assessment when he filed the return and expect him to pay the tax on that basis to avoid the liability to pay interest. The law did not envisage the assessee to predict the final assessment when he filed the return and expect him to pay the tax on that basis to avoid the liability to pay interest. Where returns of turnover for the assessment years 1975-76 to 1977-78 were filed by the appellant on the basis that the amount of freight charged in respect of sale of cement under the Cement Control Order did not form part of the sale price for payment of sales tax and paid the tax accordingly, and had raised the contention bona fide, but the Supreme Court in 1978 held that the freight element formed part of the price of cement and sales tax was leviable on the sale price inclusive of the freight amount, and the appellant was required to pay additional sales tax on that basis: Held accordingly, that the appellant was not liable to pay interest under Section 11B (as it stood prior to its substitution in 1979) on the additional sales tax from the date on which the original returns were filed but interest had to be paid only for the period subsequent to determination of sales tax under the final assessment after the expiry of the period allowed under the notice of demand." 11. The judgment of Calcutta Jute Manufacturing Co.s case [1997] 106 STC 433 (SC), is clearly distinguishable. The facts of that case show that the appellant had filed writ petition in the High Court of Calcutta for challenging the constitutional validity of Section 6B of the Bengal Finance (Sales Tax) Act, 1941. During the pendency of the writ petition, the High Court passed an interim order and in the garb of the stay order, the appellant did not deposit the amount of tax. After the dismissal of the writ petition, the appellant was held liable to pay tax with interest. This was challenged by it on the ground that interest cannot be levied for a period prior to the date of assessment. While rejecting this plea, a two-Judge Bench of the Supreme Court distinguished the Constitution Bench judgment in the case of J.K. Synthetics Ltd.s case [1994] 94 STC 422 (SC), and observed as under : "But the position here is explicitly distinguishable from the factual situation in J.K. Synthetics Ltd. [19941 94 STC 422 (SC). While rejecting this plea, a two-Judge Bench of the Supreme Court distinguished the Constitution Bench judgment in the case of J.K. Synthetics Ltd.s case [1994] 94 STC 422 (SC), and observed as under : "But the position here is explicitly distinguishable from the factual situation in J.K. Synthetics Ltd. [19941 94 STC 422 (SC). Here, nobody had doubt that if Section 6B of the Act was valid the tax was payable on the turnover. It was the constitutional validity of Section 6B which was challenged by the appellants in the earlier writ petitions before the Calcutta High Court and which finally ended up in upholding of its validity. Hence, there was no question of the assessee waiting for the determination and the turnover as there was no dispute on that aspect. The fact that appellants questioned the constitutional validity of the charging provision cannot be equated with a dispute whether the freight paid would also form part of the sale amount, It was a highly debated dispute whether price amount would envelope the freight charges paid by the dealer and until the controversy was resolved by the court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC); (1978) 4 SCC 271 the dealers were justified in excluding the freight charges from sale price. It was for that reason the Constitution Bench refrained from mulcting the tax-payer with liability to pay interest additionally. Appellants in these cases have never disputed that they are liable to pay tax on the turnover under Section 6B of the Act even while they focussed on the fires of that provision. The tax amount which they should have paid as per Section 6B remained with the appellant during the entire period and they would have earned good profit with that amount. The State, to which the tax amount should necessarily have gone, was not able to utilize it for public purposes. When appellants had the advantage of keeping the amount of tax without paying it to the State exchequer only because the High Court granted orders restraining the State from recovering that amount from the assessee, no act of the court shall cause prejudice to any party. The prestine doctrine couched in the maxim actus curiae neminem gravabit has ever remained a salutary and guiding principle." 12. The prestine doctrine couched in the maxim actus curiae neminem gravabit has ever remained a salutary and guiding principle." 12. In our opinion, the aforementioned decision is clearly distinguishable because while in that case the assessee had no reason to delay the deposit of tax, the petitioner was not liable to pay such tax till the passing of the order dated May 7, 1998. 13. For the reasons mentioned above, the writ petition is partly allowed. The levy of interest for the period prior to May 7, 1998 is declared illegal. However, the concurrent finding recorded by respondent Nos. 2 and 3 on the petitioners liability to pay tax on the consignment sales is confirmed. The respondents shall now be free to recover the amount of tax after complying with the direction given by respondent No. 2 for exclusion of the element of purchase tax. They shall also be entitled to charge interest for the period commencing from May 7, 1998.