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2002 DIGILAW 400 (GAU)

INDIAN OIL CORPORATION LTD. v. STATE OF ASSAM

2002-09-13

P.G.AGARWAL

body2002
JUDGMENT P. G. AGARWAL, J. - In this batch of writ petitions, which are disposed of by this common judgment, the petitioners have challenged the validity and legality of the provisions of section 10A of the Assam General Sales Tax Act, 1993, for short "the Act", and the provisions of rule 19A of the Assam General Sales Tax Rules, 1993, for short "the Rules". The provisions of section 10A of the Act, which were incorporated by the amending Act of 1999 and made applicable with effect from June 1, 1999 read as follows: "Section 10A. Audit of accounts of certain dealers. - Every dealer whose gross turnover in a year exceeds rupees forty lakhs, shall get his accounts audited by a chartered accountant and shall submit a copy of the audited statement of account and certificate in such manner as may be specified." Rule 19A of the Rules read as follows : "The certificate of audit of the accounts of a dealer required to be furnished under section 10A shall be in form XXXI accompanied by statement of particulars in form XXXI-A and shall be furnished to the assessing officer on or before the 31st day of October of the year succeeding the year to which it relates." The ground on which the challenge has been made may be enumerated as below : (1) The case of the writ petitioners is that the aforesaid provisions have been incorporated in pursuance to the representation made by the Institute of Chartered Accountants, Guwahati Branch, Guwahati, solely for the purpose of benefiting the members of the said association. It has got no nexus with the alleged objective which the State wanted to achieve. (2) Under the Act, the sales tax is payable on the taxable turnover of the dealer, whereas the audit has been made compulsory on the gross turnover. Under the provisions of the Act certain specified goods are exempted from the gross turnover of sales but section 10A encompasses everything. (3) Section 7(iv) of the Act provides that there will be no liability of tax in respect of sale or purchase taking place outside the State, in the course of inter-State trade and commerce or in the course of import or export of goods out of the country. (3) Section 7(iv) of the Act provides that there will be no liability of tax in respect of sale or purchase taking place outside the State, in the course of inter-State trade and commerce or in the course of import or export of goods out of the country. However, section 10A of the Act includes sales and purchases made under the Central Sales Tax Act, whereas the said Central Sales Tax Act does not provide for any such audit. The form provided under rule 19A contains details regarding the sale and purchase under the Central Sales Tax Act; whereas the State has no authority to impose any tax under the Central Sales Tax Act. (4) There may be certain dealers who are required to get their accounts audited under the Income-tax Act or any other statute and the impugned provisions under the Sales Tax Act will be a mere duplication causing harassment and inconvenience to the dealers. (5) There is no provision under the Act or the Rules framed thereunder that in case of failure to comply with the provisions of section 10A or rule 19A the dealer will suffer in any manner, that is, there is no provision for penalty or other penal action and the accounts of the firm who refuses/fails to comply with the provisions are also assessed like others. It is therefore submitted that the provisions of section 10A have been introduced without application of mind and they are discriminatory and violates the provisions of article 14 of the Constitution of India as the dealers who are dealing in exempted goods under the Act are also required to get their accounts audited. The petitioners have therefore prayed for declaring and adjudging the provisions of section 10A of the Act and 19A of the rules to be ultra vires and illegal. The respondent-State has filed affidavit-in-opposition in W.P. (C) No. 2877 of 2000 and Mr. B. J. Talukdar, learned counsel for the respondents, has prayed that the above affidavit may be treated as the Government reply in all the cases. The case of the respondent is that the above provisions have been made for proper maintenance of the accounts by the big dealers whose annual turnover is above Rs. 40 lakhs and it would avoid tax evasion and is for proper collection of the lawful revenue to the State. The case of the respondent is that the above provisions have been made for proper maintenance of the accounts by the big dealers whose annual turnover is above Rs. 40 lakhs and it would avoid tax evasion and is for proper collection of the lawful revenue to the State. It is further submitted that although there were representations, from the Institute of Chartered Accountants, Guwahati, the provisions were incorporated after proper examination of the matter from time to time and also on consideration of similar provisions under the Indian Income-tax Act. The provisions were brought on statute in the greater interest of the State and its revenue. It is further submitted that there is no basis in the assertion that the dealers dealing in exempted goods or involved in inter-State trade or commerce are unnecessarily dragged in the network of audit. No tax have been levied on them by the above provisions of law and under the existing provisions these dealers are required to get themselves registered and submit their returns. Hence, they are not beyond the purview of the Act. We have heard Shri G. K. Joshi, Dr. A. K. Saraf, Dr. B. P. Todi, learned Senior Advocate, Mr. S. K. Kejriwal, Mr. M. U. Mahmood, Mr. O. P. Bhati, learned counsel for the petitioners and Mr. B. J. Talukdar, learned Government Advocate, Assam. In this batch of writ petitions, the petitioners have not challenged the legislative competence of the State of Assam in bringing in the above amendment. So far the allegation that the provisions were incorporated only at the request of the Institute of Chartered Accountants, Guwahati Chapter, Guwahati, the same has been denied by the State although receipt of the representation as such is not disputed. Moreover, the provisions of statute or Act cannot be thrown out merely on the ground that the provisions were enacted on the representation of a particular group, association or organisation unless these are beyond the competence of the Legislature or those are ultra vires in view of the provisions of the Constitution. On perusal of provisions of section 10A as quoted above, it is seen that a classification has been made as regards the requirements of audit. The dealer whose gross turnover is less than 40 lakhs are not required to get their accounts audited. On perusal of provisions of section 10A as quoted above, it is seen that a classification has been made as regards the requirements of audit. The dealer whose gross turnover is less than 40 lakhs are not required to get their accounts audited. The word "gross turnover" is defined in section 2(17) of the Act as below : "'Gross turnover' in respect of any period means the aggregate of the sale prices received or receivable or purchase prices paid or payable by the dealer in respect of all sales or purchases of goods effected by him during such period." The grievance of the petitioner is that the requirements of audit on the basis of gross turnover is bad in law as the tax under the Act is payable on the "taxable turnover" only as provided under section 8(1) of the Act. The liability to pay tax is altogether a different concept as a person who is liable is also entitled to various exemptions as provided under section 9 and other provisions of the Act. The question that arises for determination is, whether the inclusion of gross turnover in section 10A of the Act is irrelevant and illegal and the provisions of the Act are applicable only to the dealers who comes under the category of taxable turnover. Section 11 of the Act provides for compulsory registration of dealers who are liable to pay tax. This, however, does not mean that the dealers who are not liable to pay tax under the Act are not required to register. The proviso to sub-clause (2) of section 12 of the Act reads as follows : "The State Government may by rules provide that such a class of dealers carrying on business in such goods or such classes of goods as may be specified therein shall also seek registration notwithstanding that they may not be liable to pay tax under this Act if their gross turnover exceeds such limits as may be prescribed." In Fernandez's case [1957] 8 STC 561 (SC) the apex Court held : "This position is not at all affected by the provisions with regard to registration and submissions of returns of the sales tax by the dealers under the Act. The Legislature, inspite of its disability in the matter of the imposition of sales tax by virtue of the provisions of article 286 of the Constitution, may for the purposes of the registration of a dealer and submission of the returns of sales tax include these transactions in the dealer's turnover. Such inclusion, however, for the purposes aforesaid would not affect the non-liability of these transactions to levy or imposition of sales tax by virtue of the provisions of article 286 of the Constitution and the corresponding provision enacted in the Act, as above." Thus, it cannot be said that the provisions of the Act are limited or covers the dealers who are liable to pay tax only and the requirement of compulsory audit on the basis of gross turnover is alien to the provisions of the Act. The submission has got no basis. The learned counsel for the petitioners have referred to the following provisions/requirements in form XXXI-A as introduced by rule 19A clauses 5(e), (f), (g) and 7(b) and 8(b) of form XXXI-A which read as follows : "5. (e) total amount of CST collected during the year. (f) Total amount of CST paid during the year. (g) Whether there is any illegal collection, if so, whether the same has been remitted to the Government under appropriate heads of account (details to be given). 7.(b) Whether the auditor has come across any violation of the CST Act or rules made thereunder. If so, given details. 8.(b) Whether the dealer has misused any declaration form obtained under the CST Act and Rules made thereunder. If so, give details." It is therefore submitted that the provisions of section 10A and rule 19A cannot be made applicable in respect of the transaction falling within the purview of the Central Sales Tax Act. There is no dispute at the Bar that the above provisions do not provide for any charge or levy of tax on transactions covered under the Central Sales Tax Act or even under the Act. There is no dispute at the Bar that the above provisions do not provide for any charge or levy of tax on transactions covered under the Central Sales Tax Act or even under the Act. Section 9(2) of the Central Sales Tax Act reads as follows : "Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, reassess, collect and enforce payment of any tax under general sales tax law of the appropriate State, shall, on behalf of the Government of India, assess, reassess, collect and enforce payment of tax, including any penalty, payable by a dealer under this Act as if the tax or penalty payable by such a dealer under this Act is a tax or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly." On perusal of the above provisions of law, it shows that the State Government have been empowered to assess, collect and enforcement of tax including the penalty under the Central Sales Tax Act and hence in order to prevent tax evasion, if any, if certain information/report is called for from the auditor under form XXXI-A in respect of transaction under the Central Sales Tax Act it cannot be said to levy of tax under the Central Sales Tax Act. Some of the writ petitioners have admitted in their writ petition that they do submit return to the concerned tax officer of the State as regards their sale and purchase under the Assam General Sales Tax Act as well as Central Sales Tax Act. Some of the writ petitioners have admitted in their writ petition that they do submit return to the concerned tax officer of the State as regards their sale and purchase under the Assam General Sales Tax Act as well as Central Sales Tax Act. Thus, inclusion of the transaction under the Central Sales Tax Act in conformity with form XXXI-A does not suffer from any illegality or infirmity as the State has not levied any tax nor tried to take out any transaction from the purview of the Central Sales Tax Act. The respondent-State have come up with the plea that the provisions of section 10A of the Act are in line with the provision of Income-tax Act contained in section 44AB of the Income-tax Act, which reads as follows : "44AB. Audit of accounts of certain persons carrying on business or profession. - Every person, - (a) carrying on business shall, if his total sales turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year; or (b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year; or (c) ................. get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed." On perusal of the above, it may be seen that the dealer who is covered by section 10A of the Act will also stand covered under section 44AB(b) of the Act. The submission on behalf of the petitioner therefore is that in the Act there is no provisions similar to proviso (ii) of section 44AB as quoted, as a result of which, an extra burden has been imposed on the dealer to get their accounts audited twice, one for the purpose of Income-tax Act and the other for the purpose of Sales Tax Act. I find sufficient force in the above submission as the proviso (ii) of the Income-tax Act provided that if the accounts are already audited under any other provisions of law, no separate audit under section 44AB(a), (b) is required. I find sufficient force in the above submission as the proviso (ii) of the Income-tax Act provided that if the accounts are already audited under any other provisions of law, no separate audit under section 44AB(a), (b) is required. The basic idea is that two separate audit will not serve any purpose, at best, the same auditors may be asked to provide further information as per rule 19A if required by the sales tax department. The provision of section 10A is also required to be modified to that extent so that the dealers are not, burdened unnecessarily. However, we do not propose to strike the provisions but read down the same by providing that an audit made by the concerned auditor under the Income-tax Act shall be deemed to be sufficient compliance under the provisions of section 10A of the Act provided a further report in forms XXXI and XXXI-A as required under rule 19A is furnished along with the said audit report. Dr. A. K. Saraf has submitted that under the Act there is no penal provision for non-compliance of section 10A of the Act read with rule 19A and this shows clear non-application of mind on the part of the authority in incorporating the provisions of the Act, Learned counsel for the respondent-State has fairly submitted that unfortunately the Act does not provide for any penal action for any disobedience of law. Section 139(9), Explanation (bb) and (e) and section 271B of the Income-tax Act provides as follows : "(bb) the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report; (e) Where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditor's report and, where an audit of cost accounts of the assessee has been conducted, under section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section;". "271B. Failure to get accounts audited. "271B. Failure to get accounts audited. - If any person fails, to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the assessing officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less." Dr. Saraf has further submitted that in absence of any similar or identical provisions under the Act, the authorities are unable to take any action against the dealers who refuse or fail to submit the returns as the assessing authority is bound to make assessment with or without the audit report and in that sense the provisions of section 10A of the Act have become optional, that is, at the discretion of the dealers. The respondent-authority must examine this aspect of the matter and take necessary action. However, the question before this Court is whether in absence of any penal provision, the section 10A and rule 19A can be quashed. In our opinion, the impugned provision cannot be thrown out on that count. In the result, the writ petition stands disposed as stated above. Ordered accordingly.