2016 (4) TMI 485 - HC - VAT and Sales Tax

Validity of Tribunal s order - Order proceeds on a complete misconception of law and misread the definitions and substantive provisions of the BST - Manufacturer of nail cutters - Department submitted that if the Tribunal s view is accepted, that would mean that a dealer and who is defined to mean a person cannot be a sole proprietor, none of the transactions of sale and purchase and undertaken by the sole proprietor can be brought to tax and the sole proprietary concern, in any event, has no existence independent of the sole proprietor or sole proprietress. Therefore, notice being issued in the trade name cannot be said to be fatal and such proceedings can never be termed as non-est - Held that - it is not seen how within the meaning of sub-section (1) of section 33 and in the light of the clear legal provisions, a sole proprietor/dealer cannot be brought to tax. If he can be brought to tax and his income assessed on the basis of the transactions of sale and purchase of goods undertaken by him/her and that section also enables the Commissioner to carry on best judgment assessment, then, merely because the notice under sub-section (6) addressed and sent to the dealer is in the trade name and not the sole proprietress that would not be fatal. The Tribunal has referred, to the definitions and which, according to it, are relevant. Tribunal s order requires a registered dealer to furnish returns and if non filing of returns and non registration of a dealer enable the Commissioner to carry out best judgment assessment, that any notice being addressed and sent in the above manner would be an illegality and of such nature as to be termed as incurable. The Tribunal s opinion is that this is an incurable defect and not a mere irregularity. So, the Tribunal has declared the assessment to be non-est. Eventually, procedural rules and matters of Form cannot be elevated to such a status and position as would make every part or prescription thereof mandatory and incapable of substantial compliance. Such provisions do not mandate strict compliance and are capable of substantial compliance. It cannot be that the trade name is mentioned and not that of the sole proprietor or proprietress that the proceedings can be flawed to such an extent as to term them as incurable. This is not a fundamental flaw or defect going to the root of the case. It will have to be established and proved that there is a prejudice or miscarriage of justice. Merely because the trade name been incorporated or inserted in the notice does not mean that the dealer was prevented from contesting the proceedings or the exercise carried out by the commissioner under sub-sections (5) or (6) of section 33. Eventually, the dealer must be put to notice. The form is not mandatory and the requirement of notice may be such. Therefore, absence of notice by such mis-description would have to be established and proved by the dealer, else it cannot be said that the proceedings suffer from a fundamental or incurable defect and therefore non-est. The proceedings and the orders therein cannot be termed as void ab initio or null from inception. The Tribunal should have noted the basic facts in this case, the context and the backdrop in which the Division Bench concluded that the notice issued under the trade name would not suffice. Pertinently, the Division Bench does not hold that the sole proprietor or the business carried out by sole proprietor is incapable of being brought to tax nor does it hold that the sole proprietor cannot be termed as a dealer though carrying on business of buying and selling of goods. The Division Bench does not hold, as that the definition of the term person will not include or take within its import a sole proprietor or a sole proprietary business. The notice ought to be and is to the sole proprietor. Also the Tribunal relied on wrong case in decicind this case. Decided in favour of revenue

Summary

Issues Involved:
1. Validity of assessment orders issued in the trade name instead of the sole proprietress's name.
2. Classification and tax rate applicable to nail cutters under the Bombay Sales Tax Act, 1959 (BST) and the Central Sales Tax Act, 1956 (CST).
3. Jurisdiction of the revisional authority to revise non-est orders.

Issue-wise Detailed Analysis:

1. Validity of Assessment Orders Issued in the Trade Name:
The central issue was whether the assessment orders were valid when issued in the trade name "M/s. Klip Nail Care" instead of the sole proprietress's name, Mrs. Janaki Soman. The Tribunal held that the notices issued in the trade name were invalid and thus the assessment orders were non-est. The Tribunal reasoned that the proceedings should have been initiated against the "dealer" as defined in Section 2(11) of the BST, which includes the sole proprietress. The Tribunal cited the case of Shankar Dhawan, where a notice issued in a trade name was deemed invalid. However, the High Court disagreed, stating that a sole proprietorship is essentially a business owned by one person, and a notice addressed in the trade name does not invalidate the proceedings. The High Court emphasized that procedural rules and forms should not be elevated to a mandatory status that renders substantial compliance impossible. The Court concluded that the Tribunal's reliance on the Shankar Dhawan case was misplaced, as it dealt with a situation where no notice was issued, not a defective notice.

2. Classification and Tax Rate Applicable to Nail Cutters:
The assessing authority initially classified nail cutters under Entry C-II-152, liable to a 10% tax rate. However, the Commissioner of Sales Tax, Pune Division, revised this classification, stating that nail cutters are toilet articles under Entry 86 of Schedule C Part II, attracting a 15% tax rate. The Deputy Commissioner of Sales Tax (Appeals) confirmed this classification. The Tribunal, however, did not delve into the merits of this classification due to its decision on the validity of the notices. The High Court did not address this issue in detail, as the appeals were remanded to the Tribunal for reconsideration on all grounds.

3. Jurisdiction of the Revisional Authority to Revise Non-est Orders:
The Tribunal held that the revisional authority lacked jurisdiction to revise non-est orders, citing that a non-est order cannot be revised. The High Court found this reasoning flawed, stating that if the sole proprietor can be brought to tax and the assessment can be made on the basis of transactions, then a notice in the trade name does not render the proceedings non-est. The High Court emphasized that the procedural defect alleged by the Tribunal did not constitute a fundamental flaw that would invalidate the entire proceedings. The High Court concluded that the Tribunal erred in allowing the appeals solely on this ground without considering other grounds raised by the dealer.

Conclusion:
The High Court answered the referred question in favor of the Revenue, stating that the Tribunal's decision to declare the assessment orders non-est based on the notices issued in the trade name was incorrect. The High Court remanded the Second Appeals to the Tribunal for consideration of other grounds raised by the dealer, clarifying that it expressed no opinion on those other contentions. The judgment underscores that procedural rules should not be interpreted in a manner that elevates form over substance, especially when no prejudice or miscarriage of justice is demonstrated.