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TMI Blog1987 (8) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... at a registered dealer shall not change his assessment year except with the previous permission of the assessing authority of the area and except on such terms and conditions as may be determined by that authority." This change, brought about by the Amendment Act 14 of 1987, is challenged by the dealers in these writ petitions on various grounds. By the amended definition of "year" a uniform financial year applicable to all the assessees for the purpose of assessment under the Act, is prescribed. As could be seen from the definition of "year" before amendment, the assessees were at liberty to adopt any accounting period coterminous with the year for which the accounts of the dealer were ordinarily maintained and closed. Where no such option was exercised, the year commencing on the first day of April and ending on the 31st of March of the succeeding year, would be treated as the assessment year for purposes of assessment. There is no definition of "assessment year" in the Act. The main contention urged for the petitioners by their learned counsel -Sriyuths: Inderkumar, Tarakaram, Ramabhadran, B.P. Gandhi and Katageri is, that the amendment is ultra vires the power of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econdly, that the assessments envisaged to be done as provided under section 43(11)(ii) would be illegal as any assessment for a period less than a year would be contrary to the charging section 5. Before adverting to the other contentions of the other learned counsel, it would be convenient to refer to the argument of Sri Srinivasan. The accounting year adopted by the petitioner in W.P. No. 9472 of 1987 is 30th of June. The accounts for the current year are therefore required to be closed on 30th June, 1987. The assessment for the year 1st July, 1984 to 30th June, 1985, is over. The petitioner is required to close its accounts as required by the amended section 2(1)(x) on 31st March, 1987, and file its return of turnover for nine months, that is, for the period 1st July, 1986 to 31st March, 1987 (mention of 21 months in the writ petition is corrected in the course of argument as nine months). As per the accounting year adopted by the assessee, it would have to file the return for the year ending on 30th June, 1987, whereas under section 43(11)(i), the petitioner is required to file the returns for the period of 9 months ending on 31st March, 1987. It is forcefully argued by Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st April, 1987 can be brought to charge only after the accounts for the year are closed on 31st March, 1988. He has relied upon a decision of this Court in Bhairao Rao Maloji Rao Ghorpade v. State [1962] 46 ITR 568, in which it was laid down that the period of charge under the Mysore Agricultural Incometax Act being one year, there can be no charge for a shorter period. A decision of the Supreme Court in Mathra Parshad and Sons v. State of Punjab reported in [1962] 13 STC 180, is also cited in this context. The observations of Sri Hidayathullah, J., as he then was, at page 187, is adverted to and relied upon. The relevant portion of the said judgment is reproduced below: "There is no doubt that the tax is a yearly tax. It was payable, in the first instance, by a dealer whose gross turnover during the financial year immediately preceding May 1, 1949, was above the taxable quantum. The tax is to be levied on the taxable turnover of a dealer every year. The difference between gross turnover and taxable turnover is this, that to arrive at the taxable turnover of any period some deductions have to be made for the same period. This clearly shows that the tax is for a year. The method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting year. Elaborating his arguments in relation to the first point, namely, the competency of the State Legislature, it is contended that the compulsion to adopt a particular accounting year under the amended provision is beyond the legislative competence of the State Legislature conferred under entry 54 of the State List. He has also demonstrated that the amendment would be wholly unnecessary and has no nexus to the object of the Act. The amendment, according to the learned counsel, cannot be supported as incidental and ancillary to the object of the Act. He has referred to the charging provision of the Act, namely, section 5, under which the turnover of sale or purchase for each year is brought to tax. This unit of taxation, namely, "a year" is in conformity with the scheme of the Act and other provisions which lend support to his argument. It is the submission of the learned counsel that the levy of tax is on the turnover for a year depending upon the accounting year adopted by each dealer. He has referred to the provisions of Chapter V, dealing with the filing of returns, assessment, payment, recovery, etc. Section 12 provides for filing of returns of the turnover for a " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5. Therefore, the effect of the amendment is, all assessments will have to be completed on the turnover for a year commencing from the 1st of April of each year. This amendment, according to the department's statement of objections, is introduced in order to have one uniform financial year for all, irrespective of different years ending adopted by the dealers all these years. It is, therefore, necessary to examine how far the dealers are prejudiced or effected by this change which is sought to be enforced from the 1st of April, 1987. Such enforcement is stayed by an order of this Court passed in respect of dealers who have approached this Court. Elaborating this contention, it is argued on behalf of the petitioners that the amendment is not one that can be justified as incidental or ancillary to the legislative power conferred on the State Legislature under entry 54. As a corollary to this argument it is submitted that the amendment was not indispensable for administering the Act for imposing the tax. The arguments advanced by the other learned counsel for the petitioners support this contention, that the amendment is not to be regarded as incidental to the effectuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and security deposit while registering a dealer under the Act. The said provision was upheld on the ground that, power to levy includes the power to impose reasonable safeguard in collecting it, and therefore does not contravene article 19(1)(g) or article 19(6) of the Constitution. (2) Ashoka Marketing Ltd. v. State of Bihar [1970] 26 STC 254 (SC); AIR 1971 SC 946 [also R. Abdul Quader and Co. v. Sales Tax Officer [1964] 15 STC 403 (SC)]. Both the cases dealt with the provision introduced in the Sales Tax Legislation providing for recovery by State, the illegal collection made by the dealer. It was held, that such a power was not within the competence of the State Legislature conferred under entry 54, and was, therefore, not incidental to the power to levy tax. These decisions were overruled by a larger Bench of the Supreme Court in R.S. Joshi's case [1977] 40 STC 497 AIR 1977 SC 2279. (3) Lakshminarayana Commercial Corporation v. Commercial Tax Officer [1972] 29 STC 527 (AP). Held, that the legislation, which is claimed to be incidental or ancillary to the principal power should be shown to be indispensable for carrying out of the express power granted by the constitutional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s drive it beyond the application of the incidental power. On the subject, which is one of degree, we have had the advantage of a discussion on both sides, which has drawn our attention to the material considerations. On one side it is pointed out that injustice may occur to individuals who are innocent, and that they may be involved in the loss of property for which they can only have a recompense by recourse to the person who has sold it, who may, of course, not be able to restore the purchase money. On the other side it is pointed out that in the history of English and Australian customs legislation, forfeiture provisions are common, drastic and far-reaching, and that they have been considered a necessary measure to vindicate the right of the Crown and to ensure the strict and complete observance of the customs laws, which are notoriously difficult of complete enforcement in the absence of strong provisions supporting their administration. These matters of incidental powers are largely questions of degree, but in considering them we must not lose sight of the fact that once the subject-matter is fairly within the province of the Federal Legislature, the justice and wisdom of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is, therefore, argued, insistence on adopting a particular accounting year would offend the freedom of trade envisaged under article 19(1)(g) of the Constitution and the restrictions now placed by the amendment would also be unreasonable, since no case of any public purpose is made out by the State. He has also referred to the case of State of Madras v. V.G. Row AIR 1952 SC 196 (paras 13 to 15). Dealing with reasonableness of restrictions, vis-a-vis article 19 of the Constitution, Sri Patanjali Sastri, C.J., observed in paragraph 15, as follows: "It is important in this context to bear in mind that the test of reasonableness, wherever prescribed, should be applied to each individual statute impugned, and no abstract standard, or general pattern of reasonableness, can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and the urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of lacunae, hardship, etc., is made out by the State, in support of the amendment. Nextly, it is argued by Sri Tarakaram, that it is not demonstrated by the State how uniformity is achieved by the amending legislation. While different traders adopted different periods for the purpose of maintaining their accounts, and the system before amendment worked without any difficulty or problem, the amendment, it is argued, does not pass the test of reasonableness, nor has the amendment any nexus to the purpose of the Act. It is argued by Sri Ramabhadran, learned counsel for the petitioner in W.P. No. 6469 of 1987, which is a private Ltd. company, which has adopted year ending 30th June for purposes of closing its accounts, that the hardship and impracticability caused by switching over to the new accounting period, namely, the year ending with 31st March, which would be set with difficulties. He has pointed out that under the Companies Act, it is permissible to adopt any period of 12 months for the purpose of closing the accounts. It is pointed out by the learned counsel that the closure of accounts on 31st March, 1987 is made compulsory by the amending Act and this would involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantive power to tax, sale or purchase under the Act. Sri Dattu has given a compilation of sales tax enactments of several States, which have adopted the financial year, as the year for purposes of assessment. They are: the Central Territory of Delhi, Andhra Pradesh, Assam, Bihar, Goa, Haryana, Himachal Pradesh, Kerala, Madhya Pradesh, Maharashtra, Pondicherry, Punjab, Sikkim, Tamil Nadu and Tripura. It is argued that the amendment does not impose any unreasonable restriction on the freedom of trade by a dealer nor does it affect the religious sentiments of the dealers as sought to be made out by the petitioners as offending the rights guaranteed under article 19(1)(g) and (6) of the Constitution. It is also argued that the amendment of "year" is nothing but a machinery provision and should be construed liberally so as to advance the purpose of the Act. It is further submitted that the attack on the retrospectivity of the amendment with effect from 31st March, 1987 has no substance and the dealers were notified in advance and were asked to close their accounts of the previous year on 31st March, 1987, by advertisement in all the daily newspapers so that every dealer might ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, would not contravene the provisions of article 19(1)(g) of the Constitution." (4) R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Ltd. [1977] 40 STC 497 (SC). "The forfeiture clause in section 37(1) of the Bombay Sales Tax Act is a punitive measure to protect public interest in the enforcement of the fiscal legislation and it falls squarely within the area of implied powers." (5) K.T. Moopil Nair v. State of Kerala AIR 1961 SC 552. "The courts are not concerned with the motives of the legislature." (6) Morisetty Bhadraiah v. Sales Tax Appellate Tribunal, Hyderabad [1964] 15 STC 787 (AP). "Reasonableness of a taxing statute is wholly beyond the competence of the court." (7) Indian Aluminium Co. Ltd., Calcutta v. State of Madras [1962] 13 STC 967 (Mad.). "The definition of 'year' as amended, has nexus with the object of levying and collection of taxes." Before dealing with the other contentions, I shall first deal with the general rules of construction as to coming into operation of enactments. Section 5(1) and (iv) of the Karnataka General Clauses Act, 1899 provides: "5. Coming into operation of enactments.-(1) Where any Mysore Act or Karnataka Act is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted rule of construction is, that a legislation will not be given greater retrospectivity than is expressly mentioned. But, as per section 43(11)(i), the turnover of the year/period ending with 31st March, 1987 is brought to tax under the charging section even though the dealer had adopted a different accounting year and thus he had the right to close his accounts on a different day during the year 1987. Thus, under the scheme of the Act, prior to the amendment, the dealers claim, they had a vested right to close their accounts on a particular day, which falls during the year 1987. In accordance with the charging section 5, and in accordance with the accounting year declared and adopted by the dealers under the old provisions, the assessments had to be completed on the turnover for the year so declared. Can this privilege be taken away unilaterally by the amending provisions which are virtually made applicable from 31st March, 1987 itself, though the new uniform accounting year comes into force with effect from the 1st day of April, 1987? It is argued, that in the absence of specific legislation making it retrospective with effect from 31st March, 1987, the mandate to close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient time to adopt to the new system. The enactment now sought to be brought into force, namely, that all the dealers should adopt 1st of April as the commencement of the financial year for the purpose of assessment hereafter, is a general enactment on public policy. Having regard to the intendment of the legislature, it has got to take effect only from 1st of April, 1987 and the dealers cannot be asked to close their accounts on 31st March, 1987. I am, therefore, of the opinion that the amendment, which is sought to be enforced with effect from 31st March, 1987, lacks legislative sanction and section 43(11)(i) is liable to be struck down as ultra vires. It is ordered accordingly. The other points that arise out of the arguments of the petitioners are: (i) that the amendment is ultra vires entry 54, List II of Schedule VII of the Constitution; (ii) that the amendment violates freedom of trade guaranteed under article 19(1)(g), and imposes unreasonable restriction; and (iii) that the amendment is violative of article 25 of the Constitution. So far as the first point is concerned, it is argued by the petitioners that the amendment is not ancillary or incidental to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of levy of sales tax. Entry 54 comprehends the power to impose tax on sale or purchase, to prescribe machinery for collecting tax, to designate officers to whom the liability may be imposed and to prescribe the authority, obligation and immunity to the officers. (See Ashoka Marketing Ltd. case [1970] 26 STC 254 (SC); AIR 1971 SC 946-the observations of Shah, J.). Therefore, prescribing a uniform year for all the dealers under the Act for purposes of assessment, is sought to be supported as a necessary incident to the power to tax. The further argument in favour of the amendment is also that it seeks to achieve streamlining of the assessments from the point of view of efficiency and administrative control. It is to be examined whether the amendment falls within the ancillary and incidental powers of the State Legislature. If prescribing a machinery for a more effective administration of the Act and prescribing a uniform year is also one such provision, can it be said that such a power does not fall within the scope of legislative power of the State? Courts have taken the view that the legislature alone is competent to take a decision in such matters and as to the wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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