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TMI Blog1997 (7) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 1981-82 to 1983-84, it did not have a distillery of its own in the State of Karnataka and, therefore, it had entered into an agreement dated October 13, 1980 with the Indian Brewery and Distillery (Private) Ltd., (hereinafter referred to as the IBD ), which had a distillery at Hallikhed, Bidar District, for the purpose of sale of IMFL to the petitioner under the petitioner s brand name. It is the further case of the petitioner that during the calendar years 1980 to 1982 and 1984, in respect of which the dispute has arisen in these petitions, the IMFL was exigible to sales tax at the point of first sale in the State of Karnataka as provided under section 5(3) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as the Act ) and since the IBD manufactured and sold IMFL to the petitioner, the IBD was liable to sales tax and, therefore, the petitioner paid the sales tax for the years in question to IBD, that is, for the assessment years 1980, 1981, 1982 and 1984; (which are the subject-matters of dispute in these petitions) and the assessment orders were passed by the respondent on December 16, 1983; December 31, 1983; December 23, 1983 and January 18, 1985 for the years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice, annexure A4, dated December 31, 1992 and called upon the petitioner to file its objections, if any. In notice, annexure A4, the petitioner was also called upon to show cause why the petitioner should not be made liable to pay tax under the provisions of the Central Sales Tax Act, 1956 (hereinafter referred to as the CST Act ). It appears, by means of letters dated November 18, 1987, the petitioner filed its objections pursuant to the notices, annexures A1 to A3, i.e., for the assessment years 1980 to 1982, stating that it was handicapped to file its objections inasmuch as most of the related documents were in the possession of the respondent following the inspection of the petitioner s premises on May 3, 1986 and requested the respondent either to return those documents or permit the petitioner to take the xerox copies thereof and requested for a month s time to file objections. So far as the notice, annexure A4, is concerned, the petitioner, by its letter dated January 5, 1993 stated that since the claim of the petitioner for exemption was upheld by the Tribunal pursuant to the notice issued under section 12-A of the Act for the year 1983 dealing with the identical issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner was liable for payment of tax under the Act and also under the CST Act. The said view taken by this Court makes it clear that the exemption claimed by the petitioner in the returns submitted by it from payment of tax on the basis that the sales made by the petitioner were only second sales and as such not liable for payment of tax, was erroneous in law and not justified. 3.. In these petitions, Sri R.N. Narasimha Murthy, learned Senior Counsel appearing along with Sri K.P. Kumar for M/s. King Partridge, challenged the validity of the notices impugned and prayed for quashing the proceedings on three grounds. Firstly, he submitted that section 12-A of the Act, as it stood prior to the amendment made to the said section by means of Act No. 10 of 1983 (i.e., with effect from April 1, 1983), did not empower the respondent to initiate proceedings under section 12-A of the Act in regard to the proceedings in respect of which returns were filed and accepted by the assessing authority as the said assessments were not escaped assessments within the meaning of section 12-A of the Act. Elaborating this contention, he made two ancillary submissions. Firstly, he pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1979 SC 592 in support of his submission that unless the legislation is made retrospective, prima facie, every legislation is prospective in nature and, therefore, the amendment made to section 12-A of the Act by means of Act No. 10 of 1983 being prospective in nature, the claim of the Revenue, which was barred by limitation as against the petitioner, is not enforceable in law. Further, relying upon the decision of the Supreme Court in the case of Commissioner of Income-tax, Punjab v. Kulu Valley Transport Co. (P.) Ltd. AIR 1970 SC 1734, Sri Narasimha Murthy submitted that when two interpretations are possible, one favourable to the tax-payer must be adopted. 4.. Sri Narasimha Murthy, secondly, submitted that even assuming that on terms, section 12-A of the Act, as amended, applies, it is not permissible in law to make a final order of reassessment after a lapse of eight years from the end of the assessment year/years in question. According to the learned Senior Counsel, the requirement of section 12-A of the Act, as it presently stands, is that the entire reassessment proceedings are required to be completed within eight years from the expiry of the period to which the tax rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, it is stated that the petitioner was directed to file its objections within the prescribed period from the date of receipt of the notices and pursuant to the said notices, the petitioner sought for time to file objections on the ground that the documents were seized by the Intelligence Wing of the Department and thereafter, by means of endorsement dated November 21, 1987 (annexure C1), the petitioner was granted time up to December 30, 1987 to file objections in respect of the notices issued as per annexures A1 to A3 and was given time by means of endorsement dated February 20, 1993 (annexure C2) till April 3, 1993 in respect of notice, annexure A4 dated December 30, 1992; and in the said endorsement, though it was specifically stated that if the petitioner fails to file its reply, the proceedings would be initiated without further notice; the respondent having failed to take any further action pursuant to the notices annexures A1 to A4 till issue of endorsements annexures D1 to D4, the proceedings initiated against the petitioner are deemed to have been dropped. He further submitted that in view of the inordinate delay in taking steps, on the part of the respondent, the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her by the assessee or by the revenue so as to say that the proceedings are still pending, the assessing authority has not taken effective proceedings for the purpose of effecting revised assessments as in this case, and there is no valid explanation for the delay, I am of the view that the proceedings so initiated or continued after an unreasonable period will be vitiated and bad in law. If proceedings are initiated beyond four years after the order rendered in the appeal or revision, the exercise of power in such cases is prima facie unreasonable and improper and it is for the assessing authority to show or demonstrate that there are valid and proper grounds for the delay so caused and in the absence of cogent and acceptable reasons explaining the delay, the exercise of power will be held to be unreasonable and improper. Long lapse of time has brought about a situation whereby the assessee is not obliged nor will he be in a position to preserve the accounts and other documents mentioned in rule 32(21). In fact, in this case, he has stated so in exhibit P3. There is no material to contradict or disbelieve it. In the light of the above, I declare that exhibits P4 and P5 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law to continue the proceedings. 7.. Sri D Sa, learned Government Advocate, met each one of the submissions put forward by Sri Narasimha Murthy with equal ability and clarity. In so far as the first contention of Sri Narasimha Murthy is concerned, it is the submission of the learned Government Advocate that before the amendment made to section 12-A of the Act by means of Act No. 10 of 1983, the period of limitation was five years and, therefore, the authorities were entitled to initiate proceedings for the escaped turnover within a period of five years; and in so far as the assessment period falling as on December 31, 1980 is concerned, it would expire only on December 31, 1985 and before the expiry of the period of limitation prescribed, that is, December 31, 1985, section 12-A of the Act came to be amended by means of Act No. 10 of 1983 providing for assessment or reassessment in cases where any deductions or exemptions have been wrongly allowed, etc.; though subsequently, by means of Act No. 27 of 1985, which came into effect from August 1, 1985, the period of limitation was prescribed as ten years instead of five years, which was earlier prescribed, though subsequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, it is sufficient if the proceedings are initiated within a period of eight years from the expiry of the year to which the tax relates (on the date of initiation of the proceedings, the period prescribed was 10 years). In support of this submission, he relied upon the decisions of the Supreme Court in the case of Indian Aluminium Cables Ltd. v. Excise and Taxation Officer [1977] 39 STC 19 and State of Punjab v. Tara Chand Lajpat Rai [1967] 19 STC 493; AIR 1967 SC 1408, wherein the Supreme Court has taken the view while considering the expression proceed to assess or reassess that issue of notice itself is sufficient to save the period of limitation prescribed though the assessment is finalised subsequently, even after the expiry of the period prescribed. He further submitted that the petitioner is not entitled to take any advantage from the word assessment , referred to in sub-section (2) of section 12-A of the Act in respect of the plea of the petitioner that the assessment should be completed within a period of eight years from the expiry of the year to which the tax relates. He points out that the assessment and reassessment having regard to the context in which they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the petitioner for two reasons: Firstly, he submitted that the said decision proceeds on the basis that there was no sufficient explanation given for the undue delay in completing the reassessment by the authorities. Secondly, the said decision also does not lay down the correct law, as the principle laid down in the said decision runs counter to the law laid down by the Supreme Court in the case of Indian Aluminium Cables Ltd. [1977] 39 STC 19, wherein the Supreme Court has laid down that the delay in concluding the proceeding by the Revenue cannot be made as a ground to drop the proceedings. He also relied upon the decision of the Supreme Court in the case of State of Haryana v. Chandra Mani AIR 1996 SC 1623 and submitted that the cause shown by the Revenue for the delay in the circumstances must be held as sufficient cause and the same has to be liberally construed. It is his further submission that the petitioner, who has wrongly claimed exemption and since its claim has now been finally negatived by this Court, is not entitled to come forward with the plea against the Revenue that the entire proceedings must be quashed as the Revenue did not take steps to conclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole or part of such escaped turnover was already before the said authority at the time of the original assessment or reassessment but subject to the provisions of sub-section (2), at any time within a period of eight years from the expiry of the year to which the tax relates, proceed to assess or reassess to the best of its judgment the tax payable by the dealer in respect of such turnover after issuing a notice to the dealer and after making such enquiry as it may consider necessary. (1-A)........................ (2)............................. The period of limitation of five years prescribed by means of Act No. 10 of 1983 was amended and made as ten years by means of Act No. 27 of 1985 with effect from August 1, 1985. However, again, by means of Act No. 15 of 1988, the period of limitation of ten years was reduced to eight years with effect from April 1, 1988. 12.. Now, let me examine the questions formulated for consideration seriatim: Re: Question No. 1: 13.. Though with considerable skill and learning, Sri Narasimha Murthy made an effort to persuade me to take the view that section 12-A, as amended by means of Act No. 10 of 1983, cannot be resorted to by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of such turnover, etc. Therefore, by virtue of the amendment made to section 12-A of the Act by means of Act No. 10 of 1983, the assessing authority was conferred with the power to assess or reassess the assessment, which has already been completed, where any deductions or exemptions have been wrongly allowed notwithstanding the fact that the whole or part of such escaped turnover was already before the assessing authority at the time of the original assessment. In other words, by virtue of the amendment made by means of Act No. 10 of 1983, to section 12-A of the Act, the scope and ambit of assessment and reassessment was widened. Therefore, the power has been conferred on the authority to proceed to make assessment or reassessment in respect of the assessments which have already been completed and in which any deductions or exemptions have been wrongly allowed notwithstanding the fact that the whole or part of the escaped turnover was before the assessing authority while making such assessment. The power of reopening the escaped assessment under the amended section has been conferred on the assessing authority. The words employed an assessing authority may notwithstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment is retrospective in operation, it must be held that by the amendment to section 12-A by Act No. 10 of 1983, power is conferred on the assessing authority to assess or reassess all the assessments which have been accepted, if they fall within the ambit of power conferred under the amended provision. It is the conferment of power to reopen the escaped assessments subject to the limitations provided under amended section 12-A of the Act. It is not the case of fresh levy or imposition of tax. It is the case of roping in an assessee who evaded his liability by violating the law. Therefore, the entire matter and the effect of amendment must be looked into from this perspective. The period of limitation, which was earlier limited to five years, was extended to ten years by means of Act No. 27 of 1985 with effect from August 1, 1985. Therefore, looked at from this point of view also, I am unable to accept the submission of Sri Narasimha Murthy that the proceedings for the assessment years 1980 to 1982 is liable to be quashed. Further, in so far as the contention based on limitation is concerned, as rightly pointed out by the learned Government Advocate, the amendment to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or provided by the statute to recover the claim, is removed or extended by prescribing a longer period of limitation, before the expiry of the period of limitation originally fixed, it cannot be said that the said claim cannot be enforced as the proceedings were not initiated before the expiry of the period of limitation as it stood prior to the last date from the expiry of the year to which the tax relates. It is no doubt true as rightly pointed out by Sri Narasimha Murthy that if two interpretations are possible, the one favourable to the tax-payer must be taken. But, I would like to add that if a law is made to fill up the lacuna in the existing law and thereby power is conferred on the assessing authority to reassess the assessee who had adopted means and methods to violate the law with impugnity to evade his tax liability, the courts should not, in the guise of two interpretations that are possible, nullify the provisions of such a law or the executive action when the interpretation to be placed is clear, unambiguous and conveys the message it intends to achieve. Every law is made for the purpose of having an orderly society and protect the rights of the people either from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed, within a period of ten years from the expiry of the year to which the tax relates (w.e.f. April 1, 1988, it is eight years). Therefore, the question is as to whether the assessing authority is required to complete the assessment within the period prescribed in section 12-A of the Act or whether it is sufficient if the proceedings are initiated by means of issue of notices under section 12A of the Act. To decide the said question, it is necessary to know the meaning that could be given to the word proceed to assess or reassess. (a) In Webster s Encyclopaedic Unabridged Dictionary of the English Language, the word proceed has been stated thus: To move or to go for work or onward to carry on or continue in action or process to do, to go on, to do something, to begin and carry on legal action, to take legal action, to be carried on as an action, process, etc. (b) In Law Lexicon Digest, the meaning to the word proceed has been stated as to begin and carry on legal action . (c) In the World Book Dictionary (Ayharndike-Barnhart Dictionary), the meaning of the word proceed among other things, is stated as to go on after having stopped move forward, to be carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the expiry of the year to which the tax relates, a final order of assessment or reassessment can be made even after a lapse of eight years from the expiry of the year to which the tax relates in terms of section 12-A of the Act. The view I have taken is fully supported by the decisions of the Supreme Court in the case of Indian Aluminium Cables Ltd. [1977] 39 STC 19 and in the case of State of Punjab v. Tara Chand Lajpat Rai [1967] 19 STC 493; AIR 1967 SC 1408. The Supreme Court, in the said cases, while considering the similar provision, has taken the view that issue of notice before the expiration of the period of limitation is sufficient and completion of the reassessment or assessment could be made even after the expiry of the period of limitation. Accordingly, the second question is also answered against the petitioner. Re. Question No. 3: 16. The last submission of Sri Narasimha Murthy is based on the principle that the authorities of the State must act in a fair and reasonable manner and enforce their rights within a reasonable period as against the citizen and any undue delay in exercise of the rights by the authorities of the State would seriously infringe the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable period thereafter. The principle of fairness and reasonableness in the State action has been enunciated to avoid hardship and to mitigate the hardship or injustice to be caused to a person or a citizen. Further, it is also relevant to point out that when sub-section (1) of section 12-A of the Act provides for the period of limitation and confers power on the authorities to proceed to assess or reassess at any time within a period of eight years from the expiry of the year to which the tax relates, it is not permissible for this Court to impose further restrictions or limitations on the right of the assessing authority to proceed to complete the assessment within a reasonable period from the initiation of the proceedings. Therefore, under these circumstances, if the petitioner is to be given benefit on the ground that the delay on the part of the assessing authority in completing the proceedings has resulted in unfairness to the petitioner and, therefore, the proceedings should be quashed, I am of the view that it would result in travesty of justice than upholding justice and the rule of law. In the view I have taken above, I am unable to subscribe to the view expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable period. In this connection, he would strongly rely upon the decision of the Supreme Court in the case of Superintendent of Taxes v. Onkarmal Nathmal Trust AIR 1975 SC 2065, wherein the Supreme Court rejected the explanation offered on behalf of the department that in view of the interim order granted by the court, it was impossible for the department/State to issue notices within two years of the end of the return period, etc. I am of the view that the principle enunciated by the Supreme Court in the said case has absolutely no bearing to the facts of the present case. In the said case, the question that came up for consideration was whether the State can be permitted to plead that it was impossible for it to issue notices within two years of the end of the return period as required under section 7(2) of the Assam Taxation (On Goods Carried by Road or on Inland Waterways) Act, 1954. In view of the explanation offered by the State that the State was prevented from issuing the notices by virtue of the interim order granted by the High Court, in that context, the Supreme Court has observed, at paragraph 17, thus: 17. The first contention on behalf of the State that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case to proceed to complete the assessment since the proceedings have already been initiated by issue of notices, annexures A1 to A3 dated November 7, 1987 and annexure A4 dated December 30, 1992. It is the case of the department that since there was no period of limitation prescribed for completing the proceedings and in view of the fact that the order of reassessment made by the assessing authority in respect of the assessment year 1983 was set aside by the Tribunal and the said matter was pending in S.T.R.P. Nos. 112 and 113 of 1994 before this Court and the same came to be disposed of by this Court on March 25, 1996, the respondent did not hurry through the proceedings, lest an impression should be given that in respect of the order passed by the Tribunal setting aside the decision of the assessing authority, the assessing authority is keen to complete the proceedings and harass the petitioner. The respondent, by way of explanation for not completing the proceedings immediately after issue of notices, annexures A1 to A4, has stated that when action was initiated under section 12-A, it had bona fide and reasonably believed that the completion of the proceedings under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings initiated under section 12-A for the year 1983, this Court affirmed the order of reassessment made by the assessing authority under similar situation for the year 1983 holding that the sale effected by the petitioner was a first sale and as such, liable for payment of tax. 18.. The nature of the business carried on by the petitioner shows that the petitioner is carrying on a big business. Under these circumstances, it is not possible to accept the submission of Sri Narasimha Murthy that the petitioner was led to believe that the proceedings were dropped as against the petitioner since the assessment proceedings were not completed within a reasonable period from the date of issue of notices, annexures A1 to A4. If the petitioner felt that the pendency of the proceeding was against the interest of the petitioner, nothing prevented the petitioner from approaching this Court for expeditious disposal of the proceedings. The petitioner, who was aware of the pendency of the proceedings for the years in question and also aware of the order of reassessment made for the year 1983, cannot now be permitted to challenge the proceedings on the ground that undue delay in comple ..... X X X X Extracts X X X X X X X X Extracts X X X X
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