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TMI Blog1997 (9) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... les tax on resales of declared goods of special importance (iron and steel) by the applicant-firms is in contravention of article 286 of the Constitution and section 15(a) of the Central Sales Tax Act, 1956 (in short, "1956 Act"? (c) Whether reopening of the deemed assessments under section 11E(2) and making of fresh assessments under section 11(1) of the 1941 Act are barred by limitation? and (d) Whether fresh assessments under section 11(1) as a consequence of reopening of deemed assessments under section 11E(2) can be properly made by an officer lower in rank than the officer who passed the orders under section 11E(2)? This judgment is related to reopening of deemed assessments and making of fresh assessments under the State Act alone, namely, 1941 Act. 3.. The facts leading to these two applications may be stated in brief. The two applicant-firms are resellers or second point sellers of M.S. wires which are locally purchased by them from registered dealers. M.S. wires are declared goods within the meaning of section 14 of the 1956 Act. They purchase the same from M/s. Eco Industries of 6/6, Raghab Kole Lane, Howrah. That firm is holder of eligibility certificate (E.C.) und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. Though the first sale was exempt from tax, subsequent sales enjoy statutory immunity by virtue of Parliamentary legislation. The assessing authority could not make a fresh assessment on the mere ipse dixit and behest of a superior authority. Any such steps would be repugnant to natural justice and unfair. The applicants contended that in the orders dated December 5, 1996 respondent No. 1 directed reopening of assessments under 1941 Act without any reference to deemed assessments under 1956 Act. Hence, issuance of form III notices under 1956 Act (Central Act) was misconceived. Reverting to the stage of sale, applicants have said that if having given exemption to E.C. holders at the first stage, the goods are subjected to tax at the second stage in the hands of the applicants, such levy of tax would defeat and destroy the purpose of tax holiday given to E.C. holders. If tax is levied at the second stage, the goods manufactured by E.C. holders would not be in demand in the market. Such imposition of tax at the second stage is allegedly violative of sections 14 and 15 of 1956 Act and section 5 of 1941 Act and also rule 3(66a) of 1941 Rules. The impugned goods being subjected to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an one stage "inside a State". There is no compulsion or mandate in the Constitution or section 15(a) of 1956 Act to levy tax at a particular stage of sale inside a State. In its wisdom the State Legislature levied tax at the next stage following the stage of sales of declared goods where no tax was levied. The proviso to section 5(2)(a) is referred to in this connection, and it is argued that it expressly provides for levy of tax on sales at a stage next following the stage at which the same goods were in the hands of a dealer enjoying tax-holiday under rule 3(66a) of 1941 Rules. There is no provision either in 1941 Act or in section 15 of 1956 Act or in article 286 of the Constitution prohibiting levy of tax in the hands of second point sellers of declared goods. The applicants are, according to respondents, liable to pay tax on sales of M.S. wires under 1941 Act and 1941 Rules. If they filed nil returns, they did so at their own risk and peril by contravention of provisions of law. There is no illegality in reopening of the deemed assessments, because the deeming provision in section 11E(1) is clearly subject to section 11E(2). Respondent No. 1 rightly reopened the assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfy the assessing authority that no fresh assessment was required to be made under section 11(1), because returns filed by them were really correct and complete. Fresh assessment is to be made, not at the behest of superior authority, but in pursuance of the mandate of the express legal provision. The Deputy Commissioner had no power to instruct the assessing authority to make fresh assessment. The statutory provision itself requires the assessing authority to make fresh assessment. There was no question of conveying any secret instructions to the assessing authority. In paragraph 16 of the main affidavits-in-opposition, the respondents stated that the impugned orders by respondent No. 1 dated December 5, 1996 related to reopening of assessments under 1941 Act only, and there was no necessity of making any reference to or indication of deemed assessments under 1956 Act, and if any notice in form III was issued for fresh assessment under 1956 Act, it was in pursuance of an order passed under 1956 Act. Entry 54 of List II of the Seventh Schedule to the Constitution is the legislative field and the source of legislative competence to levy tax. The State has the competence to reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1's orders no fresh assessment is legally permissible. 8.. Mr. G. Chakraborty, learned counsel for the applicants, filed two typed notes of arguments. In both the notes he dealt with the preliminary point that while the impugned orders dated December 5, 1996 of respondent No. 1 were under consideration of the High Court in connection with other applications filed by the applicants concerning reopening of deemed assessments under the Central Act of 1956, the same orders challenged before this Tribunal in these two applications relating to reopening of deemed assessments under the State Act of 1941, should not be considered by this Tribunal. He argued that he was "inspired" by the decision in Tel Utpadak Kendra v. Deputy Commissioner of Sales Tax [1981] 48 STC 248 (SC) to raise this point. Mr. K.K. Saha, learned counsel for the respondents, opposed this contention. Both of them relied on the decision in L. Chandra Kumar v. Union of India [1997] 105 STC 618 (SC); AIR 1997 SC 1125. Mr. Saha contended that this Tribunal has been declared by the 7-Judge Bench of the Supreme Court of India to play the "supplemental" role of High Court and to exercise powers under articles 226, 227 and ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India has set at rest any controversy with regard to jurisdictions of High Courts and Tribunals set up under articles 323-A and 323-B of the Constitution of India. After that judgment, there is no scope for any further controversy. It is really unfortunate that Mr. Chakraborty has raised a controversy where there is none. To say the least, the decision in Tel Utpadak Kendra v. Deputy Commissioner of Sales Tax [1981] 48 STC 248 (SC) has no application to the present cases. The contentions of Mr. Chakraborty are wholly misconceived. 9.. The first contention of the applicants is that sales tax on M.S. wires (iron and steel) which the applicants purchased for resale in West Bengal is levied on a single point in terms of section 15(a) of 1956 Act. The respondents do not dispute this legal position. But the applicants also contended that sales tax is levied on the first point of sale. This is disputed by the respondents. The respondents argued that tax was levied only at one stage, but not at the first stage in every case. According to them, section 15 does not suggest that a stage should be specified for levy of tax on such goods in respect of all dealers. Mr. G. Chakraborty, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Saha argued that in such a situation, the applicants are liable to pay tax on resale by them in terms of section 5(2)(a)(vd). Tax holiday was given to small-scale manufacturing industries as a matter of State policy in order to allow them to stand in competition with the established industry. Mr. Saha relied on the case of Rajasthan Commercial Corporation v. Sales Tax Commissioner [1986] 63 STC 314 (SC) and argued that since section 5(2)(a)(vd) contains a clear guideline as to the stage at which sales tax should be levied, and since the same goods did not suffer tax at any earlier stage, resales in the hands of the present applicants are liable to tax. In the case of Rajasthan Commercial Corporation v. Sales Tax Commissioner [1986] 63 STC 314 (SC) the decision in Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 (SC) was followed and explained. It was held that section 5(2)(a)(ii) of 1941 Act as extended to Union Territory of Delhi, did not contain any guideline as to the stage at which sales tax was to be levied and hence, that omission made the impugned assessment invalid. Despite that, the court held that the assessing authorities were entitled to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principle laid down in Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 (SC) and Rajasthan Commercial Corporation v. Sales Tax Commissioner [1986] 63 STC 314 (SC). In these cases, admittedly M/s. Eco Industries were the first seller, but they did not pay any tax on the same goods which the applicants resold after purchase. It is true that M/s. Eco Industries did not have to pay tax, because they were enjoying tax-holiday under rule 3(66a) of 1941 Rules in terms of section 5(2)(a)(vi). But, the fact remains that no tax was paid by M/s. Eco Industries who claimed deduction from their turnover. That being the position, the present applicants were clearly liable to pay tax when they resold the same goods. We cannot agree with Mr. Chakraborty that section 15(a) of 1956 Act or Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 (SC) lays down that a common stage to all dealers must be specified. All that section 15(a) and Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 (SC) lay down is that the stage must be definite and ascertainable to the dealers as well as taxing authorities. As sub-clause (vd) stands, or stood at the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 STC 422 (SC), Mr. Chakraborty argued that sales tax is an element of sale price. Therefore, although in the instant cases, M/s. Eco Industries did not openly charge any sales tax at the time of sales to the applicants by mentioning sales tax separately in the bills, it should be presumed that sales tax was so charged. Mr. Chakraborty further contended that it is inequitable and discriminatory to charge sales tax to one dealer at one point, namely, at the first stage, and other dealers at another point, namely, at the second or subsequent stage. He said that rule of equity also applies to taxation and referred to Commissioner of Sales Tax, U.P. v. Auraiya Chamber of Commerce [1986] 62 STC 327 (SC) and Sima Banerjee v. Assistant Commissioner of Commercial Taxes [1990] 76 STC 241 (WBTT) in this connection. Mr. Saha, appearing for the respondents, opposed all these contentions. He did not dispute the fact that by Notification No. 2315-F.T. dated July 25, 1990, the prohibition against collection of tax by E.C. holders was removed with effect from June 1, 1990, but he disputed the submission that due to withdrawal of that prohibition it should be presumed that M/s. Eco Industries coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the series of sales, the second or subsequent selling dealer is liable to pay tax. The rate of tax, however, would not exceed 4 per cent. Having considered the rival contentions of the learned advocates for the parties, we are of the opinion that section 5(2)(a)(vd) of 1941 Act does not make any kind of discrimination, far from the question of unreasonable discrimination, among various dealers. All that section 5(2)(a)(vd) lays down is that no tax is payable, if the same goods had suffered tax at any earlier stage, which may be first or any other stage. Therefore, conversely, if the same goods had not suffered tax earlier, sales tax is payable on subsequent sales of those goods in the hands of dealers, irrespective of whether they are second stage sellers or subsequent stage sellers. If, however, in a far-fetched sense the provision in section 5(2)(a)(vd) is considered to make a distinction between one dealer and another, such distinction or classification is highly reasonable and it has certainly a direct nexus with the object of the Act. There is no doubt that the object of 1941 Act is to levy sales tax for raising revenue to run the State. The object of section 5(2)(a)(vd) is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs who had furnished incorrect returns having suppressed their sales, would escape the correct amount of tax by virtue of statutory completion of assessment cases under sub-section (1). Accordingly, he drew our attention to the second proviso to section 11(2a) by which the period of limitation was extended so as to effectuate section 11E(2). The said second proviso to section 11(2a) is reproduced below: "Provided further that when a fresh assessment is required to be made in pursuance of an order under sub-section (2) of section 11E or......, such fresh assessment may be made at any time within four years from the date of such order." This second proviso was already there in respect of orders passed under section 20 or section 21 or any other order of any court. With effect from April 15, 1993, the second proviso was amended so as to apply it also to cases covered by orders passed under section 11E(2). It may be noted that the impugned assessments of the applicants are for the period of four quarters each ending 31st March, 1994. So, the second proviso as quoted above, applies to the instant cases. Mr. Saha has also pointed out that the absence of a non obstante clause in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of reopening deemed assessments naturally overrides general period of limitation for the said purpose, if any. With or without the effect of the non obstante clause, the plenary power of the Legislature to enact a special period of limitation cannot be curtailed. There is no substance in the contention of Mr. Chakraborty that enactment of the special period of six years' limitation in section 11E(2) is hit by articles 14 and 265. It is well-settled that a legislative enactment should be presumed to be constitutionally valid, until the party alleging invalidity squarely establishes the allegation. Here, Mr. Chakraborty could not advance any argument by which we can hold that the prescription of six years' limitation for reopening of deemed assessments is hit by articles 14 and 265. Thus by the in-built special period of limitation, reopening can be made under section 11E(2) within six years from the date of deemed assessment and after reopening, fresh assessment under section 11(1) can be made within four years from the date of order of reopening in terms of the second proviso to section 11(2a). We find no reason to hold that these two provisions for special and extended peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons (1) and (2) in such a way that sub-section (2) cannot be interpreted or contemplated as wholly distinct from sub-section (1). Mr. Saha, according to us, rightly contended that the legal fiction in section 11E(1) was limited, conditional and subject to sub-section (2). In State of Bombay v. Pandurang Vinayak AIR 1953 SC 244 (paragraph 5) at page 246 it was laid down that full effect must be given to a statutory fiction and it should be carried to its logical conclusion. In that particular case, the Supreme Court looked into the purpose of the statutory fiction and held that the impugned notification, if literally construed, would defeat that purpose. In the present cases, however, the purpose for which the limited legal fiction was created in subsection (1) is not frustrated or defeated because of sub-section (2). Both the subsections are to be construed together and when so done, the conclusion is clear that both of them fulfil the legislative object. On the one hand, the Legislature wanted to tackle the problem of accumulated assessment cases keeping in view the period of limitation and on the other, it wanted to ensure that in such process unscrupulous dealers would not be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section 11E(1) cannot be treated as a legal fiction independent of sub-section (2). So construed, in our opinion, section 11E(2) has no infirmity, legal or constitutional. Full effect must be given in the present circumstances to both sub-sections (1) and (2), having regard to their objects. The impugned orders of reopening of deemed assessments and direction to make fresh assessments cannot, therefore, be faulted because of any so-called curtailment of legal fiction, as suggested by Mr. G. Chakraborty, applicants' counsel. 16.. The last point argued by Mr. Chakraborty for the applicants is that respondent No. 1 is a Deputy Commissioner of Commercial Taxes who passed the impugned orders dated December 5, 1996. By these orders, the impugned deemed assessments were reopened under section 11E(2) for fresh assessments to be made by the appropriate Commercial Tax Officer under section 11(1). According to Mr. Chakraborty, such fresh assessments under section 11(1) by an officer subordinate to the Deputy Commissioner will be nothing but at the behest of a superior authority. By invoking the case of Mahadayal Premchandra v. Commercial Tax Officer [1958] 9 STC 428 (SC), which was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssees were liable. The Commercial Tax Officer took those steps behind the back of the assessees, who had no opportunity of meeting the point of view adopted by the Assistant Commissioner. Following the instructions and advice of the Assistant Commissioner, the Commercial Tax Officer assessed the transactions. On those facts the Supreme Court held that the procedure adopted by the assessing officer was contrary to the principles of natural justice and it was unfair and calculated to undermine the confidence of the public in the impartial and fair administration of the Sales Tax Department. In the instant cases before us, the facts are totally different. As already discussed, without any actual assessments, the assessments for the impugned period were deemed to have been made under section 11E(1) by accepting the returns furnished by the applicants as correct and complete. Such deemed assessments were reopened by respondent No. 1 under section 11E(2), because he was satisfied that the returns filed by the applicants were incorrect for the reason stated in those orders. But he has not given any other direction or guideline to the assessing officer for making fresh assessments under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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