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TMI Blog2009 (4) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petitions. It is a small-scale industry (SSI) engaged in the trade of pulp-moulded egg trays, corrugated boxes and waste paper. It was assessed to tax under the provisions of the Act of 1957 and the Central Sales Tax Act, 1956 (for short, the Act of 1956 ) for the assessment years 2001-02 to 2004-05. The petitioner claimed exemption from tax liability under both the enactments insofar as its turnover pertaining to second sales of pulp-moulded egg trays was concerned placing reliance on G.O. Ms. No. 1091 Rev. (CT-II) Department dated October 31, 1994. It was the case of the petitioner that it had purchased pulp-moulded egg trays from small-scale industries (SSIs) in the State and had in turn subjected them to intra and inter-State second sales. The petitioner claimed tax exemption in respect of this turnover relying on the aforestated G.O. The Commercial Tax Officer, Nidadavolu Circle, Nidadavolu, the first respondent in these cases, accepted its claim and granted exemption as sought. However, the Deputy Commissioner (Commercial Taxes), Eluru, the second respondent, exercised revisional jurisdiction under the statute and held that the petitioner was not entitled to such exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the pendency of the revisions before this court, it is stated, the respondents though had issued orders of refund on October 29, 2008, felt that the refund would not be feasible and would adversely affect the Revenue. Accordingly, the first respondent having obtained the previous approval of the second respondent, passed orders on November 1, 2008 invoking the power under section 33C of the Act of 1957 and withheld the refund of the deposits. Separate orders were passed in this regard in all the cases on the same date. The petitioner filed rejoinders to the above counters stating that section 33C had no application to the facts of the instant case as it was clearly covered by provisions of the third proviso to section 21(2) of the Act of 1957. The petitioner also pointed out that it had filed the present writ petitions before this court on October 13, 2008 and it was only then that the respondentauthorities had issued the refund orders on October 29, 2008, and immediately thereafter exercised jurisdiction under section 33C on November 1, 2008 and withheld the refunds lawfully due to the petitioner. The petitioner further contended that the said orders were without applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und withheld under section 33C is at 12 per cent per annum, and that too after a period of six months from the date of the order referred under section 33C and till the date of the refund. Therefore the provisions of section 33C cannot be construed as applicable to refund of the amounts deposited as a condition precedent to an appeal under section 21(2). The amounts payable towards tax are remitted into the consolidated fund of the Union or of the appropriate State under article 266 of the Constitution while under article 284 the deposits made into any court to the credit of any cause, matter, etc., would be paid into the public account of the Union or of the State. Further the deposits made as a condition precedent for filing an appeal are pursuant to a statutory prescription qua the legislative field under entry 65 of List II in the Seventh Schedule to the Constitution, while tax and licence fees collected are traceable to the legislative power derived under entry 54 of the said List. Thus the character of the pre-deposit is substantially distinct from a tax paid. The power to withhold refund under section 33C does not include the refund of predeposit made under section 21(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ima facie, that the facts and circumstances of a particular case warrant withholding of the refund. Such application of mind preceding the formation of an opinion to withhold refund must be reflected in an order passed under section 33C. The track record of the assessee concerned, i.e., to determine whether the assessee would be likely to evade the process of law rendering it difficult for the Revenue to recover the amounts in the event of the State succeeding in a pending appeal/proceedings, may be a relevant circumstance for exercise of the power under section 33C. On this aspect the order passed must reflect a prima facie assessment that the Revenue would be subject to difficulty in recovering the dues. The assessment as to adversity to the interest of the Revenue involves complex factors which must be examined and evaluated on a case-to-case basis by the concerned authority. The reasons underlying such individualized exercise of power on a rational assessment of the factors, must be set out in the order so as to obviate the possibility of arbitrariness and irrational subjectivity. Since the provisions of section 21(2) including the third proviso thereto specify the amounts to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to withhold refund conferred on an assessing or licensing authority under section 33C of the Act of 1957, is limited to refund of tax and licence fee and excludes refund of the deposit by an assessee while preferring an appeal under section 19 or 21 of the Act of 1957; (B) Whether the authority passing an order under section 33C of the Act of 1957, withholding refund is required to record reasons and set out the facts and circumstances which constitute the basis for the formation of an opinion that the refund is likely to adversely affect the Revenue; and (C) What is the normative range of circumstances that could be considered as adversely affecting the Revenue within the meaning of the said expression (phrase) in section 33C of the Act of 1957? Analysis of relevant statutory provisions: Section 19 provides for an appeal by a dealer against any orders passed or proceedings recorded by any authority under the provisions of the Act of 1957 other than the order passed or proceedings recorded by an Additional Commissioner, a Joint Commissioner, or a Deputy Commissioner under sub-section (4C) of section 14 of the Act of 1957. The second proviso to section 19(1), in substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the refund is not made within sixty days from the date of receipt of the order passed under section 19 or 21 of the Act of 1957. The first, second and third provisos to section 21(2) were added by Act 3 of 2002 with effect from November 30, 2001. Section 33 enacts that the assessing authority or the licensing authority as the case may be, shall refund the tax or the licence fee, if any, paid, provisionally by an assessee or licensee for any particular period if it is found to be in excess of the tax or the licence fee payable by him for the said period, or on the option of the assessee or licensee to adjust such excess towards any tax or licence fee due in respect of any other period. Sections 33A to 33F were inserted by Act 16 of 1963 with effect from August 1, 1963. Section 33C empowers the assessing or licensing authority, if of the opinion that the grant of refund is likely to adversely affect the Revenue, where an order giving rise to a refund to an assessee or licensee is the subject-matter of an appeal or further proceeding or where any other proceedings under the Act of 1957 is pending, with the previous approval of the Deputy Commissioner, to withhold the refund till s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh, the Deputy Commissioner (CT), Eluru permitted the assessing authority to withhold the refund under section 33C of the APGST Act, 1957. As the order giving rise to refund became subject-matter of appeal filed before the honourable High Court, and as the grant of the refund is likely to adversely affect the Revenue, the refund sum of Rs. 64,106 is hereby ordered to be withheld under section 33C of the APGST Act, 1957 (read with section 9(2) of the CST Act 1956) till the adjudication of the TRC by the honourable High Court of Andhra Pradesh. Sd/- Commercial Tax Officer, Nidadavolu The deposits by the petitioner while preferring the several appeals before the STAT, Visakhapatnam Bench (at 25 per cent of the disputed tax) are: Assessment year APGST CST 2001-02 79,042 3,96,927 2002-03 64,106 5,42,882 2003-04 69,723 6,47,005 2004-05 92,361 9,41,607 The total amount of pre-deposit under APGST and CST comes to Rs. 28,33,653. Response of the Revenue: The basic facts are admitted including that consequent on the orders of the STAT dated February 18, 2008 the first respondent passed the order dated October 29, 2008 for refund of the pre-deposit amounts. Provisions of the third proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. Such deposit is enjoined under the second proviso to section 19(1); and the first and second provisos to section 21(2). The deposits enjoined by the second proviso to section 19(1) or by the first and second provisos to section 21(2), are specified as a percentage of the difference of tax assessed by the assessing authority and the tax admitted by the appellant, for the relevant assessment year (section 19(1), second proviso); as a specified percentage of the tax as ordered by the Appellate Deputy Commissioner under section 19 (section 21(2), first proviso); and as a specified percentage of the difference of tax ordered by the revisional authority under sub-section (2) of section 20 and the tax admitted by the appellant (second proviso to section 21(2)). In every case where the statutory provisions enjoin the requirement of a deposit as a condition precedent to the preferring of an appeal, whether under section 19 or 21, the enjoined prescription to deposit is clearly with reference to the tax liability of a dealer. Sri Viswanath, the learned counsel for the petitioner, would contend that section 33 of the Act of 1957 enumerates the liability of the assessing authority or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt fee nor is an amount de hors the currently determined tax liability of the dealer. What is deposited is a part of the tax due at the time of such deposit, as assessed or determined by an authority and which assessment or order is the subject-matter of an appeal by the dealer. In support of the plea for a restrictive construction of the provisions of section 33C of the Act of 1957, Sri Viswanath, the learned counsel for the petitioner, contends: (i) That the deposit required to be made; whether under sections 19 or 21 of the Act, is under a provision referable to the legislative field under entry 65 of List II, while the substantive power to tax is referable to the legislative field under entry 54 of the said List; and (ii) That while the tax paid by the dealer and collected by the State forms part of the consolidated fund of the State; the deposit made by a dealer and collected by the State as a condition precedent to filing an appeal is credited to the public fund of the State vide articles 266 and 284 of the Constitution, respectively. The deposit is a distinct entity and does not comprise or partake the character of tax and thus falls outside the ambit of the power to withhol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vent, even if the legislative prescription of a deposit as a condition precedent to preferring an appeal is a legislative exercise referable to entry 65, such per se would not influence the construction of the contours of section 33C. While article 266(1) of the Constitution (Part XII) enacts, inter alia, that (subject to the provisions of article 267, dealing with contingency fund), all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled the consolidated fund of the State , sub-article (2) enjoins that all other public moneys received by or on behalf of Government of a State shall be credited to the public account of the State. Article 284 enacts that all moneys received by or deposited with (a) any officer employed in connection with the affairs of the Union or of a State in his capacity as such, other than revenues or public moneys raised or received by the Government of India or the Government of the State, as the case may be, and (b) any court within the territory of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be placed at the disposal of the Governor of the State to enable advances to be made by him out of such fund for the purposes of meeting unforeseen expenditure pending authorization of such expenditure by the Legislature of the State by law under article 205 or 206. On an interactive analysis of the provisions of articles 196 to 207, 266, 267 and 284 it is clear that drawals out of the consolidated fund of the State (except expenditure charged on the consolidated fund of the State) are subject to legislative oversight and appropriation either by way of appropriation Bill; supplementary, additional or excess grant; or votes on account; votes of credit and exceptional grants. Even payments in the nature of an imprest into the contingency fund of the State are enjoined by article 267 to be by law made by the Legislature of the State. The legislative control enjoined by the relevant constitutional provisions referred to above, incorporate a measure of operational rigor for drawal of moneys from the consolidated fund of the State or the contingency fund of the State. These measures are for ensuring, financial discipline. Article 284(a) enjoins payment into the public account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an opinion as to the adverse impact on the Revenue. Since the power/discretion conferred on the assessing authority is a public power, it must be exercised on an objective assessment of the relevant circumstances legislatively prescribed as adversely affecting the Revenue. If the Legislature intended that no grant of refund should be made whenever an appeal, a further proceeding or other proceeding under the Act is pending, there would have been a clear legislative prescription that no refund should/need be made pending an appeal or further proceedings. The third proviso to section 21(2) of the Act of 1957 enjoins that the deposit be refunded with simple interest calculated at 18 per cent per annum if the refund is not made within sixty days from the date of receipt of an order passed under section 19 or 21. Section 33E provides that if the assessing authority does not grant the refund within sixty days from the date on which the claim for refund is made by the assessee under section 33A (section 33A provides that every claim for refund under section 33, shall be made by the assessee in a form and verified as prescribed on or after the date on which the tax in respect of which a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld for a period beyond six months from the date of the order referred to in section 33C (section 33F(2)). Since section 33C confers a discretionary but not an absolute power to withhold refund and only on the formation of an opinion as to the adverse impact on Revenue, the assessing authority must exercise discretion on relevant grounds and for germane reasons. In India the parameters of judicial review of administrative discretion is substantially similar to analogous principles of English administrative law. Expressions such as may and it shall be lawful are generally construed as permissive and not imperative. In England though the second world wartime and immediate post-war decisions indicate a judicial attitude towards strict literal interpretation of discretionary power, even involving powers enabling summary deprivation of personal liberty Liversidge v. Anderson [1942] AC 206, there has since been a clear shift in the approach to judicial interpretation of discretionary powers. This shift influenced analogous judicial jurisdictions as well. In Reade v. Smith [1959] NZLR 996 a power vested in the Governor-General to make such regulation as he thinks necessary to secure the du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its scope and object in conferring a discretion upon the Minister rather than by the use of adjectives. Even prerogative powers (which at an earlier point of time were not generally considered reviewable or at best reviewable on the narrowest terms vide R. v. Allen [1862] 1 B S 850, Michael De Freitas v. George Ramoutar Benny [1976] AC 239 are now considered not immune to review and on wider grounds the majority of the Law Lords in the Council of Civil Services Union v. Minister for the Civil Services [1985] 1 AC 374, were of the opinion that the exercise of powers authorized by the prerogative may be reviewable when their exercise is open to the judicial review; it depends on the subject-matter (per Scarman, Diplock and Roskill, L. JJ). The principle of review of prerogative powers was stated by Lord Scarman: the controlling factor in determining whether the exercise of prerogative power is subjected to judicial review is not its source, but its subject-matter. In the same case Lord Diplock considered that a prerogative power may be subject to judicial review, if its exercise would have consequence for some person: (a) by altering the rights or obligations of that person which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsistency in decisionmaking; (d) as a requirement which if implemented, provides guidance to others for structuring future decisions; (e) as a principle which protects the decision from unjustified challenges, because those adversely affected are more likely to accept a decision, if they know why it has been taken; and (f) as a requirement of basic fairness and respect for the individual, on the principle that those in authority over others should tell them why they are subjected to some liability or have been refused some benefit. It is an intrinsic principle of administrative law, in India as well, that there is nothing like unfettered discretion immune to judicial review. In Baldev Raj Chadha v. Union of India [1980] 4 SCC 321 Krishna Iyer, J emphasized absolute power is anathema under our constitutional order and naked and arbitrary exercise of power is bad in law. The apex court decision in Suman Gupta v. State of J K [1983] 4 SCC 339 explicates the principle that the exercise of administrative power vested in a public authority must be structured with a system of controls, governed by both relevancy and reasons, relevancy in relation to the object which it seeks to serve and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable. On behalf of the Revenue reliance is placed on the decision of a Division Bench of this court in Andhra Pradesh State Road Transport Corporation v. Commissioner of Income-tax [1975] 100 ITR 401 for the proposition that the grant of power to withhold a refund is legitimate. In our considered view this position is no longer res integra. In Orient Paper Mills Ltd. v. State of Orissa [1961] 12 STC 357 (SC), the validity of a sales tax legislation providing for withholding of refund of tax was upheld by the Constitution Bench of the Supreme Court as intra vires the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution. This view was reiterated in Burmah Construction Company v. State of Orissa [1961] 12 STC 816 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affect the Revenue. Challenging the said order, another writ petition was filed and a common judgment rendered in both the writ petitions. It requires to be noticed that the principal contention on behalf of the petitioner was that the second respondent should have passed the order after obtaining prior approval of the Deputy Commissioner concerned, whereas the second respondent alone had issued the order, contrary to the provisions of section 33C. The record of the case however disclosed that the assessing authority had addressed a letter to the second respondent containing an opinion that the grant of refund would adversely affect the Revenue. On the basis of the said letter, the second respondent had permitted the assessing authority to withhold the refund. In the circumstances, the contention on behalf of the petitioner was found to be without a factual foundation. In Sarvaraya [1991] 82 STC 367 (AP) there was neither a consideration nor a discussion on whether reasons must be recorded while exercising the discretion under section 33C. In Gopi Bar v. Commercial Tax Officer, Palakol [1997] 106 STC 188 (AP), the question for consideration was whether the High Court could direct r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court held that mere fact that the order leading to refund was the subject-matter of an appeal or further proceedings does not per se legitimize the exercise of power under section 241; and the existence of such condition does not relieve the assessing officer from forming an opinion that the grant of refund is likely to adversely affect the Revenue. The court held that the impugned order did not disclose that the assessing officer had formed such an opinion and had come to the conclusion that the refund was likely to adversely affect the Revenue; the order is a non-speaking order and no reasons are assigned for withholding the amount of refund. The court accordingly quashed the order on the short ground that it failed to disclose reasons why the assessing officer believed that the refund was likely to adversely affect the Revenue. The issue again fell for consideration by the Orissa High Court in a 1997 judgment in Gannon Dunkerley Co. Ltd. v. Sales Tax Officer [2003] 133 STC 534. Exercising power under section 14D of the Orissa Sales Tax Act, 1947, the authority withheld refund of tax. On facts, the Appellate Commissioner of Commercial Tax had recorded that a second appeal had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds short of proof . (Concise Oxford English Dictionary). If a man is to form an opinion and his opinion is to govern, he must form it himself on such reasons and grounds as seem good to him. (Per Lord Bramwell in Allcroft v. London (Bishop) [1891] AC 666). Merely filing of appeal or pendency of further proceeding under the Act cannot per se be a ground for withholding refund. Additionally, the Commissioner has to be of the opinion that grant of refund is likely to adversely affect the Revenue. It is fairly accepted by the learned counsel for the Revenue that the petitioner is one of most reputed concerns of the country. His stand is that creditworthiness is different concept from reputation as a leading concern. It is also fairly accepted that the petitioner was not granted any opportunity to show its creditworthiness. It is true as pointed by the learned counsel for the Revenue, a pre-decisional hearing is not warranted when the Commissioner proposes to act in terms of section 14D of the Act. But at the same time the desirability of it being in possession of all relevant materials which would weigh with him while taking a decision cannot be lost sight of. No attempt appears to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exercise of power under section 33C of the Act of 1957 (ordering withholding of refund) (a) cannot be for the mere and only reason that an appeal or further or other proceedings under the Act is pending; and (b) the order must record reasons and must set out the relevant facts and circumstances constituting the basis for the formation of an opinion that the grant of refund would adversely affect the Revenue. We hold accordingly on this issue. (C) What is the normative range of circumstances that could be considered as adversely affecting the Revenue within the meaning of the said expression (phrase) in section 33C of the Act of 1957? As briefly noticed during the analysis of issue (B), a conditioned power/ discretion is conferred on the assessing or licensing authority under section 33C of the Act of 1957. There are three conditions precedent to the exercise of the discretion. Firstly the order giving rise to a refund must be the subjectmatter of an appeal or further proceeding, or any other proceeding under the Act must be pending. Secondly, the assessing or licensing authority must obtain the prior approval of the Deputy Commissioner to withhold the refund and the time till whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is pending, is to ensure legislative vitality to grant of power to withhold the refund. Article 265 of the Constitution enjoins that no tax shall be levied or collected except by authority of law. The taxing legislation, whether the Act of 1956 or the Act of 1957 together with the Schedules thereunder and other executive instructions relating to exemptions or clarifications constitute the cornucopia of legislative authority for the levy and collection of tax, within the meaning of article 265. Where a quasi-judicial or judicial authority determines in appeal or further or other proceedings the liability of an assessee or licensee such determination constitutes the liability to tax of an assessee or licensee within the raft of legislative authority. The assessee or licensee cannot be subjected to a tax liability beyond such determination. Therefore any levy or collection or even the withholding of any excess amount (of or towards a tax) levied or collected from an assessee or licensee, beyond what has been determined in the appeal or further proceedings, would fall foul of article 265. Refund of the excess amount levied and collected is in the circumstances a Constitutional nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady considered is entitled to levy and collect only such amount towards tax as legislatively authorized (article 265). Refunding the excess amount of tax levied and collected in compliance with an order (in an appeal or further proceeding) cannot thus be considered as adversely affecting the Revenue per se. Therefore not only must the structural conditions precedent (as indicated above) be fulfilled but the substantive condition as well. Decisions of this court in Andhra Pradesh State Road Transport Corporation [1975] 100 ITR 401, Sarvaraya Textiles Ltd. [1991] 82 STC 367 and Gopi Bar [1997] 106 STC 188 afford no guidance on the conceptual contours of the phrase adversely affect the Revenue . What circumstances adversely affect the Revenue was not in issue in these decisions and there was no pronouncement either, on this aspect. The following decisions elucidate, in some measure, the legitimate range of considerations which could provide the basis for the formation of an opinion that an order of refund would adversely affect the Revenue: In Consolidated Petrotech Industries Ltd. [1993] 202 ITR 306 the learned Bench of the Gujarat High Court (in a case arising under section 241 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order withholding the refund merely reproduces the statutory phrase that grant of refund would adversely affect the Revenue. Different assessing authorities, whether exercising discretion under the Act of 1957 or in respect of the Act of 1956 pass an order without adverting to any fact or circumstance constituting the basis for the formation of the opinion that the refund would adversely affect the Revenue. No norms or principles could even be culled out from the several orders, as to the basis for the formation of an opinion. The process followed for the exercise of the discretion, in the circumstances becomes arbitrary and wholly subjective. The assessment and the formation of an opinion as to whether the grant of refund is adverse to the interest of Revenue involves a complex range of factors and circumstances. These must be examined and evaluated in each case by the assessing authority and the order under section 33C must record reasons in justification and must disclose a rational assessment of the facts and circumstances on the basis of which the opinion is formed. Only in this way and following such procedure would the assessing authority discipline his jurisdiction and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld adversely affect the Revenue. It is for the appropriate coordinating authority, the State or the Commissioner, as the case may be, to issue a set of guidelines so as to bring about a conceptual uniformity in the exercise of discretion (by various assessing or licensing authorities) to withhold the refund, under section 33C of the Act of 1957. We place on record our appreciation and gratitude to Sri S.R. Ashok, the learned Senior Advocate and Sri Ravi S, learned Advocate for assisting this court. Sri S.R.R. Viswanath, the learned counsel for the petitioner, Sri K. Raji Reddy, the learned Special Standing Counsel for Commercial Taxes who appeared for the respondents in this batch of cases and Sri Krishna Koundinya, the learned counsel who also assisted this court on invitation have presented a balanced and comprehensive raft of arguments. We record our appreciation to these counsel. Coming to the facts of the present case, none of the orders impugned in this batch of writ petitions recorded any reasons whatsoever nor set out any facts or circumstances for recording that the grant of refund is likely to adversely affect the Revenue. These orders cannot therefore be sustained. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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