SALES TAX OFFICER, GANJAM & ANR. v. M/S. UTTARESWARI RICE MILLS

Citation: [1973] 2 S.C.R. 310; 1972 INSC 226

Court: Supreme Court of India

Bench: P. JAGANMOHAN REDDY , HANS RAJ KHANNA

Judgment date: 1972-09-18

Case summary

1972 INSC 226. Supreme Court of India judgment dated 1972-09-18. SALES TAX OFFICER, GANJAM & ANR. v. M/S. UTTARESWARI RICE MILLS. Read the judgment and case...

Judgment text

312 SUPREME COURT REPORTS [1973] 2 S. C. R. SALES TAX OFFICER, GANJAM & ANR. v. M/S. UTTARESWARI RICE MILLS September 18, 1972 (With Connected Appeal) [P, JAGANMOHAN REDDY AND H. R. KHANNA, JJ. ] Orissa Sales Tax Act, 1947, s. 12(8)-Notice for assessment of escaped 111rnover-lf should indicate reasons for reopening c. sselismtnl, On receipt of certain information, and, as a result of information disclosed in documents seized from the respondePt, the appellant issued a notice under s. 12 (8) of the Ot'issa Sales Tax Act, 1947, ~ the Form prescribed under r. 23 made under the Act, for re-assessing the turnover of the respondent. The High Court, quashed the notice on the ground that the appellant had not indic~ted any rea·son for issu'1>g the notice. Allowing the appeal to this Court, HELD: (I) Although the opening words used in the section are "if for any reason" and :not "if the sales tax authority has reason to believe" the difference ~1> phraseology does not make any difference.

A reason cannot exist in vacuum, and in the context, it should be the sales-tax authority issuing the notice who should have reason to believe that the turnover of a dealer has escaped assessment or has been under assessed. The words used in the prescribed Form also are "whereas I have reason to believe' that your turnover has escaped assessment .... ,"' Any view which would make the opening words of the section unworkable should be avoided. [317 C·E) (2) The ingredients of s. 12 (8) of the Orissa Sales·tax Act. 1947, are: (i). there must exist reason for the belief that, (a) the turnover of a dealer for any period to which the Act applies has escaped assessment or has been under-assessed; or, (b) the tax has been compounded when composition is not permissible under the Act and the rules made there· under; (ii) in cases mentioned in cl.

(i) the sales-tax authority may at any time within 36 months from the expiry of the year to which the above mentioned period relates call for a return under s. 11 ( 1) of the Act; (iii) after taking the steps mentioned in els. (i) and (ii) 1>bove. the sales tax authority may proceed to ass~ss the amou:rtt of the tax due from the dealer in the manner laid down in s. 12 (5) of the Act; (iv) the sales tax authority may also direct in cases where escapement or under-assessment or composition is due to the dealer having concealed particulars of his turnover or having without sufficient cause furnished incorrect particulars thereof that the dealer shall pay penalty in addition to the ta'x assessed: and ( v) such penalty shall not exceed one and a half times the amount . of the tax so assessed. [316 F-H; 317 A-Cl The proceedings for assessment or re-assessment under the sl!

ction start with the issue of a notice and it is only after the service of the notice that the assessee whose turnover is sought to be assessed or re-assessed hecomes a party to the proceedings. Therefore, it is not ncccssarv to intimal~ to the assessee the nature of the alleged escapement in the notice issued to him under the section. To held that the reasons which led to the issue of the said notice should be incorporated in the notice and that the failure to so invalidated the notice would be tantamount to reading something into the statute which. in fact. is not there. However, if the sales-tax officer is in S. T. 0. V. UTTARESWARI RICE MILLS (Khanna, J. )· 311 possessio. • of material which he proposes to me against the dealer in proceedings for re-assessment the said officer must, before using that material, bring it to the notice of the dealer and give him an adequate opportunity to explain and answer the case on the basis of that material. [319 B; 320 C; 321 F-HJ .. B.

Patnaik Mines (P) Ltd. v. N. K. Molwnty Sales Tax Officer, 1. L. R. [1967] Cuttack 446, overruled. Conunissioner of lnconie Tax, Bengal v. Messrs Malialiram Ramjidas [1940] 8,1. T. R. 442, (P. C. ) applied. K. S. Rashid and Son v. Income Tax Officer, [1964] 52 l. T. R. 355 (S. C. ) an U&T &EPORTS [1973] 2 S. C. ll. Whereas I have reason to believe that your turnover of sales and/or purchases for the quarter/year ending ...... on which tax payable under the Orissa Sales Tax Act has escaped assessment/has been under-assessed/has not been assessed due to the tax having been compounded when composition is not permissible. You are hereby required to submit within one calendar month from the date of receipt of this notice a return in Form IV (enclosed) showing the particula! 'i of your turnover for the quarter ending ..... . You are also hereby required to attend in person or by agent at my office at .... on .... at .... A. M. / P . M.

and there to produce or cause to be produced the accounts and documents specified on the reverse, ami also show cause why in addition to the amount of tax that may be assessed on you a penalty not exceeding r~mtam ing all or any of the require:nents which ma~ be mclud-ed in a notice under sub-section (2) of section 22 and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act sh11l so far. as may b~, apply accordingly as if the notice were a nottce issued under that sub-section : --II) (1940) 8 I. T. R. 442. 318 SUP! ll! ME COUilT REP QRTS (1973) 2 S. C. R. Provided that the tax shall be charged at the rate at which it would have been charged had the income, pro• tits or gains not escaped assessment or full assessment,. as the case may be. " The opening words of section 34 of the Indian Income Tax Act, as it then existed were similar to those of section 12(8. ) of the Act. The Judicial Committee while dealing with .

the language of section 34 observed : ··section 34 is unhappily and even ungrammatically phrased. It is expressed impersonally, and it fails to· state by whom and by what procedure it is to be established that income, profits or gains "have escaped assessment or have been assessed at too low a rate. There is fortunately no dispute that the person who must make that decision is the Income-tax Officer, for, apart from the assessee, no one else is in a position to say whether income has been assessed or at what rate it has been assessed. . The omission to prescribe expressly what the nature of the decision should be and by what procedure it must be reached is all the more wrp:rising because in other sections of the Act the legislature has been careful to define what is necessary in these res-pects. This circumstance was founded o_n by the learned Counsel for the respondents. who pointed out that where some fr.

ct had to be established merely prima facie to the satisfaction of the Income-tax Officer in the bona fide exercise of his discretion, this was expressed by such phraseology as "When it . appears to be Income·tax Offictr. "' or "if the Income-tax Officer has reason to believe". On the other hand, wlren the statute requires that the Income-tax Officer shall make a . decision, which is final so far as he is concerned, upon a matter of fact. the usual expression is "if lre is satisfied". " It was further observed : "The section, although, it is part of a taxing A. ct, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that that construction should be ;:ireferred which makes the machinery work-able, ut res va/eat potius quam pereat. " In view of the criticism levelled against the wording of section 34 of the Indian Income Tax Act, the above section was amended by Amendment Act of 1939.

Despite the amendment made in section 34 of the Indian Income Tax Act, the Orissa Legislature, :S. T. O. 11. UTTARESWAR! RICE MILLS (Khanna, J. ) 319 it would apl\ear, has used phraseology in section 12(8) of the Act similar to that of section 34 of the Indian Income Tax Act, 1922 as it existed before the said amendment. The above decision of the Judicial Committee is also an authority for the proposition that it is not necessary to intimate to the assessee the nature of the alleged escapement in the notice which is issued to him under section 34 (as it then existed) of the Indian Income Tax Act, I 922. The notice which was issued in that case did not give any particulars and was in the following words: "Whereas I have reason to believe that your income from business and other sources which should have been assessed in the financial year ending the 31st March, 1933, has wholly escaped assessmem and I therefore propose to assess the said income that has escaped assessment.

I hereby require you to deliver to me, not later than the 9th March, 1934, or within 30 0 days of the receipt of this notice, a return in the attached form of your income from all sources which was assess-able in the said year ending the 31st March, 1933. " It was observed while dealing with the validity of the above notice: "Accordingly their Lordships are of opinion that the Income-tax Officer is not required by the section to convene the asscssee, or to intimate to him the nature of the alleged escapement, or to give biol an opportunity of being heard, before he decides to operate the powers conferred by the section. In the opinion of their Lordships the view which the learned Judges of the High Court have taken of the section is too narrow. and the notice sent to the respondents on 8th February, 1934, is in form a competent preliminary to a new assessment. " In the case of K. S. Rashid and Son and Others v.

Income 1 Tax Officer~ ) this Court expressed the view that the assessee was . not entttled to a copy of the reasons which were recorded by the mcome tax officer when he issued the notice under section 34 of the Indian Income Tax Ac~ 1922. In the later case of S. Narayan. ~ppa and Others v. Commissioner of Income Tax, Bangalore(-) an argument was advanced that the income ta. x officer should have indicated to the assessee the reasons which (I) [1964] 52 l. T. R . . 155. (2) [1961] 63 I. T. R. 219 [1973} 2 S. C. It. lcd. t'iim to i~itiate the vroceedings under section 34 of the Act. This contention was repelled in the following words : ·'It was also contended for the appellant that the Income-tax Officer should have communicated to him the reasons which led him to initiate the proceedings under section 34 of the Act. It was stated that a request to this effect was made by the appellant to the 8 Income-tax Officer, but the Income-tax Officer declined to disclose the reasons.

In our opinion, the argument of the appellant on this point is misconceived. The pro-· ceedings for assessment or reassessment under section 34 (1 ){a) of the Income-tax Act sl! lrt with the issue of a notice and it is only after the service of the notice· that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceedings for recording the re. asons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. · The scheme of section 34 of the Act is that, if the conditions of the· main section are satisfied, a notice has to be issued to the assessee containing all or any of the require-ments which may be included in a notice under sub-section (2) of section 22.

But before issubg the notice, -the proviso required that the officer should record his reasons for initiating action under section 34 and obtain the sanction of the Commissioner who must b~ satisfied that the action under section 34 was justi-fied. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to p proceed under section 34 must also be communicated' to the assessee. " As the provisions of section 12(8) of the Act and section 34 of the Jndian Income Tax Act, 1922 are substantially similar, the dicta laid down in cases under section 34 of the Indian lncome- Tax Act has, in our opinion, a direct bearing. Mr. Govind Das has tried to distinguish the cases under section 34 of the Indian Income Tax Act on the ground that, unlike section 12 ( 8 ) of the Act which also provides for the imposition of penalty, there was no ment!

on _of penalty in. section 34 ? f. the Indian Income Tax Act. This circumstance. m our o! Jmion, makes no substantial difference and cannot prevent the applicabi-lity of the dicta laid down in cases under section 34 of the Indian S. T. O. v. UTTARESWARI RICE MILLS (Khanna, I. ) 321 Income Tax Act, 1922 to cases under section 12 ( 8) of the Act The question of imposition of penalty can only arise at the time of making an order for reassessment. Mr. Ramachandran on behalf of the appellants has frankly stated that it would be only at that stage that the sales tax officer would go into the question as to whether the escapement or under-assessment or composition 8 has been due to the fact that the dealer concealed particulars of his turnover or without sufficient cause furnished incorrect particulars thereof.

The sales tax officer in such an event, it is not disputed, would have to give opportunity to the dealer to show cause why penalty in addition to the tax should not be imposed upon him. Reference has also been made by Mr. Gobind Das to the fact that notice issued to the respondent on March 31, 1967 related not merely to the escaped assessment or under-assessment, it also called upon the respondent to show cause why penalty should not be imposed upon him. It is urged that such a combined notice is invalid even though it may be in accordance with Form VI prescribed by the rules. Calling upon the respondent to show cause why penalty should not be imposed upon him, according to the l~arned counsel, is premature at this stage. In this respect we find that no such ground was taken by the respondent in the wri, petition before the High Court.

As such, it is not necessary for the purpose of this case to express an opinion on the ppint as to whether a notice under section 12 ( 8) should be struck down on the aforesaid ground. There is nothing in the language of section 12 ( 8) of the Act which either expressly or by necessary implication postulates the recording of reasons in the notice which is issued to the dealer under the above provision of law. To hold that reasons which led to the issue of the said notice should be incorporated in the notice and that failure to do so would invalidate the notice, would · be tantamount to reading something in the statute which, in fact, is not there. We are consequently unable to accede to the contention that the notice under the above provision of law should be quashed if the reasons which led to the issue of the notice are not mentioned in the notice.

At the same time, we would like to make it clear that if the sales tax officer is in possession of material which he proposes to use against the dealer in proceedings for reassessment, the said officer must before using that material bring it to the notice of the dealer and give him adequate opportunity to explain and answer the case on the basis of that material. ff Mr. Gobind Das has also argued that the existence of a reason that the turnover of a dealer has escaped assessment or has been under-assessed in cases not dealing with composition is a condition precedent to the issue o~ a notice under section 12(8 J of the Act. It is urged that such reason is not shown to have existed in the present case.

Although we agree with the learned counsel that the existence of the reason that the turnover 0f a dealer has escaped assessment or has been under-assessed is a sine qua non, for the issue of the notice, we are unable to accept the contention that the said reason has been shown to be non-existent in the pre>ent case. Although the High Court did not go into this as-pect of the matter, we find that the appellant has brought mate-r. al on the record to indicate that there did exist such reasons. Affidavit of Shri Prakash Chandra Mohanty, Sales Tax Officer, Intelligence Circle was filed in opposition to the petition. Shri Mohanty is the successor of Shri Patnaik who had issued the notice under section 12 ( 8) of the Act to the respondent. According to the atl1davit of Shri Mohanty, the material on record indi-cates that Shri Patnaik issued the impugned notice after he had obtained information about certain clandestine dealings of the respondent.

It was further stated that the seized documents disclosed prima facie ! llaterial to -! Jold that the respondent had failed to disclose his entire turnover. It was also mentioned that the details of the material which led to the initiation of proceedings under section 12 ( 8) of the Act had been recorded in the rel~vant case file. The said file, it would appear from the affidavit of Shri Mohanty, was kept available for reference by the High . Court at the time of hearing. No reference, it would seem. was however made to that file because the High Court did not feel the nececsity of doing so. In our opinion the view taken by the High Court in the judgment under appeal as well as in the earlier case of B. Patnaik Mines (P) Ltd. v. N. K. Mohanty Sales Tax Officer (supra) . F was not correct. We accordingly accept the two appeals. set aside the judgment of the High Court and dismiss the writ petitions.

Looking to all the circumstances, we leave the parties to bear their own costs of this Court as well as in the High Court. . V. P. S. Appeals allowed.

Source: Supreme Court eSCR. Dataset: Dattam Labs, CC BY 4.0. Text extracted automatically; compare with the source PDF for layout and accuracy.