Judgment:
ORDER
G. RAGHURAM, J.
1. These five appeals involve common questions of law and fact and thus heard and disposed of by this common judgment.
Brief overview of fads leading to the lis:
(1) The appellant (assessee) is a dealer in beedies. It was initially assessed for the years 1985-86 to 1989-90 (5 years) on nil taxable turnovers by the CTO, Nizamabad-II.
(2) The successor CTO reopened the assessments under Section 14(4) of the APGST, Act, 1957 (for short, 'the Act'). Rejecting the plea of the assessee, the CTO held that the assessee is the last purchaser of beedi leaves within the State and brought to tax assessed Gross turnover and Net turnover for the five assessment years. He also imposed penalties for all the assessment years.
(3) Aggrieved, the assessee preferred appeals to the appellate Deputy Commissioner (CT), Secunderabad (hereinafter, the first appellate authority). On an analysis of the record, the Appellate Authority held that the assessee was a purchaser of finished beedies and was never a purchaser of beedi leaves let alone the last purchaser. Consequently the appeals were allowed and the revisedassessment orders and consequent penalties set aside.
(4) By the orders under appeal the Commissioner of Commercial Taxes exercising revisional power under Section 20(1) of the Act invalidated the appellate orders in respect of all the five assessment years. While directing that the cost of the beedi leaves shall be subjected to sales tax at the hands of the assessee and at the quantum assessed by the CTO, the Revisional Authority confirmed the orders of the Appellate Authority to the extent the latter set aside the penalty orders for the 5 years.
2. This batch of appeals arise from the revisional orders of the Commissioner of Commercial Taxes dated 24-9-1994passed under Section 20(1) of the Act.
3. The contentions urged by Sri P. Chandrasekhar, learned Counsel for the appellant, inter alia, in brief, are as under:
(i) The assessee's agent M/s. Balaji & Co., having paid the tax on the beedi leaves for the 5 assessment years in question, there is no prejudice to the interests of revenue, warranting exercise of the revisional jurisdiction under Section 20(1) of the Act.
(ii) The finding of the Revisional Authority that the assessee is the last purchaser of the beedi leaves in the State and thus liable to tax, is based on a clearly erroneous construction of the agreement between the assessee and M/s Balaji & Co., besides being contrary to the record.
(iii) The order of the CTO reopening the assessments under Section 14(4) of the Act was ultra vires the scope of his power under that provision. This aspect, though canvassed beforethe 1st Appellate Authority, was not dealt with by that authority, who proceeded to grant relief on other and substantive grounds. This aspect was canvassed in the detailed objections of the assessec to the notice of the Revisional Authority proposing revision. It was however not dealt with. Had this aspect been considered the orders of the CTO reopening the assessments were liable to have been declared non est consequently the revisions liable to be dismissed.
4. In the light of the analysis following, the other contentions urged in the appeals are not recorded.
Analysis of She relevant factual matrix qua the contentions in the appeals:
5. As the issues are identical, the facts in Special Appeal No.50 of 1999 are considered for analysis.
(A) This appeal is directed against the revisional order of the Commissioner of Commercial Taxes in respect of the assessment year for 1985-86.
(B) The Assessing Authority by the order dated 29-3-1998 determined the total turnover of the sale of beedies at Rs.27,05,580.00. Besides being exempted from liability to sales tax, the total turnover was exempt and the Assessing Authority thereupon passed a nil assessment order. This decision was arrived at on the basis of the finding that 'there are no beedi leaves purchases and the assessee received the beedi leaves and beedies from his head office M/s. Balaji & Co., Kisannagar'.
(C) In purported exercise of the powers available under Section 14(4) of the Act the CTO.-II, Nizambad, reopenedthe assessment. By the order dated 20-3-1992 the assessee's liability to payment of tax was determined on a net turnover of Rs. 10,92,541-00, on which a tax liability of Rs.78,117-00 was determined. Penalty was also imposed. This determination was arrived at on a finding that the assessee firm paid the value of beedi leaves to M/s. Balaji & Co., Kisannagar, which amounts to purchase of beedi leaves and the assessee thus figures as the last purchaser in the State thus liable to pay tax on the beedi leaves as per item-18 of the II Schedule of the Act. A finding was also recorded that the assessee firm supplies tobacco mixture along with other packing material except beedi leaves to M/s. Balaji & Co., who in turn hands over the particular brand 'No.1521' beedies to the assessee-firm and collects labour charges, duty (Excise duty paid on behalf of the assessee) and the value of the beedi leaves and that this factum is evident from the entries at page 21 of LF of the assessee for the assessment year 1985-86.
(D) As against the above order the assessee preferred an appeal to the first Appellate Authority. By the order dated 2-12-1992 the Appellate Deputy Commissioner (CT) allowed the appeal. The first Appellate Authority analysed the ledger extract (LF 21 of the ledger for the year 1985-86) and found that the entries indicate certain amounts having been paid in lumpusm to M/s. Balaji & Co., Kisannagar, without any indication, however, that these amounts relate to purchase of beedi leaves. The agreement between the assessee and M/s. Balaji & Co., was also construed. Under the agreement the appellate firm has tosupply tobacco. Gunnies, label, thread, paper and other packing material and the contractor (M/s. Balaji & Co.) had to purchase beedi leaves of good variety and pay the taxes, if any, to be paid by the contractor to the Commercial Taxes Department. The first Appellate Authority also found that the assessment order of M/s. Balaji & Co., supports the terms of the contract between the parties as contained in the agreement and that the Assessing Authority of M/s. Balaji & Co., determined the said assessee to be a manufacturer of beedies by purchasing beedi leaves and fuel required for manufacture of beedies for commission and the other raw material such as tobacco, lables, yarn etc., would be supplied for such firms for whom the assessee-manufactures the beedies. It was also held that M/s. Balaji & Co, is a manufacturer of beedies for others also apart from the appellant firm and that the beedi leaves required for such manufacture were purchased by M/s. Balaji & Co.
6. On an analysis of the record and the findings above the first Appellate Authority concluded that M/s. Balaji & Co. supplied finished beedies for sale to the appellant and not beedi leaves as assumed by the Revisional Authority without any basis and that there has been no purchase of beedi leaves at the hands of the appellant, leave alone the last purchase, as per the evidence available in the record. The turnover determined by the Assessing Authority having found to be purely illusory and based on surmises and in further view of the fact that the purchase of beedi leaves by M/s. Balaji & Co., was duly assessed to tax by the Assessing Authority whereby the interests of the revenue are not jeopardised in any wayand the tax due on the alleged purchase of beedi leaves having been paid by M/s. Balaji & Co., the first Appellate Authority concluded that the impugned levy of tax on the erroneously assumed purchase of beedi leaves at the hands of the appellant, is not sustainable. Consequently the order of penalty was also set aside.
(E) The Commissioner of Commercial Taxes by a composite show-cause notice dated 12-7-1994 (for all the 5 assessment years 1985-86 to 1989-90) called upon the assessee to file its objections against the proposal to set aside the orders of the first Appellate Authority and restore the orders of the Assessing Authority dated 20-3-1992 including of the penalty levied for all the assessment years. The show-cause notice was issued on the stated premise that the assessee is a seller of beedies and the last purchaser of beedi leaves in the State to the extent of value of beedi leaves involved in the transaction of beedies. The show-cause notice also stated that the orders of the first Appellate Authority are prejudicial to the interests of revenue.
(F) The assessee submitted a detailed memorandum of objections to the aforesaid show-cause notice. The assessee categorically stated that it has not purchased any beedi leaves so as to be fastened with the liability to pay tax on such purchases, the actual purchase of beedi leaves was by M/s. Balaji & Co., on whom the liability to pay sales tax vests, M/s. Balaji & Co., is an assessee on the rolls of CTO, Nizamabad-II and has been assessed to and paid tax on the purchase of beedi leaves made by him, for all the 5 assessment years. The copies of the assessment orders of M/s. Balaji & Co., for the5 assessment years were enclosed by the assessee along the memorandum of objections. The assesee further stated that its payment made to M/s. Sri Balaji & Co., are related to the quantity of beedies supplied and not to the quantity of beedi leaves purchased by Balaji. The assessee also specifically asserted that the first Appellate Authority had not decided all the grounds raised in the appeal and that the order reopening the assessment is unsustainable for transgressing the limits of the jurisdiction and powers under Section 14(4) of the Act since there was no fresh material before the Assessing Authority de hors the assessment record, warranting exercise of power under Section 14(4) of the Act.
(G)The Commissioner of Commercial Taxes (Revisional Authority) by the order dated 24-9-1994 revised the order and determined the assessee's liability to tax, as the last purchaser of beedi leaves. The Commissioner however, held that from the totality of circumstances of the case it was apparent that all relevant facts were mentioned by the assessee and there being no dishonesty or wilful suppression of the turnover on the part of the assessee, there is no liability to pay penalty. In conclusion the order of the first Appellate Authority was pro tanto set aside to the extent of the liability to pay tax while confirming the order to the extent the penalty was erased.
(H) The reason recorded by the Revisional Authority in support of the conclusion as to the liability of the assessee to the tax is set out at Para 7 of the order impugned, which being of significance is extracted:
'(7) While it may be true that there was no loss of revenue by way of sales tax on beedi leaves for the Government, it is necessary to tax the right person as per the law. It is clearly laid down in the agreement referred to above that M/s. Balaji & Co., will receive commission for the manufacture of beedies. According to Chambers Dictionary pages 253, Commission, amongst other things means 'percentage paid to an agent'. In the normal trade parlance, commission is a percentage of the value of goods under sale or purchase, paid to an agent, for organising the activity of sale or purchase. It is compensating the agent for his efforts and services. Commission is not the value of the goods supplied. As such, it is clear from the wording of the agreement that M/s. Balaji & Co., were to be paid commission for getting the beedies manufactured. Naturally, since they were also procuring beedi leaves on behalf of the assessee, they should be paid the cost of the beedi leaves. They should also be paid the excise duty, as they would be remitting the same on behalf of the assessee. It is to be noted that beedies were not being sold by M/s. Balaji & Co., to the assessee; in which case, there will be only one single consolidated price. If certain goods were supplied by the assessee to M/s. Balaji & Co., for the manufacture of the beedies, then credit could be taken for the value of the goods like tobacco and accounts settled. This is the procedure adopted for all contractors by the PWD and others. If such were the position, then the situation would be that of a seller and a buyer of beedies. It is very clear from the agreement that it was not so. M/s. Balaji & Co., were commissioned to manufacture beedies. They were being paid for getting beedies manufactured. They were buying beedi leaves on behalf of the assessee, who paid them the costof the beedi leaves. As such, judging by the agreement entered into between the assessee and M/s. Balaji & Co., the last purchaser of the beedi leaves in the State is the assessee herein and not M/s. Balaji & Co. M/s. Balaji & Co., were only purchasing beedi leaves on behalf of the assessee, but that does not made them the last purchaser within the State. One more interpretation is also possible. If M/s. Balaji & Co., purchased the beedi leaves on their own account, because they might have bought for more than one client, in turn they sold the beedi leaves to the assessee, who paid the cost of the same and also paid commission for getting manufactured the beedies. From that point of view also, the last purchaser of beedi leaves within the State were the assessees. There was no sale transaction of beedis between the assessee and M/s. Balaji & Co., as already stated above. As such, from any point of view, I am of the opinion that the assessee herein were the last purchasers of beedi leaves within the State and are definitely liable for sales tax on that purchases. To that extent, I conclude that the orders of ADC are incorrect and illegal'.
(I) The Revisional Authority rejected the contention of the assessee with regard to patent lack of jurisdiction of the Assessing Authority in reopening the assessment under Section 14(4) of the Act by holding that the subject matter of the revision is the order of the First Appellate Authority and not the order of the Assessing Authority reopening the assessment.
7. Sri Chandrasekhar, learned Counsel for the appellants combats the orders of the Assessing Authority reopening the assessment, as also the order of the Revisional Authority confirming the same, additionally on the ground that the formulaadopted by the Assessing Authority to estimate the turn over of beedi leaves is incorrect, irrational, arbitrary and patently unsustainable. Reliance is placed for this contention on the decision rendered by this Court in Sri Laxmi Satyanarayana Rice Mill v. State of Andhra Pradesh, (1970) 25 STC 96 and of the Madras High Court in Sri Kalyani Oil Mills v. State of Madras, (1973) 32 STC 542.
8. Yet another contention urged on behalf of the appellant is that the Assessing Authority acted without jurisdiction and patently beyond the ambit of the powers available under Section 14(4) of the Act as the reopening of the assessment has been made demonstrably on the basis of the record available with the initial Assessing Authority and no fresh material was either available or analysed in reopening the assessment. Reliance for this contention was placed on the decisions of this Court in Factechand and Co. v. State of Andhra Pradesh, 54 STC 166 State of Andhra Pradesh v. Ratna Sree Box Makers and Girdharlal & Co, v. State of Andhra Pradesh, (1985) 97 STC 442.
9. The aforesaid two contentions, we decline to adjudicate in the light of our decision, on an analysis of other and substantive questions.
10. Relying on the decision of this Court in State of Andhra Pradesh v. Loharu Steel Industries Ltd. , it is urged on behalf of the appellants that the revisional order is vitiated by violation of principles of natural justice. The contention, in specie, is that any exercise of powers under Section 20 of the Act by the Revisional Authority could only be on the grounds mentioned in the show-cause notice as else the rationale underlying the requirement of affording reasonable opportunity would be subverted. Thefactual complaint in this area is that the show-cause notice dated 12-7-1994 was laconic and contained only a blanket statement that 'the assessee is the seller of beedi leaves and that he is the last purchaser of beedi leaves in the State to the extent of value of beedi leaves involved in the transaction of beedies', the assessee has thus been denied reasonable opportunity to canvass its objections and the Revisional Authority has based its conclusions on grounds not set out in the show-cause notice.
11. It is seen from the record of the case that the assessee had no misapprehension as to the extent and scope of the grounds for the proposed revision. All relevant objections have been canvassed and in extenso in the appellant's explanation to the show-cause notice and have been considered by the Revisional Authority. There is thus no warrant for concluding that the revisional order is vitiated on account of any denial of reasonable opportunity to the assessee.
12. The dialectics of the audi alteram partem rule has, in contemporaneous administrative law, evolved dynamically. The means-based technical view has been eschewed in favour of the holistic and effect-analysis model. Violation of natural justice is by itself, no longer sufficient to invalidate State action. A clear prejudice that has been suffered by the violation needs to be pleaded and demonstrated. This is the current and operative doctrine - vide S.L Kapoor v. Jagmohan, : [1981]1SCR746 ; K.L. Tripathi v. SBI : (1984)ILLJ2SC ; Rajender Singh v. State of Madhya Pradesh : AIR1996SC2736 ; M.C. v. Union of India, (1996) 6 SCC 237 and Aligarh Muslim University v. Mamoor Ali Khan : AIR2000SC2783 .
13. In the present appeals, it is seen that the assessee has comprehended thegrounds on which the Revision has been proposed by the Commissioner of Commercial Taxes this is clear from the elaborate-all encompassing objections put forward by him to the show-cause notice. There is thus no violation of natural justice nor any prejudice suffered by the assessee established, warranting invalidation of the orders in Revision on this ground.
Is the assessee liable to the payment of tax:
14. There was an oral agreement between the assessee and M/s. Balaji & Co., Kissanagar, since 1985, which was reduced to writing in the year 1987. In the order under Revision, the Commissioner went about construing the agreement dated 10-9-1987 between the assessee and M/s. Balaji & Co., focussing on the expression 'commission' employed in the said agreement. In substance, the Revisional Order identified the meaning of the said expression by a lexicographic approach. Finding the terms of the agreement different from the terms adopted in contracts of the Public Works Department and others, the Revisional Authority concluded that M/s. Balaji & Co., were not the suppliers/sellers of beedies to the assessee, but were mere commission agents for the manufacture of beedies. M/s. Balaji & Co., were buying the beedi leaves on behalf of the assessee and were collecting the cost of the beedi leaves apart from the cost of the labour and packing charges, is another finding.
15. The task of construction/ interpretation of contracts is by no means, as simple a task, as would, at first blush, appear. It is as delicate and complex an exercise as is construction and interpretation of statutory instruments. The object sought to be achieved in construing any contract is to ascertain what the actual intentions of the parties were as to the legal obligations each assumed by thecontractual words in which they sought to express them. The intention of the parties is to be gathered from the meaning of the words used, and there could be no intention independent of that meaning..
16. In Great Western Railway v. Bristol Corporation, (1918) 87 LJCh 414. Lord Shaw sounded the caveat in the following words:-
'..... One hears much use made of the word 'intention', but Courts of law on the work of interpretation are not engaged upon the task or study of what parties intended to do, but of what the language which they employed showed -that they did, in other words, they are not construing a contract on the lines of what may be thought to have been what the parties intended, but they are construing words and expressions used by the parties themselves. What do these mean? That when ascertained is the meaning of the contract by which the parties are bound. The suggestion of an intention of parties different from the meaning conveyed by the words employed is no part of interpretation, but is mere confusion.'
17. Lord Justice May, set out the limits' of the interpretive exercise in Ashville Investments Limited v. Elmer Contractors Limited, (1998) 2 ALL.ER 577 in the following words :
'..... In seeking to construe a clause in a contract, there is no scope for adopting either a liberal or a narrow approach, whatever that may mean. The exercise which has to be undertaken is to determine what the words mean'.
18. Lord Halsbury LC cautioned against the error of preconceived notions of the interpreter, as to the intendment of theparties, colouring the interpretation of the terms of the agreement between them, in Charles Robert Leader and another v. George F. Duffey and another, (1888) 1 HL 294 as under:
'..... But it appears to me to be arguing in a vicious circle to begin by assuming an intention apart from the language of the instrument itself, and having made that fallacious assumption to bend the language in favour of the assumption so made'.
19. The relationship, the relative obligations and rights and the status of the assessee and M/s. Balaji & Co., in relation to each other must thus be considered only qua the terms of the written agreement between them and the consequent legal consequences, including in the matter of liability to sales-tax must be given effect to by the Court, unless of course, the actual facts as apparent from the books of account or other material disclose the existence of a relationship different from that agreed upon by the written instrument. What then are the terms of the written agreement?
20. The terms of the written contract between the parties as contained in the agreement dated 10-9-1987, construed as a whole, to the extent relevant and material for the purpose of the case, are to the following effect:
(A) Both the parties are registered dealers under APGST and CST Acts, as also licence holders under the Excise Act.
(B) The assessee has requested M/s. Balaji & Co., to manufacture beedies on their behalf for the specified brands on commission basis due to labour problems and other practical difficulties encountered by the assessee resulting in inability tocontinue manufacture of beedies at Nizamabad in respect of its brand names.
(C)M/s. Balaji & Co., has accorded consent to manufacture the required quantity of beedies on commission basis and has accordingly been so manufacturing the beedies since 23-8-1985 onwards on commission basis and supplying the same to the assessee.
(D) M/s. Balaji & Co., shall be responsible to manufacture and supply the beedies to the assessee in accordance with the orders placed from time to time, on a consolidated commission rate as agreed, on such terms, by the parties mutually.
(E) The assessee shall supply tobacco, gunnies, lables, thread, paper and other packing material, on the basis of orders placed for the manufacture.
(F) M/s. Balaji & Co., shall be obligated to purchase the remaining raw material tike beedi leaves, charcoal, maida and pay expenses such as Central Excise Duty, beedi manufacturing wages and packing wages, etc.
(G) M/s. Balaji & Co., shall also be obligated to pay the taxes, if any, on such purchase to the Commercial Taxes Department under the State and Central Acts since and it is the manufacturer of beedies and a registered dealer in the State.
The terms of the written agreement between the parties construed as a whole, as it must, clearly posit a relationship whereby the second party M/s. Balaji & Co., is to supply beedies to the assessee after purchasing for itself, the raw material therefor, including beedi leaves. A peculiar feature of this contract is however that the assessee is to supply theother major ingredient i.e., tobacco, apart from gunnies, labels, threads and paper, to the second party. The assessee is to pay a consolidated commission to M/s. Balaji & Co., for the supply of beedies at a mutually agreed rate. The agreement categorically obligates the payment of commercial taxes on all the purchases made, payable under the Central and State Acts, by M/s. Bataji & Co., as it is the manufacturer of beedies and the registered dealer in the State.
21. The initial assessing authority, as seen from the order dated 29-3-1988, found on an examination of the books of account of the assessee that there are no beedi leaf purchases. The successor assessing authority who reopened the assessment held that:
'..... the assessee firm pay the value of beedi leaves to M/s. Balaji & Co., Kisan Nagar, it amounts to purchase of beedi leaves and figure as last purchases have to pay tax on beedi leaves as per Item 18 of Schedule II of APGST Act, 1957'.
This authority also held that it is evident from the books of account maintained that the assessee firm supplied tobacco mixture etc., to M/s. Balaji & Co., who in turn hand over the specific brand of beedies to the assessee firm and collect labour charges, duty etc., and the value of beedi leaves, as is evident from LF page 21 of the assessee. It is this finding viz., that the accounts disclose payment of specific amounts towards cost of beedi leaves by the assessee to M/s. Balaji & Co., that influenced the decision that the assessee is the last purchaser of beedi leaves in the State and therefore liable to tax.
22. The first appellate authority by the orders dated 2-12-1992 however categorically recorded that there has been no purchase at all of the beedi leaves at the hands of the appellants as per thematerial evidence placed on record and further that the manufacturer (M/s. Balaji & Co.) has supplied finished beedies ready for sale to the appellants and not the beedi leaves as assumed by the revisional authority, without any basis. The first appellate authority categorically recorded the finding as under:
'..... Thus, having regard to the fact that the beedi leaves required for manufacture of beedies put to sale by the appellant firm were in fact purchased by M/s. Balaji & Co., who were duly assessed to tax by the departmental authorities, according to their terms of agreement, I do not experience any difficulty in holding that there is no purchase of beedi leaves at the hands of the appellant, nor could it be reckoned as purchases at its hand.'
23. The revisional authority by the order dated 24-9-1994 determined the assessee as being the last purchaser of beedi leaves in the State not on the basis of any analysis of its books of account, but on the basis of construction of the expression 'commission agent' used in the agreement. The revisional authority concluded that as M/S. Balaji & Co., were commissioned to manufacture beedies they were being paid for getting the beedies manufactures and in that status were buying the leaves on behalf of the assessee. On the above premises, the assessees were held to be the last purchasers in the State and thus liable to tax.
24. The books of account, including LF No.21, as analysed by the initial assessment authority and the first appellate authority - which analysis has not been faulted by the revisional authority, expressly or by any necessary implication, show that no separate amounts were paid towards the cost of beedi leaves. The finding is thus that the amounts paid by the assessee to M/s. Balaji & Co., were a compositepayment, which included the cost of labour, raw material packaging material, excise duty and commercial taxes. The agreement, as we have analysed, constitutes M/s. Balaji & Co., a supplier of finished beedies on commission basis with the rate of commission dependent upon the agreement between the parties. The terms of the agreement which require M/s. Balaji & Co., to bear the commercial tax component, is also indicative of the fact that the firm was not an agent of the assessee in the matter of purchase of beedi leaves. The undue significance accorded by the revisional authority to one of the dictionary meanings of the word 'commission' to arrive at the finding that M/s. Balaji & Co., were purchasing beedi leaves for the assessee, is thus seen to be unwarranted and contrary to the terms of the agreement as a whole, and inconsistent with the analysis of the books of account of the assessee. The fact that M/s. Balaji & Co., has shown the purchase of the beedi leaves in the returns filed by it, has been assessed therefor and has paid the tax thereon, as specifically agreed upon with the assessee under the agreement dated 10-9-1987 reinforces the view that it is M/s. Balaji & Co. and not the assessee, who is the last purchaser of beedi leaves in the State.
25. The purchase of beedi leaves by the assessee should be found to have been the primary object of the transaction and the intention of the parties, to fall within the tax net. As expounded by the Supreme Court in Hindustan Aeronautics v. State of Karnataka, (1984) 55 STC 314.
'..... Mere passing of property in anarticle or commodity during the course of performance of the transaction in question does not render the transaction to be transaction of sale. Even in a contract purely of work or service, it is possible that articles may have to be used the person executing the work, and property in such articles ormaterials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the Court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it.....'
26. In the case on hand, we find no material to sustain the assumption that purchase of beedi leaves by the assesses from M/s. Balaji & Co.; was the primary intendment of the transaction between them, to justify treatment of the assessee as the last purchaser of beedi leaves in the State, thus liable to tax.
27. We derive additional support for this conclusion from the ratio discernible from the judgment of the Supreme Court in Rainbow Colour Lab and another v. State of Madhya Pradesh and another, (2000) 118 STC 9 wherein the decision in Hindustan Aeronautics case supra has been relied upon and approved.
28. In the circumstances, we are of the considered view that no taxable event has occurred at the hands of the assessee. The order under appeal is accordingly unsustainable.
29. There is yet another reason for our decision to invalidate the impugned order. Section 20(1) of the Act reads as under:
'20. Revision by Commissioner of Commercial Taxes and other prescribed authorities :--(1) The Commissioner of Commercial Taxes may suo motu call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it, under the provisions of this Act, including sub-section (2) of this section and if such order or proceeding recorded is prejudicial to the interestsof revenue, may make such enquiry, or cause such enquiry to be made and subject to the provisions of this Act, may initiate proceedings to revise, modify or set aside such order or proceeding and may pass such order in reference thereto as it thinks fit.
30. A true and fair construction of the phraseology employed by the Legislature indicates that the condition precedent for the exercise of revisional jurisdiction is prejudice to the interests of Revenue in the order proposed to be revised. If no such prejudice is found, the revisional power cannot avail.
31. A somewhat similar provision occurs in Section 263 of the Income Tax Act, 1961 (hereinafter the 1961 Act). To the extent relevant to the case on hand, the said provision reads as under:
'263, Revision of orders prejudicial to revenue :--(1) The commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
This provision came to be interpreted on successive occasions and it is uniformly held that the ingredient of 'prejudice to the interests of Revenue' must necessarily exist to justify the exercise of power under Section 263 of the 1961 Act - vide : CIT v. Narayana Pai, (I), : [1975]98ITR422(KAR) ; Russell Properties (P) Ltd v. CIT (Addl) : [1977]109ITR229(Cal) ; CIT v. Royal Textiles : [1979]120ITR506(Mad) ; Krishnamurthy (VG) v. CIT : [1985]152ITR683(KAR) ; Jagadhri Electric Supply & Industrial Co. v. CIT ; CIT v. Minalben S. Parikh : [1995]215ITR81(Guj) and Malabar Industrial Co., Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 83.
32. In Shivaputrappa Channappa Mungoli and another v. Agricultural Income-tax Officer and others, (1986) 160 STC 123 the Karnataka High Court construed Section 35(1) of the Karnataka Agricultural Income Tax Act, 1957 which is in material terms ippsissima verba the provisions of the 1961 Act and held:
'..... this section only confers a suo motu power of revision on the Commissioner and that too when he finds that the order of his subordinate is prejudicial to the interests of the Revenue and not otherwise.....The power conferred by Section 35(1) of the Act is a limited power and can be exercised by him if the circumstances specified therein exist in conformity with other provisions of the same section. If the Legislature in its wisdom restricts the power of revision, it is not open to this Court or the Commissioner to enlarge the same and hold otherwise'.
33. In one of the earliest of the decisions on the aspect, considering the provisions of Section 33-B, of the Income Tax Act, 1922. in terms pari-materia the provisions of Section 263 of the 1961 Act, Sinha, J., speaking for the Calcutta High Court in Dawjee Dadabhoy & Co. v. S.P. Jain, : [1957]31ITR872(Cal) interpreted the expression thus: 'The words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenuedue to the State has not been realised or cannot be realised. It can mean nothing else'. (emphasis)
34. We however hasten to add that the expression could encompass, in the context of particular fact situations, prejudice to the interests of the Revenue in a broader sense too. One such circumstance fell for the consideration of the Supreme Court in Smt. Tara Devi Aggarwal v. CIT : [1973]88ITR323(SC) . The wider implication of the expression is best exemplified in the words of the Apex Court:
'The words of the section enable the Commissioner to call for and examine the record of any proceeding under the Act and to pass such orders as he deems necessary as the circumstances of the case justify when he considers that the order passed was erroneous insofar as it is prejudicial to the interests of the Revenue. It is not, as submitted by the learned Advocate, prejudicial to the interests of the Revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the Revenue. If so and we think it is so - the Commissioner under Section 33-B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income-tax authorities is liable for the income thereof.
The principle cnunicated Smt. Tara Devi Aggarwal (supra) was applied byParipoornan, J., for the Kerala High Court (as he then was) in Malabar Industrial Co v. CIT : [1992]198ITR611(Ker) and the decision in Malabar Industrial Co., (supra) has been approved by the apex Court in (2000) 243 ITR 83.
35. The contours of the revisional power under Section 263 of the 1961 Act have been succinctly outlined in the judgment of the Gujarat High Court in Commissioner of Income Tea v. Smt Minalben S. Parikh : [1995]215ITR81(Guj)
'..... it can well be said that the well settled principle in considering the question whether an order is prejudicial to the interests of the revenue or not is to address oneself whether the legitimate revenue due to the exchequer has been realised or not or can be realised or not if the orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realised, has been subjected to tax or not or if it is subjected to tax, whether it has been subjected to tax at the rate at which it could yield the maximum revenue in accordance with law or not, if the income in question has been taxed and legitimate revenue due in respect of that income has been realised, though as a result of an erroneous order having been made in that respect, in our opinion, the Commissioner cannot exercise the powers for revising the order under Section 263 of the Act merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realisation made thereon.'
36. On a conspectus of the above decisions and an analysis of the provisionsof Section 20(1) of the Act, we hold that the expression 'prejudicial to the interests of Revenue' bears the same import and must be interpreted in terms similar to the said expression occurring in Section 33-B of the Income Tax Act, 1922; Section 263 of the 1961 Act and Section 35(1) of the Karnataka Agricultural Income Tax Act, 1957.
37. It is also the declared law that while exercising this power, the revisional authority must record a finding as to how the order under revision is prejudicial to the interests of revenue and that failure to do so would vitiate the order, vide: CIT v. Shantilal Agarwalla : [1983]142ITR778(Patna) .
38. It is further held that the revisional jurisdiction is available only if the order sought to be revised is itself prejudicial to the interests of revenue and that the prejudice, if any, has to be proved by reference to that order only, vide: Power Dewas (H.H. Maharaja Raja) v. CIT, (1982) 138 ITR 158 CIT v. Rajasthan Financial Corporation ; Cf Bombay Ammonia (P) Ltd. v. State of Tamil Nadu : [1976]3SCR856 .
39. Judicial dicta have also conditioned the exercise of revisional power under Section 263 of Income-tax Act by holding that the condition precedent for initiating proceedings under Section 263(1) by the Commissioner is that Commissioner should not only record a finding that the order of the assessing officer was prejudicial to the interests of the revenue, but he should also mention in the order the material on the basis of which he has arrived at the conclusion and that non-recording the reasons by the Commissioner would vitiate any order that the Commissioner may pass in exercise of his powers under Section 263, vide : CIT v. Sunderlal : [1974]96ITR310(All) and CIT v. Metal Works (RK), (1978) 112 ITR 445 and CIT v. Chawla Trunk House, .
40. In the case on hand, the Commissioner of Commercial Taxes has categorically recorded in para 7 of the order that there was no loss of revenue to the Government by way of sales tax by sale of beedi leaves. The record also clearly evidences the payment of sales-tax on beedi leaves by M/s. Balaji & Co., for all the five assessment years in question. There is thus, demonstrably, no prejudice suffered by the State warranting exercise of revisional power under Section 20(1) of the Act, Since the condition precedent of exercise of the power under Section 20(1) of the Act is absent, we hold that the revision undertaken by the Commissioner is without jurisdiction and must accordingly be invalidated.
41. On the aforesaid analysis, the orders under appeal require invalidation and are accordingly set aside,
42. In the result, the appeals are allowed as prayed for.