C.A. Vaidialingam, J.
1. In these three writ petitions, Mr. V. Rama Shenoi, learned counsel for the petitioners, challenges the orders of assessment to sales tax made by the respective Sales Tax Officers.
2. Though the petitioners in each of these writ petitions are different, these writ petitions have been heard together, because common questions of law have been raised by Mr. Rama Shenoi, learned counsel for the petitioners.
3. The common questions of law that arise for decision in all these writ petitions are:
(1) The legality of the levy of surcharge under the Kerala Surcharge on Taxes Act, XI of 1957, and
(2) Whether transactions in 'maida' are exempt from payment of sales tax under Section 5, Clause (vi), of the General tJales Tax Act.
4. There is also a special question that arises for decision in O. P. No. 1585 of 1960, as to whether the order of assessment therein suffers from the infirmity of being arbitrary and passed in violation of the principles of natural justice.
5. I may at this stage mention that as against the assessment orders, which are under attack in O.P. Nos. 214 and 215 of 1960, appeals before the appropriate Appellate Assistant Commissioners are pending, In those appeals, I am informed by Mr. Rama Shenoi, learned counsel for the petitioners, that several attacks are made on questions of fact also. Therefore, I make it very clear that even in respect of those writ petitions, excepting upon adjudicating on the question regarding the legality of the levy of surcharge and the question relating to exemption from taxation on maida, all other questions are free to be canvassed by the respective petitioners in the appeals that they have filed, and which are pending before the Appellate Assistant Commissioners.
6. The question of arbitrary assessment raised in O.P. No. 1585 of 1960 will be considered after adjudicating upon the common questions of law that have been raised in all these writ petitions.
7. The first attack that is made as against these orders relates to the levy of surcharge under Kerala Act No. XI of 1957. The competency of the Legislature to enact the measure in question cannot now be disputed, more especially because of the decision of this Court in Kunahmmed Haji v. Agricultural Income-tax Officer (1960) K.L.J. 517 where the learned Judges had to consider, in particular, the validity of another provision in the same enactment, namely, Section 2. Section 2 of the Kerala Surcharge on Taxes Act, XI of 1957, related to levy of surcharge on agricultural income-tax.
8. Section 3 relates to the levy of surcharge on sales and purchases. In Sub-section (1) of Section 3, it is provided that in respect of the tax payable under the enactments mentioned therein by a dealer whose turnover exceeds thirty thousand rupees in a year, the tax shall be increased by a surcharge at the rate of 2 per cent, of the tax payable for the particular year under the provisions of the statutes mentioned. There is also a proviso to Sub-section (1) of Section 3, which need not detain,me for the purposes of these writ petitions. Sub-section (1) of Section 3 has not been challenged on any ground whatsoever.
9. Sub-section (2) of Section 3, which has come in for a good deal of attack by the learned counsel for the petitioners, is as follows :
Notwithstanding anything contained in Sub-section (1) of Section 11 of the Travancore-Cochin General Sales Tax Act, 1125, or in Sub-section (1) of Section 8-B of the Madras General Sales Tax Act, 1939, no dealer referred to in Sub-section (1) shall be entitled to collect the surcharge payable under the said Sub-section.
10. It will be seen that under Sub-section (2), the liability to pay the surcharge levied under Section 3(1) of Act XI of 1957 is entirely cast on the dealer, and he is not entitled to collect the same from the consumers or other persons. In this connection, reference may be made to Section 11(1) of the General Sales Tax Act, which empowers a dealer to collect the sales tax from others.
11. The attack that is made on Section 3 (2) by Mr. Rama Shenoi, learned counsel for the petitioners, is that this provision, inasmuch as it prevents a dealer from passing on the liability for payment of surcharge on others, is discriminatory, and, as such, violative of the provisions of Article 14 of the Constitution. The learned counsel has also raised a contention that it infringes the fundamental rights guaranteed to persons, like the petitioners, under Article 19(1) (f) and (g) of the Constitution.
12. According to the learned counsel, the object of the Sales Tax Act is really to impose an indirect tax and to enable the dealers to collect the same, as will be seen from the scheme of the General Sales Tax Act itself. The learned counsel further urges that the object of Kerala Act XI of 1957, as will be seen from the preamble to the said enactment, is also clear, viz., that there should be a further tax on the sale or purchase of goods. If so, the learned counsel contends that there is absolutely no reason as to why, when a dealer is permitted to pass on the liability for the sales tax to a consumer, the same principle should not apply also in the case of a levy of surcharge.
13. On the other hand, the learned Advocate-General appearing for the State has contended that the provisions of Sub-section (2) of Section 3 are perfectly valid and there is absolutely no discrimination in the matter of levy of surcharge. The learned Advocate-General further urged that the circumstance that a dealer is allowed to pass on the liability for sales tax under the General Sales Tax Act and that he is not so allowed to pass on the liability for payment of surcharge under Kerala Act XI of 1957, cannot be considered to be in any manner discriminatory, so as to attract Article 14 of the Constitution.
14. The learned Advocate-General urged that Section 3 of Kerala Act XI of 1957 clearly shows that the object of the Legislature was to levy an increased tax on dealers, whose turnover exceeded Rs. 30,000 in a year ; and, having that object in view, the Legislature has also laid down that those dealers should bear the additional taxation of surcharge themselves, and not be permitted to pass on the liability to the consumers. So far as the dealers, whose total turnover exceeds Rs. 30,000 in a year are concerned, the learned Advocate-General urged that all such persons are treated in the same manner and there is absolutely no discrimination regarding one merchant having a turnover exceeding Rs. 30,000 and another merchant having the same turnover exceeding Rs. 30,000.
15. In this connection, the learned Advocate-General drew my attention to an observation of the Supreme Court in the decision reported in Konduri Buchirajalingam v. State of Hyderabad [1958] 9 S.T.C. 397. In particular, the observation that has been relied upon is that contained at page 403 of the report to the effect:
It is then said that the sales tax is essentially an indirect tax and therefore it cannot be demanded of the appellant without allowing him to recoup himself by collecting the amount of the tax from the persons with whom he deals. This Court has already decided in the case of Tata Iron and Steel Co. Ltd. v. State of Bihar [1958] 9 S.T.C. 267 that in law a sales tax need not be an indirect tax and that a tax can be a sales tax though the primary liability for it is put upon a person without giving him any power to recoup the amount of the tax payable, from any other party
These observations, according to the learned Advocate-General, will clearly show that the learned Judges of the Supreme Court have taken the view that in law, the sales tax need not be an indirect tax and that a tax can be a sales tax, though the primary liability is placed upon the dealer, without giving him an opportunity to recoup the same from the consumer.
16. The learned Advocate-General further urged that even if the General Sales Tax Act itself had not contained a provision similar to Section 11(1) enabling the dealer to pass on the liability to the consumer, the Act cannot certainly be challenged on the ground of being violative of the provisions of Article 14 of the Constitution.
17. After giving due consideration to the various aspects that have been presented by Mr. V. Rama Shenoi, the learned counsel for the petitioners, and also the learned Advocate-General for the State, I am satisfied that the contentions of the learned counsel for the petitioners cannot be accepted.
18. As pointed out by the learned Advocate-General, Sub-section (1) of Section 3 of Kerala Act XI of 1957 makes all the dealers, whose total turnover exceeds Rs. 30,000 in a year, liable for payment of surcharge. I have already stated that there is no attack on Section 3(1). The fact that under the General Sales Tax Act a dealer is permitted to pass on the tax to the consumer, and that under Act XI of 1957 such passing is not permitted, does not, in my view, by itself make the provisions of the latter Act in any manner discriminatory. In my view, there is absolutely no scope for invoking the provisions of Article 14 of the Constitution in applying the provisions of Sub-section (2) of Section 3 of the Kerala Act XI of 1957. All dealers, having a turnover exceeding Rs. 30,000 are treated alike, and there is no discrimination as between one dealer having a turnover exceeding Rs. 30,000 and another dealer having a turnover exceeding Rs. 30,000. If such a distinction has been made, probably there may be some scope for an argument that the provisions of Sub-section (1) of Section 3 are discriminatory. Sub-section (2) of Section 3 does not make any such distinction, and it is of universal application in respect of all dealers, whose turnover exceeds Rs. 30,000 and who are made liable for the payment of surcharge under Sub-section (1) of Section 3 of the Act. The position only comes to this, viz., that a part of the sales tax, representing surcharge, is made to be borne by dealers having a total turnover exceeding Rs. 30,000.
19. Nor am I satisfied that any rights guaranteed to persons like the petitioners under Article 19(1)(f) and (g) have been violated in this case. The learned counsel was not able to show as to how Section 3(2) infringes upon any rights guaranteed under Article 19(1)(f) and (g).
20. The next contention of Mr. Rama Shenoi is that Section 3(2) of Act XI of 1957 infringes upon the provisions of Article 276 of the Constitution. According to the learned counsel, in view of the fact that the dealer himself is made to bear the entire increased tax or surcharge under Section 3(2) of the Act, it really amounts to a levy of a tax on the exercise of a profession or trade by the dealer concerned, and, therefore, according to the learned counsel, the provision is invalid. I have absolutely no hesitation to reject this contention. The preamble to Kerala Act XI of 1957 clearly shows that the object is to levy an increased tax on 'agricultural income, taxes on the sale or purchase of goods and taxes on profession by the levy of a surcharge on such taxes'. In this case it is really a tax on the sale or purchase of goods, and not on the exercise of a profession, trade, calling or employment. In fact, it will be seen that the present taxation is one coming under Entry No. 54 of List II of the Seventh Schedule and not one coming under Entry No. 60 of List II of the Seventh Schedule to the Constitution. Article 276, in fact, deals with matters which are provided in Entry No. 60 of the State List.
21. I am not also satisfied that there is any infringement of the provisions of Article 276 of the Constitution. In fact, as pointed out by the learned Advocate-General, the tax is on the sale or purchase of goods, and that is directly taken in by Entry No. 54 in List II of the Seventh Schedule to the Constitution. Article 276, as pointed out by the learned Advocate-General, deals with matters provided in Entry No. 60 of List II. Therefore, the reliance placed upon Article 276 by Mr. Rama Shenoi cannot assist him in his contention that Sub-section (2) of Section 3 of Kerala Act XI of 1957 infringes the provisions of Article 276 of the Constitution.
22. Therefore, the attack made on Sub-section (2) of Section 3 that it is violative of the provisions of Article 14 or that it is violative of Article 19(1)(f) and (g) or that it is violative of Article 276 of the Constitution, has to be negatived. Inasmuch as the competency of the State Legislature to enact such a measure has not been challenged, as I pointed out above, the attack made upon the levy of surcharge has to be negatived.
23. The second contention that has been raised in O.P. Nos. 214 and 215 of 1960 relates to the disallowing of exemption claimed under Section 5(vi) of the General Sales Tax Act. Under Section 5, which deals with exemptions and reductions of tax, it is provided under Clause (vi) that the sale of foodgrains shall be exempt from taxation under Section 3, Sub-section (1). In these two writ petitions, exemption was claimed in respect of maida, on the ground that it is foodgrain and, as such, exempt from payment of sales tax under Section 5, Clause (vi), of the General Sales Tax Act. In this connection reference should be made to the definition of 'foodgrains' contained in Section 2(dd) of the Act, as meaning paddy, rice, wheat, maize, jowar, bajra, barley and ragi, and the definition also states that it will include such other articles as Government may, by notification in the Gazette, specify as such,
24. Admittedly, in this case maida as such has not been notified by the Government as a foodgrain. Therefore, the question as to whether maida is exempt from tax has to be considered only by reference to the definition of 'foodgrains'. That expression is defined in Section 2(dd) of the Act.
25. According to Mr. Rama Shenoi, learned counsel for the petitioners, maida, which is a by-product of wheat, should certainly be considered to be included in the general term 'wheat' found in Section 2(dd). Therefore, maida also should be considered to be a foodgrain and, as such, the sale of maida is exempt under Section 5(vi) of the Act.
26. In this connection, Mr. Rama Shenoi has referred me to certain decisions, wherein it has been held that maida is wheat flour and is included in the expression 'wheat flour'. The learned counsel also referred me to certain decisions where the definition of 'groundnut' was held to include its kernel also. In particular, Mr. Rama Shenoi, learned counsel for the petitioners, placed considerable reliance upon the recent decision of the Supreme Court reported in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 S.T.C. 827 where their Lordships have had to consider the question as to whether groundnut oil ceases to be groundnut oil even after undergoing certain chemical processes.
27. On the other hand, the learned Government Pleader urged that exemption is given under Section 5, Clause (vi), only in respect of foodgrains and the expression foodgrains has been denned in Section 2(dd) of the General Sales Tax Act, and a perusal of the various matters mentioned therein will clearly show that the Legislature intended to treat as foodgrains only grains like paddy, wheaj, rice, maize, etc., though other products that are obtained from the various items mentioned therein may be articles of food or may be fit for consumption. The learned Government Pleader urged that inasmuch as the exemption is claimed by the petitioner, he must clearly establish that the exemption claimed by him comes within the four corners of Section 5(vi) read with the definition of foodgrains contained in Section 2(dd) of the Act.
28. In my view, it is not necessary to refer to the various decisions to which my attention has been drawn by Mr. V. Rama Shenoi, where it has been held that maida is wheat flour and groundnut oil does not cease to be groundnut oil, notwithstanding the fact that it is subjected to certain chemical treatments.
29. In this case, the decision must entirely depend upon the definition of the expression foodgrains as found in Section 2(dd) of the Act. In my view, the learned Government Pleader is well-founded in his contention that the Legislature intended to give exemption only in respect of foodgrains in grain form and that expression has been denned in Section 2(dd), and that will clearly show that excepting the various items in their original form mentioned therein, no other by-product is contemplated by the Legislature as being entitled to exemption under Section 5(vi) of the Act.
30. It is not possible to accept the contention of Mr. Rama Shenoi, learned counsel for the petitioner in this case, that the expression 'wheat', which occurs in Section 2(dd), has reference to the by-product or anything that would be obtained by treating wheat in a particular manner, viz., maida. In my view, the items mentioned therein clearly indicate that the Legislature intended only to grant the exemption in the original form, viz., as grain, and the subsidiary products that would be obtained from those items are not eligible for exemption under Section 5(vi) read with Section 2(dd) of the General Sales Tax Act.
31. Therefore, the second contention of Mr. Rama Shenoi that maida is exempted from payment of sales tax under Section 5, Clause (vi), of the General Sales Tax Act has also to be negatived and, therefore, it follows that the order of the Sales Tax Officer declining to grant exemption for this article from payment of sales tax in O.P. Nos. 214 and 215 of 1960 is correct.
32. To conclude on this legal aspect, the levy of surcharge under Act XI of 1957 in pursuance of the orders, which are under attack in these writ petitions, has to be sustained. The disallowance of exemption in respect of maida under Section 5, Clause (vi), of the General Sales Tax Act and which is also the subject-matter of attack in O.P. Nos. 214 and 215 of 1960, has also to be sustained.
33. Therefore, the only other point that has to be considered is the attack made against the order of assessment in O.P. No. 1585 of 1960.
34. According to Mr. Rama Shenoi, learned counsel for the petitioners, the notice, exhibit P-1, which was sent by the Sales Tax Officer on 17th October, 1960, does not give any indication as to the basis on which the best judgment assessment was proposed to be made by the Sales Tax Officer. Therefore, Mr. Rama Shenoi urged that his client had absolutely no effective opportunity of placing his objections regarding the proposal to make the best judgment assessment, as contemplated in the notice, exhibit P-1.
35. In order to appreciate this contention of Mr. Rama Shenoi, a few facts will have to be stated.
36. The assessment in this letter relates to the year 1959-60 and that order of assessment is exhibit P-3.
37. On 17th October, 1960, under exhibit P-1 the Sales Tax Officer sends a notice to the effect pointing out various defects in the accounts that were produced by the party. Ultimately, the officer is of the view that the accounts cannot be acted upon and, therefore, he says that the turnover for the year is proposed to be fixed to the best of judgment. There is, no doubt, a further statement to the effect that the dealer is informed that he is to file his objections regarding the proposal within the particular time mentioned therein,
38. It must be pointed out at this stage that the notice exhibit P-1 does not give any indication whatsoever as to the basis that the officer proposes to adopt for the purpose of making the best judgment assessment. No doubt, the officer points out certain defects in the accounts and also concludes that it is impossible for him to accept the accounts as correct.
39. The assessee sends a reply dated 28th October, 1960, under exhibit P-2. He refers to various letters and ultimately urges the officer to accept his accounts and make the assessment on that basis. The actual order of assessment is, as I mentioned earlier, exhibit P-3 dated 15th November, 1960. After referring to the various mistakes in the accounts as also to his notice exhibit P-1 and the actual objections filed by the party, exhibit P-2, the assessing officer states that he proposes to fix the turnover to the best of judgment. The assessing officer further states that as the business of the above merchant has not deteriorated in the year of assessment, when compared to that of the previous year, he estimates the net turnover as fixed in the previous year at Rs. 75,000. As I mentioned earlier, the main attack that is made by Mr. Rama Shenoi is that his client had no indication in exhibit P-1 regarding the basis that the officer proposes to adopt to make the best judgment assessment. Nor was any indication given, according to the learned counsel, in exhibit P-1 that the officer proposes to fall back upon the previous year's assessment, which itself is subject of an attack before the appropriate Appellate Assistant Commissioner.
40. The learned Government Pleader urged that it was perfectly competent for the officer when he was rejecting the books of account of a party, to base his assessment upon the figures available from the previous year's assessment. In particular, the learned Government Pleader further urged that in exhibit P-1, the officer has pointed out the various matters which, according to him, will show that the books of account cannot be accepted and, therefore, in this case it cannot certainly be said that the party did not have any opportunity to place his objections.
41. I am not inclined to accept the contention of the learned Government Pleader that in the circumstances of this case the petitioner had an opportunity of placing his objections to the proposal made by the assessing officer for making the best judgment assessment.
42. In order that a party may have a full and effective opportunity of meeting the proposals of the officer for making the best judgment assessment, it is really obligatory on the part of the officer to place before the assessee the basis which he proposes to adopt in making the best judgment assessment.
43. In the notice exhibit P-1, except criticising the books of account produced by the party and stating that he proposes to make a best judgment assessment, as pointed out by Mr. Rama Shenoi, there is absolutely no indication as to what is the basis the officer proposes to adopt in making the best judgment assessment. In the absence of any such basis being furnished to the assessee, the assessee cannot certainly be said to have had a full and fair opportunity of placing his objections. Unless the various defects are communicated, it is idle for the party to file objections to the proposal. No doubt, in exhibit P-1 the dealer is asked to file his objections against the proposal. The party did file his objections under exhibit P-2, and that certainly can and could really only be by way of explanation or clarification of the various mistakes pointed out by the officer in the books of account. More than that, the party could not do when he sent the communication, exhibit P-2.
44. As I mentioned earlier, Mr. Rama Shenoi has stated that the assessment for the previous year, viz., 1958-59, is stated to be pending appeal before the Appellate Assistant Commissioner. In the view that I take, namely, that the assessee was not made known of the basis of the assessment, which the assessing authority proposes to adopt in this case in exhibit P-1, the only course open to me is to set aside the order exhibit P-3 and keep the assessment pending and take up fresh assessment proceedings after the disposal of the appeal, which is said to be pending against the order of assessment for the year 1958-59. After the assessment for the year 1958-59 becomes final, the assessment order for the year 1959-60 may be taken up by the assessing authority, after giving full opportunity to the assessee to place all the objections available to him, both of law and of fact, excepting those that have been concluded by this judgment. In such proceedings, if the petitioner is not able to satisfy the assessing authority regarding the propriety of adopting the figures for the year 1958-59 in the assessment for the year 1959-60, it is open to the authority to consider those figures for making the assessment for 1959-60 also.
45. In the result, O.P. Nos. 214 and 215 of 1960 will stand dismissed. There will be no order as to costs. In O.P. No. 1585 of i960 the contention of the petitioner on the legal aspects, namely, the validity of the surcharge under Kerala Act No. XI of 1957 is held against the petitioner. In other respects the order of assessment is set aside, to be taken up afresh in the light of the directions and observations contained in this judgment. Therefore, the petition O.P. No. 1585 of 1960 is allowed as indicated above. There will be no order as to costs.