Ranchi Club Ltd. and anr. Vs. the State of Bihar and ors. - Court Judgment

Excerpt:
(a) bihar finance act, 1981 - sections 15, 2(t), 14, 23, 2(e)--bihar sales tax rules, 1983--applicability of act and rules to petitioner-club (a company registered under companies act of 1956)--contention of petitioner-club that it did not apply to the petitioner-club as the petitioner-club was not doing any business of sale, and as such, was not a dealer, and so periodical submissions of returns by the club to the respondent-sales tax authorities for purposes of assessing sales tax do not arise--dy. commissioner commercial taxes, proceeded ex-parte in passing the order without affording opportunity of being heard to the petitioner, and thus order impugned suffers from principle of 'audi alteram partem', was liable to be quashed--case remanded to authority concerned for hearing and..... b.m. lal, c.j.1. by this petition under article 226 of the constitution of india, petitioner no. 1 m/s. ranchi club limited, which is a company registered under the companies act, 1956, having its registered office at main road, ranchi, and petitioner no. 2, harish wadhwani, honorary secretary of the club and who is a resident of ranchi, seek a declaration that the provisions of the bihar finance act, 1981 and bihar sales tax rules, 1983 (hereinafter to be referred to as the act and the rules, respectively) do not apply to the petitioner-club as the petitioner club is not doing any business of sale and, as such, is not a dealer, and so periodical submissions of returns by the club to the respondent sales-tax authorities for the purpose of assessing sales-tax do not arise.2. by filing a.....

Judgment:

B.M. Lal, C.J.

1. By this petition under Article 226 of the Constitution of India, petitioner No. 1 M/s. Ranchi Club Limited, which is a company registered under the Companies Act, 1956, having its registered office at Main Road, Ranchi, and petitioner No. 2, Harish Wadhwani, Honorary Secretary of the Club and who is a resident of Ranchi, seek a declaration that the provisions of the Bihar Finance Act, 1981 and Bihar Sales Tax Rules, 1983 (hereinafter to be referred to as the Act and the Rules, respectively) do not apply to the petitioner-Club as the petitioner Club is not doing any business of sale and, as such, is not a dealer, and so periodical submissions of returns by the Club to the respondent Sales-tax authorities for the purpose of assessing sales-tax do not arise.

2. By filing a supplementary affidavit, an additional prayer is made on behalf of the petitioner for quashing the communication order dated 30.9.97, which is at Annexure -3 to this petition.

3 The short facts leading to this petition are as under:

Ranchi Club Limited is a limited company incorporated under the Companies Act, 1956. A copy of the Memorandum and Articles of Association has been annexed as Annexure-1 with this petition, a perusal of which demonstrates that Ranchi Club Limited is a company limited by guarantee. The Memorandum of Association further reveals that its main object is to provide a Club house and other conveniences for the use of its members and their friends either gratuitously or on such terms as shall be agreed on, and further to sell, improve, manage, develop, lease, mortgage, dispose of or otherwise deal with all or any part of the property of the company and especially including to sell wine, spirits and other stores to members whether residing in the Club premises or not for consumption either inside or outside those premises, which includes supply of food-stuff, beverages including soft drinks, etc. For this purpose, Ranchi Club is registered dealer under Section 14 of the Act and periodically submits its returns in accordance with the provisions of Section 15 of the Act by discharging its statutory obligations for the purpose of assessment of sales tax. However, it is submitted that under the mistaken notion of law, petitioner Ranchi Club Limited got itself registered under the Act as a registered dealer and consequently used to submit returns for the purposes of assessment and also paid assessed tax including penalty in the past.

4. It s also submitted that no sooner the legal position came to the knowledge of the petitioner that the activities of the Club do not come within the purview of 'sale' as defined under Section 2(t) of the Act, and, as such, the petitioner is not required to be assessed for the purpose of paying sales tax, under the Act and the rules framed thereunder, the petitioner immediately filed an application on 14.8.97 before the Deputy Commissioner of Commercial Taxes, East Circle, Ranchi Respondent No. 3, for cancellation/recalling of dealership and also' for refund of the tax amount already paid by the petitioner including penalty, etc. for the past assessment years. This application for refund and cancellation/recalling of dealership was purported to be one under Section 14 read with Section 23 of the Act. The said application is based on the fact that the petitioner Club is a Member's Club operating on the principle of agency and having its relationship with individual members based on the doctrine of 'mutuality'. To support this proposition, a copy of the Memorandum and Articles of Association has been annexed with this petition as Annexure '1'.

5. The Deputy Commissioner, Commercial Taxes, Respondent No. 3, by a communication order dated 30.9.97 rejected the aforesaid application of the petitioner, which was received by the petitioner on 7.10.97, a copy of which is at Annexure 3 to the writ petition. Therefore, by filing a Supplementary affidavit, prayer has been made on behalf of the petitioner for quashing this Annexure -3.

6. Thus, in a nut-shall, the case, as set out by the petitioner, is that the petitioner Ranchi Club is operating on the doctrine of 'mutuality' and supplies of food-stuff, sells wine and beverages including soft drinks, etc. to the members of the Club do not come within the purview of 'sale' as defined under Section 2(t) of the Act and as such, is not exigible to tax under the Act and the Rules.

7. It is also submitted that the Deputy Commissioner, Commercial Taxes, Respondent No. 3, while dealing with the application for cancellation/recalling the licence of dealership and refund of the tax amount so far paid, has dismissed the application vide communication letter dated 30.9.97 (Annexure 3) without following the principle of Audi alteram partem.

8. The respondent-state while filing a counter-affidavit, emerged with the plea that the petitioner-Club is not a Member's Club and is not founded on the doctrine of 'mutuality' and that it does not operate on the principle agency and so the petitioner Club is a dealer within the meaning of Section 2(e) of the Act and supplies of food, refreshments, etc. made by the Club is covered under the definition of 'sale' as defined under Section 2(t) of the Act and, as such, exigible to tax under the Act and the Rules. In support of this contention, it is submitted that the Memorandum and Articles of Association, if gone through minutely, will reveal that only permanent members of the Club shall be deemed to be members within the meaning of Clauses (4) and (5) of the Memorandum and Articles of Association and Clause (9) of the Articles of Association reveals that temporary members shall not be entitled to vote on a ballot or attend at or vote General meeting or have any voice in the management of the Club. It is also submitted that the Memorandum and Articles of Association governs its relationship with the individual members. From the Articles of Association of the Club, it is apparently clear that large number of members, who are said to have constituted the principles, have absolutely no control over agent (petitioner club) but it is the agent who has control over the members and, therefore, it is not the Member's Club and is not founded on the doctrine of 'mutuality' and operates on the principle of agency.

9. Thus, from the pleadings of the parties, considering the averments made in the petition and in the counter-affidavit, the facts that emerge, constitute the following questions:

(i) Whether the petitioner Club is covered by the doctrine of 'mutuality' making the Club immune from the rigours of the Act and the Rules?

(ii) What will be the effect of rejecting the application filed on behalf of the petitioner by the Deputy Commissioner, Commercial Taxes, without following the principles of natural justice.

10. From the order-sheet of the writ petition, ex-facie it appears that as yet it has not been admitted for hearing parties. Rules of the Court also do not provide that if a copy of the petition is supplied to the respondent-State Counsel, counter-affidavit is to be filed ipso facto. On the other hand, settled practice is that only after the admission of the petition and receipt of notice to the respondent within the stipulated period mentioned therein steps are to be taken for filing counter-affidavit, etc. and only thereafter the petition is placed before the Court for hearing parties. But in the instant case, by taking extra caution, before admission of the writ petition, counter-affidavit has been filed on behalf of the respondent-State. Therefore, at the stage of admission this petition is being disposed of finally.

11. Both the questions, as referred to above, are co-related inasmuch as if while dealing with the petitioner's application, reasonable opportunity of hearing could have been afforded to the petitioner, the petitioner by advancing argument with respect to question No. (i) before the Deputy Commissioner, Commercial Taxes, would have been able to persuade him that the transactions of the Club are not exigible within the meaning of the provisions of the Act and the Rules and, therefore, neither submissions of returns nor assessment of tax was required to be made. On the other hand, under the mistaken notion of law, whatever returns have been submitted and pursuant thereto assessment of tax having been made and paid including penalty, the same are required to be refunded to the petitioner.

12. No doubt, the word 'deemed' used in Clause (8) and other relevant Clauses of the Memorandum and Articles of Association, if interpreted considering the deeming fiction, leads to an irresistible conclusion that when a fact is to be deemed its consequences and incidence are also to be deemed, that is to say, what follows from the deemed facts is also to be deemed. Thus, there being a classification amongst the members, it has to be seen whether the members, who constitute the Club acquiring the status of principal, have absolute control over the Club, which acts as an agent of the principal constituent of the members and if it is established that principal constituents of the members have absolute control over the members, the test of doctrine of 'mutuality' will be satisfied. Howerver, it is indeed a matter which requires investigation and if the Deputy Commissioner, Commercial Taxes, Respondent No. 3, while dealing with the application filed by the petitioner could have afforded opportunity of being heard to the petitioner, the petitioner would have been able to satisfy respondent No. 3 on the question of doctrine of 'mutuality' Thus, this question indeed still remains open to the petitioner to agitate the same before Respondent No. 3 and to satisfy him if and when opportunity is granted to him. Therefore, it is not necessary to deal with and decide the question No. (i) at this stage.

13. However, as far as the second question is concerned, admittedly respondent No. 3, the Deputy Commissioner Commercial Taxes, proceeded ex-parte in passing the order as contained in Annexure-3 without affording opportunity of being heard to the petitioner and thus, the order impugned suffers from the principle of audi aheram partem.

14. The principle of Audi alteram partem is such that rule that no one can be condemned without being heard. While filing the supplementary affidavit, a specific plea has been raised vide para 5 that petitioner was neither noticed nor was heard and without affording him any opportunity, in a clandestine manner the order impugned as contained in Annexure-3 has been passed rejecting the application filed by the petitioner. This submission has not been controverter by the respondent-State by filing a counter-affidavit to the Supplementary affidavit. Therefore, there appears to be some force in the contention raised by the learned Counsel for the petitioner. As such, the impugned order cannot be allowed to stand as it suffers from principle of Audi alteram partem. Consequently, order as contained in Annexure 3 is quashed.

15. As a result of the aforesaid discussions, the case is remanded to the authority concerned i.e. Respondent No. 3 for hearing and deciding the matter afresh after affording reasonable opportunity of hearing to the petitioner in the light of the observations and directions as made above and to decide the matter expeditiously by a speaking order, preferably within a period of three months from the date of production of a certified copy of this order. The petitioner shall be at liberty to advance argument dealing with question No. (i) as well which shall be taken into consideration by the authority concerned while deciding the matter.

16. The writ petition is thus disposed of accordingly. There shall be no order as to costs.

R.A. Sharma, J.

17. I Agree